CIT Shares Slide on Moody's Downgrade

Shares of commercial finance company CIT Group(CIT) dipped more than 4% Friday after Moody's Investors Service downgraded its debt.

Moody's on late Thursday cut CIT's investment grade debt to Baa 1 from A3. Moody's justified the cut by saying the potential magnitude of losses in CIT's home lending portfolio were uncertain and has concerns the company will struggle to regain its footing in the credit markets.

CIT responded Friday that it disagrees with the downgrade and pointed out it has gone to great efforts to address the losses from rising defaults in its home lending portfolio. The financial firm noted the $1.6 billion in new capital it has raised and its recent financing of $1 billion in assets. CIT also sold more than $2 billion of assets at roughly book value and underwrote $600 million in loans.

Goldman Sachs analyst James Fotheringham recently reduced his estimates and target price on CIT, noting that despite capital moves to shore up the balance sheet, "funding poses sizable downside risk."

"It is not a comprehensive solution for the company's long-term funding requirements," he wrote. "We still anticipate a strategic solution."

Moody's also applauds the capital raising efforts as a positive sign which should help the company long-term, but then also said the long-term ratings remain on review for a possible downgrade.

Moody's along with other ratings agencies like Standard & Poor's and Fitch Ratings came under fire for not downgrading companies earlier. Investment grade ratings remained on companies long after the mortgage markets melted down. Financial guarantors like MBIA(MBI) and Ambac Financial(ABK) took major hits earlier this year, after the ratings agencies threatened downgrades on fears they did not have enough capital to backstop losses on the debt they insure.