cit CIT-Transcript-2008-01-17T14-00

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CIT - Q4 2007 CIT Group Earnings Conference Call
Event Date/Time: Jan. 17. 2008 / 9:00AM ET

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Jan. 17. 2008 / 9:00AM, CIT - Q4 2007 CIT Group Earnings Conference Call

CORPORATE PARTICIPANTS
Jeff Peek
CIT Group Inc. - CEO
Joe Leone
CIT Group, Inc. - CFO
Ken Brause
CIT Group, Inc. - EVP, Investor Relations

CONFERENCE CALL PARTICIPANTS
David Hochstim
Bear Stearns - Analyst
Ken Posner
Morgan Stanley - Analyst
Bruce Harting
Lehman Brothers - Analyst
Chris Brendler
Stifel Nicolaus - Analyst
Eric Wasserstrom
USB - Analyst
Matt Bernel
Wachovia - Analyst
Sameer Gokhale
KBW - Analyst
Howard Shapiro
Fox-Pitt Kelton Cochran Caronia Waller - Analyst
Mike Taiano
Sandler O'Neill and Partners - Analyst

PRESENTATION
Operator
Welcome to the fourth quarter, 2007, CIT Group, earning conference call. My name is Nicole and I will be your coordinator today.
At this time all participants are in a listen only mode. We will facilitate a question and answer session towards the end of this
conference. (OPERATOR INSTRUCTIONS)

I would now like to turn the call over to Mr. Ken Brause, Executive Vice-President, Investor Relations. Please proceed, sir.

Ken Brause - CIT Group, Inc. - EVP, Investor Relations
Thank you, Nicole, and good morning. Welcome to the CIT, fourth quarter earnings call. Let me review a few items today before
we get started.before we begin; first, following our formal remarks we will have a q and a session. In an effort to be efficient and
make sure we get to everyone we ask you to limit yourselves to one question. If you have a second question please return to
the queue and we will return to you as time permits. Second, elements of this call are forward-looking in nature and relate only
to the time and date of this call. We disclaim any duty to update these statements based on new information, future events or
otherwise. For information about risk factors relating to the Business, please see refer to our SEC reports. Any references to

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certain non-GAAP financial measures are meant to provide meaningful insight and are reconciled with GAAP and the financial
tables accompanying the press release. For more information on CIT please visit the investor relations section of our web site
at www.cit.com.

With that it is my pleasure to hand the call over to our Chairman and CEO, Jeff Peek.

Jeff Peek - CIT Group Inc. - CEO
Thanks very much, Ken, and good morning everyone. Welcome to earnings call. We appreciate your interest and attention on
a busy day. We do have a significant amount of material to cover with you on this call. We'll try to be as efficient as we can so
that we can leave as much time as possible for your questions at the end.

First off, I'm obviously disappointed that we reported another loss this quarter, but I think the actions we took were the right
ones under the circumstances and will help to fortify the balance sheet and give you confidence in our stated book value. Our
Board of Directors and our management team are focused on doing what's right for the franchise and stake holders for the near
term and long-term. Further, I believe our decision to maintain our quarterly dividend rate is another indication of our confidence
in the CIT franchise and our future. During the fourth quarter, and actually for much of the second half of 2007, we focused on
two distinct, yet parallel courses of action. Addressing the challenge of the current environment, namely home lending and
funding ourselves, while protecting our core commercial franchise to insure its health and vitality. Corporate Finance,
Transportation, Trade and Vendor all continue to serve customers and generate profits at respectable returns. In fact, while
there are a lot of moving parts in this quarter, we calculate that our earnings for these four commercial finance business segments
were around $225 million after tax on a run-rate basis this quarter.

Additionally, let me talk a little bit about the objectives that we've focused on relentlessly over this quarter--first has been capital
discipline and proactive portfolio management. As evidenced by the sale of construction business in the fourth quarter which
we think was particularly well-timed, the sale of leasings portfolio in the U.S., expansion of our vendor franchise through
acquisition in the U.S. and Europe and acceleration of the income through the acquisition of Edgeview Partners this summer.
Second goal has been a strong balance sheet and solid debt ratings as we capitalized on the diversity and the quality of our
assets and migrated our funding model to benefit from the lower cost of funds available in asset-backed markets. We
demonstrated our commitment to maintaining strong credit ratings by taking swift action to raise capital following the Home
Lending charges in the third quarter. All our ratings have been affirmed, although I must say we were disappointed in Moody's
change of Outlook earlier this week. Third has been continue to continue building asset management capabilities. We did
successfully execute our first CLO and our IPO of Care investment Trust, our Health Care REIT. More recently we successfully
launched our first junior Junior Capital Fund earlier this month, which is expected to approach $1 billion in total funding. And
our fourth goal was expanding global footprint. We did achieve our goal of had 25% of CIT's assets outside the United States
by year-end. In fact about 1/3 of our commercial finance exposure is now non-U.S. And we opened regional service centers in
both Dublin and Shanghai for our global platform and Vendor Finance. We think these actions reflect our commitment to taking
our expertise in middle market finance around the world.

Now let me just briefly review the solid progress which was made in our Commercial Finance business segments in the fourth
quarter. I'll try to give you an update on what's happening in each of those markets--first, Corporate Finance. While there
continue to be market dislocations, we did originate over $4 billion in new business financing this quarter. Actually about $.5
billion more than we were able to originate in the third quarter. Pricing in the middle market has adjusted to the current reality,
so new assets are certainly coming in at good yields, and we continue to improve our position in the league tables as we increase
our market share. Further, M&A and advisory activity continued, particularly through new acquisition edge Edgeview Partners.
We closed ten M& A deals in the fourth quarter. We have a robust pipeline into 2008. In this regard, I would like to highlight a
deal we did for Sprint Industrial this quarter, the first in which we had a sell-side advisory mandate and also underwrote and
syndicated a buy-side financing for the buyer. This transaction is a great example of the opportunity for synergy we saw when
we acquired Edgeview. Now, Transportation Finance; here demand for aircraft remains strong, credit looks very good and we


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have the right planes at the right time. For instance, this quarter we bought 15 Boeing 737s from an operator and leased them
all immediately. Our new order book is firm and new deliveries are released out into 2010 for us, an unprecedented event. In
Rail, utilization stands at about 95% which is quite good by historic standards.

Now let's talk about Trade Finance. In Trade Finance volume grew, profits grew, and the ROE for the quarter was almost 19%
despite a lack luster holiday season. Here our credit metrics remain quite good and the weakening economy allows us to put
surcharges on the credit of certain retailers.

Finally, Vendor Finance. We sold our interest in the U.S.-based Dell joint venture and are focusing our efforts on originating high
margin programs. You may recall that in November we announced the rollout of Microsoft partnership to the U.S. and Canada
in addition to the seven other countries in Europe and Asia where we were already active.

Now, I think as you know, we have two portfolio integrations underway. These are labor intensive and time-consuming and
technology oriented. As a result we've seen some dilution in our results this year that will likely continue into the early part of
2008. In particular, the integrations have taken longer than anticipated which has resulted in excess costs and some temporary
deterioration in credit metrics.

Now I'd like to turn it over to Joe to provide additional color on the financial results as well as Home Lending and Funding.

Joe Leone - CIT Group, Inc. - CFO
Thank you, Jeff. Good morning everyone.

As we previewed last week and detailed some more in the release this morning, a few items principally consumer related
overshadowed the solid results from commercial franchises Jeff just spoke about. I wanted to give you more color on those
items, then get into Home Lending and Funding, as Jeff described and finally run through the quarter's key operating or revenue
trends with some commentary on 2008. Several significant items combined to reduce reported.earnings as you read. First good
goodwill impairment. We tested the goodwill associated with all our impairments at year-end. Given the change in the student
lending landscape, with declining pier valuations , plus higher funding costs for this asset class--as a matter of fact, ABS spreads
are higher by about 50 basis points today than they were when we started the second quarter into the third quarter. We ended
the second quarter into the third quarter. As a result of these two factors, our estimates of fair value no longer supported the
goodwill and intangibles for the student lending business. We took a non-cash write , it had no impact on our tangible book
or our capital metrics, but it did reduce income by almost the full amount as there was very little tax benefit booked on this
charge. We also increased loss reserves about $300 million, $250 million of which specifically relates to Home Lending. The
balance relates to reserve building for other unsecured consumer credit and to a lesser extent, the commercial loan book. Home
Lending had charges of $42 million on the held per sale portfolio, as we completed the sale of certain lower performing loans,
and we mark to market the remaining housing receivables we have not sold.

The two vendor finance sales that Jeff spoke about, couple of comments. We did sell our 30% interest in Dell Financial Services
to Dell, and that generated about a $250 million gain. We, I'm, quite proud of the relationship and success we've had with Dell
and our partnership with them and while we'll no longer have our share of profits from the U.S. joint venture going forward,
we will retain portfolio margin on the U.S. loans we purchased and have purchased and the revenue from financing Dell products
around the globe. Generally speaking, each of those items; the joint venture, the margin from the U.S. book and the international
Dell volume contributed about 1/3 each to the overall income screen from the Dell relationship. As Jeff mentioned, we sold our
System Leasing business, it had $700 million of assets, but it was difficult to grow, it was a direct calling-leasing business and
there was channel conflict with vendor programs and calling efforts we had around the Company. We thought that was a good
strategic move. Finally, the quarter's tax line benefited from about $27 million of adjustments to accrued tax liabilities in foreign
jurisdictions, as we refined, completed our review of international profitability, and that confirmed a permanent mix in the
income across countries. There were other ins and outs and gives and takes to the quarter which combined to reduce EPS about


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$0.05, the most significant of which was the write-off of accrued expenses from our decision to not to pursue or form a separate
public air leasing company. The net impact of the above items I described, reduced earnings about $1.80 a share.

Some detail on Home Lending, and I will start with Q4 impacted by the charges I just discussed. In this business, we had
approximately $10 million of securitization impairment in the quarter. The related securitization retained interest is now down
to about $30 million and relates to loans originated in 2002 and prior. Excluding these items, the segment was essentially break
even and that was a disappointment; that is down about $40 million from the positive spread we had been running.

So what changed? We did allocate the more expensive debt that we did in Q3 and Q4 to Home Lending. $25 million of the
decrease was due to these higher funding costs, principally from the $5 billion securitization in the third quarter and the $690
million of convertible offering with did in the fourth quarter, and we applied those deals to the Home Lending business, one;
because it was matched funding on securitization and two; the convertible offering, the need was caused by Home Lending.
We applied the cost of funds into that segment. We also had higher non-accruals than we expected when we set out discontinuing
this business in July and collection costs are running higher and we think we need to make investments in the collection center
to minimize loss.

Moving onto portfolio performance. We were disappointed that credit metrics deteriorated from September 30th to a greater
extent than we had modeled. The increases were more severe in specific geographies and you've heard this from others,
California and Florida to name two, and certain products, seconds, keylocks and stated income. Gross losses in the quarter,
about $115 million with $6 million going through the net charge-off line and $100 million plus being absorbed by our loan-by-loan
allocation of the September 30th valuation discounts we had recorded. About half of the sequential increase in gross losses
reflected higher reserves on 180 days, plus past due accounts. A practice we adopted or modified or increased valuations in Q4
and we will continue that. Total 60-day plus decreased 130 from September, but that decrease included the benefit of the sale
of the lower performing loans in October. Actually apples-to-apples the delinquency went up.

Given the increased delinquencies, we felt loan loss reserve building was warranted, so let me spend a minute or so on our
reserving (inaudible). As you know, we are required to establish reserves for loans on our balance sheet held for investment for
losses inherent in the portfolio. We look at losses from delineate or troubled accounts and take about a twelve month forward
view. How did we determine the $250 million? We do a lot of analysis, we analyze portfolio performance based upon trends,
delinquency and roll rates, we apply severity, plus current market data estimates to determine what we feel the expected loss
is, and we run various scenarios applying sensitivities to the portfolio. Obviously we will go through this process every quarter
on this portfolio adjusting the reserve as necessary to cover loss expectation.

What changes did we see this quarter? Roll rates in the aging of delinquent receivables increased notably in October and
November and that drove projected frequency higher. Roll rates did stabilize in December and January and I hope that's a trend.
Some of the increase is probably seasonal in October and November as we've seen in prior years, but that is hard to mention
giving the changing dynamics in the market. On the positive side, we have not seen a significant increase in loss severities,
we're not counting on that continuing. Where was the softness? I mentioned before, California and Florida, Delinquencies are
about 15% in those states. That is about five times the historic normal and versus 8% in the rest of the U.S portfolio for us.
Delinquency on stated income, which is about 40% of our portfolio and non-owner occupied homes, which is about 10% are
also increasing faster. Arms clearly underperforming fixed rates.

Where are we in terms of portfolio size? The Health for Investment portfolio is down $9.2 billion in unpaid principle balance,
and we are carrying that at about 8.8. Adding the reserve we established this quarter, the combined reserve and discount against
the remaining portfolio is about 8%, and that's after having taken charges in Q2 and Q3. Moving to the Health Health For Sale
portfolio, we have only manufactured housing loans remaining, just about $500 million of unpaid principle balance, and that
is being carried about $145 million or 30% discount. Actually the credit metric in that portfolio were fairly stable in Q3 into Q4
with a delinquency of about 8%.


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As we look into '08, we think home lending will continue to have a break even to slightly positive P&L exclusive of credit costs.
In terms of credit, we expect gross home lending losses to peak during 2008. Based on November roll rates, which we used in
our reserve analysis, we do expect quarterly provisions into '08 although they'll be significantly lower than the Q4 provision.
The Home Lending will remain a head wind, we're working hard at it and a lot of our effort is focused in the collection area.

Moving to funding, I think the Company did a terrific job of managing through the most volatile market I've seen. All of our
businesses are collaborating with our Treasury Group to tap into available pockets of liquidity, to service, our customers, and
grow the franchising Jeff described. We have not missed a beat with our customers. We prioritize capital to existing relationships
and we had a very successful new business quarter if you've gotten to take a look at it. We had strong originations in our better
returning businesses, particularly corporate finance where there continues to be attractive opportunities in the marketplace.
We did end the year very strong from a liquidity perspective, we told you this last week in our release. We have about $15 billion
of liquidity, very robust cash position, $2.2 billion of committed and available asset backed facilities, including about $1 billion
of new facilities we created in Q4 and we do have $7.5 billion or so of committed and available unsecured bank lines. Commercial
paper outstanding was about $3 billion, and at this point in the cycle, we think that's about right. The weighted average maturity
of the books still looks good, and we did see spread tightening over the quarter. Today we're issuing LIBOR plus 30 as opposed
to the average for the quarter LIBOR plus 40. We did approximately $5.5 billion in securities evenly split, unsecured and secured.
The average cost of the unsecured issuance was LIBOR plus over 300, expenses and the average cost of the asset backed deals
we did was about CP plus 45 to 50. Unsecured cost did impact margins. I'll cover that in more detail. As a frequent issuer where
we think it was important to be in the markets and fund our core businesses. On the asset backed side we structured or renewed
$3.5 billion of facilities across a variety of asset classes and we continue to broaden the asset types we fund against. We have
$2 to $3 billion of incremental facilities we expect to close in Q1 against asset classes we have historically not securitized, rail,
air and middle market loans. Our bank is important. Our Utah bank is important. We completed the first phase of our transition
strategy from funding commercial loans to commercial loans. We have already started originating certain loans from corporate
finance and expect to originate well over $100 million in new loans in the bank. The deposits are part of a going-forward funding
plan and offer funding at an attractive costs. Probably 50 basis points attractive over time and 200 basis points more attractive
today.

How do we plan to finance the company over the next six months? I've given a couple thoughts on that. We have roughly $6
to $8 million of funding needs in the first half of 2008, as we will hold assets flat in the first half. We have $6 billion of term
unsecured maturities, heavier in Q2 as many of you know and we plan to hold CP flat and will continue to actively manage the
balance sheet particularly in the first half as I said, keeping assets flat.

Where will the funding come from? We ended the year with a substantial amount of cash as we prefunded and the vendor sales
which closed in December. While we will continue to carry a high level of liquidity, we will target using some of that cash to
meet the first half maturities. Where will the remainder come from? As we look to execute the majority of our 2008 funding and
will be in the asset-backed markets given the cost differentials I described, we would start by targeting $2 to $3 million asset
backed paper from ongoing equipment and student loan programs and we'll do some additional borrowing against the Home
Lending portfolio. Additionally I mentioned new facilities that total $3 billion of new asset-backed facilities and we already have
those queued up in some way, shape or form. It's likely to look at $1 billion in middle market loans, $1 billion in rail and $1 billion
in other techniques we'll use to finance our aerospace fleet. We'll also look to sell some planes during the year. Beyond that,
our funding model calls for us accessing the unsecured markets. While we have nothing specific planned for Q1, I'd like to do
an institutional deal of benchmark size and we will continue to target the retail financing market where we have seen increased
interest. As we look beyond the first half of the year as I mentioned before, we will look towards additional deposit growth at
our UT bank.

So those are the topical areas. What I'd like to talk about are financial trends into 2008. Particularly on the revenue side, let me
start with net finance revenue. I mentioned and you saw that our margins declined 29 basis points sequentially. Most of that is
due to funding and the detail is as follows-- 20 basis points of contraction was home lending related, principally the higher cost
debt I described earlier and increased non-accruals in that book; six basis points relates to funding in student lending area,
largely spread contraction between CP and LIBOR and the higher conduit costs I had mentioned earlier; and the balance relates


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to carrying incremental liquidity. We were very liquid during Q4 and we had negative carry on the cash held and reduced
short-term net balances. Moving to other income, excluding the noteworthy items we described, other income was about $235
million, down from the prior quarter on weak sale and syndication income, but we did clear a lot of the pipeline in Assets Held
for Sale. If you look at the numbers, we're down from $3.9 billion to less than $2 billion and over, about a $2 billion increase--
decrease, I'm sorry. And we did, we consider that a real success, although there were not a lot of gains in this environment.

Income was down slightly, Jeff mentioned we have a good pipeline. Some of the deals we had thought we booked in Q4, slipped
into Q1 and we had some advisory fees that we expected to realize in January. As for the outlook for '08, we expect net -- finance
revenues will be down as funding costs are high. We'll somewhat mitigate that by the capital reallocation that Jeff described
and the funding in the secured markets that I just talked about. We were seeing attractive pricing opportunities in our corporate
finance business and that has improved significantly since the middle of '07. We expect assets to be flat in the first half of the
year, with modest growth in the second half and will benefit from the reallocation of capital into commercial assets. On other
income, we will continue to see weakness in volume-based fees, syndication sales, securitization and the like. But we're looking
to offset that with servicing fees including, restructuring and advisory opportunities. Factoring commissions will increase, Jeff
described that and overall we expect flat to moderate growth in non-spread.

Operating expenses, we did take cost-cutting actions in '07 including headcount reduction and offshoring, and we are going
to be more aggressive in 2008 as you saw in our press release today. Specifically we're targeting $100 million of run rate savings
and we hope to get a lot of that benefit this year. We announced our step today in our press release, we'll take a first quarter
charge of about $50 million pretax with an annual savings over $60 million. We're looking at discretionary spending in all areas
of the company for further savings.

On the credit side we expect charge-offs, excluding home lending to increase in 2008 from record low levels this year. Charge-off's
this year we're about 45 basis points. Yet, we expect charge-offs to remain below or at our average full cycle losses of 70 to 80
basis points. We will see some increase due to lower recoveries in 2008. Overall when you look at credit trends at year-end as I
did and as we do, we were quite happy with the results of commercial at the end of '07. If I said '08, I meant '07. Credit costs will
likely exceed charge offs as we provision in excess of current period losses but not at the level we saw in Q4.

Finally we're on to taxes, our effective tax rate has been noisy reflecting the losses we had in the U.S. businesses and as we built
up the international businesses. Generally speaking, we saw progress of increasing the proportion of income we generated
overseas. We expect the '08 go forward rate to be in the area of 27%.

That's a bit on 2007 revenue trends and some of my thinking on 2008. With that, I'll turn it back

Okay, Joe, thanks very much. Now let's take a couple minutes here and look ahead and talk about 2008. I think as many of you
can understand, the market uncertainties have made this year's planning session particularly challenging. In our document we
are assuming an economic slow down, but not a recession. Aspects, variables and our out look would include very modest GDP
growth, further Fed cuts, continued tightness in the credit markets and increased consumer bankruptcies.

CIT entered 2008 with a strong balance sheet and improved competitive landscape, but certainly there are a number of challenges
for us. And our core objectives going into 2008 are the following-- in essence, what are we really trying to achieve this year?
First and foremost we want to continue to strengthen the commercial franchises. We will direct resources to best performing
businesses and retreat our core. Pricing and credit discipline are at the core of what we do best and we'll remain disciplined on
balancing our financial capital with relationship capital. Second, there'll be a strong focus on balance sheet strength. As Joe
said, we will build reserves reflective of evolving market conditions. Obviously we want to maintain strong liquidity and build
capital levels above our targets and enable us to take advantage of profitable new business opportunities. Third, critical to our
success, we want to optimize our funding capacity and improve our cost to funds. We've begun using CIT bank to fund commercial


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loans, we continue to explore new ways to access attractively-priced liabilities up including up to $3 billion for commercial
loans, rail cars and airplanes, as Joe covered in detail. And finally, increasing our operational efficiencies across a number of
segments. This is one of the critical performance drivers that is squarely in our control. As Joe described, we expect to reduce
expenses by $75 million this year, $100 million on an annualized basis. We commence this action today with a 5% headcount
reduction.

Like 2007, we will continue to have two parallel courses of action and while we seek to maximize the value of the commercial
finance franchise, we will remain focused on resolving the home lending portfolio. With regard to those assets, we will dispose
of the remaining manufactured housing assets for sale, we'll try to manage down losses on Held For Loss Investment portfolio
and will continue to invest in our servicing center as our first line of defense in optimizing returns from the Home Lending
portfolio. We'll also continue to modify the student lending business model to reflect the new, market, and legislative realities.
By that, we'll continue to de-emphasize consolidation loans and private loans in favor of guarantee loans originated in the
school channel. As you know, securitization markets are an important source of funding for these assets, so we'll have to monitor
the condition of that market closely.

Now, just in closing, I'd like to focus on how we see the commercial finance business segment evolving over the year. First
Corporate Finance. As we said, the middle market loan sector has adjusted in terms of price, and structure, particularly the small
cap and mid cap sector are getting done. It takes more effort, takes more time, but they are getting done. In the middle market,
much of the market competition is retreated, particularly the non-traditional players we saw being aggressive over the past
two years. We remain focused on lead agency opportunities and have a strong pipeline. We will continue to prioritize capital
deployment strategically and provide liquidity to those customers with whom we have long and strong relationships. Fees and
other income continues to be a growing part of the story particularly through Edgeview. Second, Trade Finance. A weaker
economic environment improve pricing as credit concerns grow, factoring commission rates should increase in this environment.
We'll also continue to focus on the expansion of our international business and trade finance, especially in China and continental
Europe out of our German platform. Next, Transportation Finance. In air, in 2008 we will take delivery of 23 new aircraft, worth
about $1.5 billion, which we are proud to say we have already placed with operators. Since we decided last year not to proceed
with the initial public offering of leasing company, we plan to sell around 25 aircraft early this year and likely more planes later,
both as a risk management and an asset pricing move. In rail we do expect some specific areas of construction related softness,
but our fleet is quite diverse as to car type and we have minimal renewals and new deliveries scheduled for 2008. And lastly,
Vendor Finance in 2008. We will have a financial head wind from the buy out of Dell financial services, our 30% equity interest
going back to Dell. But, this change presents us with opportunity since we no longer have any non-compete restrictions with
other manufacturers of technology. And we will drive progress and integrations here, get Barkley's and Citicorp operating
smoothly and improving our overall operational efficiency in the Vendor Finance business

So, just to summarize the overall outlook that Joe and I provided for CIT as a whole, here's what you should expect. Asset growth
will be very modest certainly in the first half of the year. Net finance revenues should be down slightly with spread compression
somewhat mitigated by a change in the asset mix and capital reallocation to a more profitable business. Other income will
continue to be soft, at least through mid year as lower sales and syndication revenues are offset by higher advisory fees and
factoring commissions. Commercial credit cost will rise modestly from current, very, very favorable levels and operating expenses
should be down as we continue to drive operational synergies and also reduce headcount. And now I'd like to open the call for
questions.

QUESTIONS AND ANSWERS
Operator
(OPERATOR INSTRUCTIONS) Your first question comes from the line of David Hochstim from Bear Stearns. Please proceed.


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David?

David Hochstim - Bear Stearns - Analyst
Hello, sorry I didn't realize. Yes, I just wondered, could you talk some more about what exactly is happening, that's happening
in the vendor business, the increase in non- performers you mentioned it in passing. Wondered if you could speak more
specifically about what's happening there?

Sure, David. A couple things. First the higher charge-offs in the quarter related to certain international accounts, the higher
non-performing and delinquency trends, particularly in the delinquency trends are related to the integration of the transfer of
servicing platforms on the acquisition from where they were based in Texas to our Florida based collection platform in Jacksonville.
While the delinquencies are significantly higher, we think we will recapture some of that delinquency through collection
effectiveness. Generally those receivables have slightly lower loss content than overall secured lending because of the important
use or essential use, nature of the equipment. A lot of it in our vernacular is what we call administrative and we have to prove
that to us and to you as the first quarter progresses.

So you haven't seen some underlying deterioration in the business you've been servicing, your own business, not an acquired
business.

No, David, no.

Okay, and just on the sale of the aircraft that you plan, is there prospect of a gain at all? Or is it just freeing up capital?

I think there's prospect of a gain, but we also think it's quite a good time to take some chips off the table in aircraft. As you know
those assets have appreciated quite significantly over the past 24 to 36 months and we have quite a good order book going
forward and we just think this is a good time to, to really prune the fleet a little bit with the sale of some older aircraft.

Would that sale have any effect on the tax rate or are those mainly U.S. assets?

They generally would not. What we've targeted are assets outside the structure.


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Okay, thank you.

Operator
Your next question comes from the line of Ken Posner from Morgan Stanley. Please proceed.

Ken Posner - Morgan Stanley - Analyst
Thank you and good morning. I wanted to ask a little about the aircraft business. That's one of your stronger businesses right
now and I wondered if you could give a little bit more color on the transaction where if I heard it right, it sounds like you bought
12 planes and immediately leased them out and I wonder if you could give more color about your plans to arrange securitization
financing for the aircraft fleet?

Sure, let me handle the first part of that and I'll ask Joe to handle the proposed securitization. I think it was actually 15 Boeing
737s that we bought from a major European operator and we were able to immediately release them to new operators. So,
certainly, particularly outside the U.S., that market continues to be quite strong and as I said in my comments, our deliver, our
new order book, our deliveries are committed into the first quarter of 2010 so for us, that's unprecedented in terms of having
two years of deliveries already committed for in terms of specific leases and operators.

In terms of the financing side of that question, Ken, you know, we probably use the phrases more generically. Jeff mentioned
we're looking to sell planes, securitization and/or financing. So it could take a couple of forms. We had been working on a good
old fashioned securitization of aircraft. Given what's gone on in the market in the last quarter or so, particularly as it relates to
structures like that, we looked at a couple of alternatives if that doesn't improve in 2008 including getting international financing
particularly on our air bus deliveries through some international financing sources that we think is one; economic, two; a funding
source we use, three; not only efficient but it's effective and it's there. It's going to be secured financing in some form, maybe
not traditional securitization.

Ken Posner - Morgan Stanley - Analyst
Okay, great. Thank you very much.

Operator
Your next question comes from the line of Bruce Harting from Lehman Brothers. Please proceed.

Bruce Harting - Lehman Brothers - Analyst
Yes, Joe, can you remind me the accounting on the home equity. You know, understanding you've got a large performing
number, but the balances performing, and what kind of margins are we seeing there and why are aren't you showing more,


FINAL TRANSCRIPT

what's the accounting behind that preventing you from showing any higher revenue? And you mentioned the severity rate
was flat, maybe you can speak a little more about that in terms of the performing part of that portfolio, thanks, as well.

Okay, I'll try to answer all of that, Bruce, we're disappointed at the fact that we're not showing a lot of margin out of the portfolio.
But as I said earlier we've put almost $6 billion of currently very expensive, currently done at very expensive financing against
the portfolio, the securitization which was a critical deal for us to do , the Freddie Mac, full securitization of $5 billion or so,
actually the two fulls, one Freddie and one another; and then secondly the mandatory convertible which at 7.75 coupon. So
we did burden the T and L with those finances as we thought that was the appropriate thing to do and that's where the liabilities
belonged. So the assets were originated in different interest rate environments, so that squeezed a lot of the margin out of the
business, that's one. So the accounting, just to talk about the accounting on the Assets Held for Investment, what we get is the
coupon off the receivables. Clearly we're having a higher level of non-accruals than we like or than we'd like estimated so that's
hurting as well. So we get the coupon off the payment on the receivables and then we have that new higher cost finance debt
that we burden the business with. Clearly it had lower cost finance debt and we in effect transferred that back into the commercial
franchise. If you look at the margins overall, I don't think I said this in my prepared remarks, the margin overall is down 25, 30
basis points but if you look at the commercial finance business, it's much flatter, only down about 5 to 10 basis points because
of how we did the cost of funds accounting. Hopefully I've answered your question, Bruce. If you have a follow-up, let me

Bruce Harting - Lehman Brothers - Analyst
Fine, thanks, Joe.

Operator
Your next question comes from the line of Chris Brendler from Stifel Nicolaus. Please proceed.

Chris Brendler - Stifel Nicolaus - Analyst
Hi, thanks, good morning. Let's see,I'll start with funding, Joe, you mentioned a new $1 billion dollar facility in the fourth quarter.
What asset class was that, was that relatively new late in the quarter?

Yes, we did a couple of new financings on the commercial lending side. The secured financing in our Commercial Lending
portfolio, Middle Market portfolio where we haven't done much secured financing other than the CLO we did earlier in 2007.
We also put in place, we did not draw on it, we also put in place, approximately a $.5 billion dollar facility again, some of the
Home Lending assets. Those were some of the new facilities in place in the fourth quarter.

That was late in the quarter, like December?

Yes.


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And pricing? Can you reveal what the pricing was? Roughly? Is it egregious?

No, it's attractive. I would say it's, you know, it's not LIBOR plus 40 area, but it's, it's less than Libor plus 100 or so.

Okay, I'm a little surprised, last time I was up there, you were expressing some concerns about the ability to get these kind of
deals done, and it sounds like you made more progress after the turn of the year, the $3 billion in facilities. How close are you
on those facilities?

We, we've done a significant amount of work. We're pretty far along on the rail securitization for example. We have got a lot of
the groundwork done on the aircraft for example. Now I recall our conversation. What I was saying is the banks are tight,
particularly looking at the year-end balance sheet. And I have to say, the team did a terrific job. These transactions took a lot of
twists and turns to end up in the structure they did. That's why they were quite pleased with how we ended the year-end, in
terms of liquidity, getting the facilities in place and then getting a lot of cash, as you can see, on the balance sheet. There was
an update and a lot of work done, in the last couple weeks December, if I have my dates right, that seems like a year ago, Chris,
I apologize.

That's all right. We also talked at that meeting about how you're, you'd like to grow more. Put money to work, seen spreads on
new business you haven't seen in a long time, however you've got the funding issues to deal with. You're forecast for flat growth,
is that including, in the first half of the year, is that including, the aircraft sale, just give me some color about how you feel about
your ability to take advantage of the spreads out there given your current funding situation. Are you pulling back more from
the new business volumes perspective or is it going to be slow growth from here?

I think, I think you know, you covered a number of factors in your question. I think I could say yes, but I think what we're trying
to do, Chris, in all seriousness is really prioritize where the funding's going, make sure it's going to the highest returning assets,
make sure it's going to the long standing relationships, you know try to minimize discretionary asset purchases. For example,
we've really minimized the acquisition of participations that don't go through our centralized participation desk. We've changed
the compensation systems so people really don't get paid just for participating in other people's deals to a large degree. I think
that our, our budget which is kind of, we're reviewing quarterly now because there are so many variables in it, I would say it
probably provides for $1 billion or two of total growth, but within that would be some paid out in the mortgage portfolio also.
So when we say assets will be up $1 billion or two, new business will probably be somewhat more than that, contingent on the
rate of pay downs or any other asset reductions in the consumer portfolios.


FINAL TRANSCRIPT

Okay. Final question and then I will get back in queue. Excluding home equity, excluding student or even the small consumer
book outside of student, commercial asset, it sounds like you feel okay, you mentioned you're not expecting a recession this
year, that certainly has been the big overhang over the last couple of weeks in particular that we already may be in one. How
do you--help me think about, what you're seeing at the ground level in some of your businesses. I think, certainly rail and trade
finance tend to be league indicators, what are you seeing, how do you feel? Just give me a little color on trends in the quarter,
vendor in particular, it looks like it had a big uptick in non-PAs.

One, don't want to get into a definitional, I don't want the information to be masked by a definitional discussion on what's a
recession, what's not a recession. We're seeing slow growth. The consumer businesses, I think were targeting charge-offs
someplace around 60 basis points, 70 basis points for the year, and a little bit of a replay of a gradual increase, just the way
we've had a decrease from 175 basis points and charge-offs in 03 to 40 or 42 in '07. So,I'd say the place where we're seeing a
little bit of an unwind of the credit fabric would be in corporate finance or a leverage loan area where there are selected deals
that--margins are thinner, coverage is worse, and, and trade finance, where you've got some of the retailers that obviously are
struggling, but I'd say the history in trade finance of that team anticipating problems with the retailers has been excellent. So
that's, we see an uptick in credit costs but not a collapse. Okay?

Okay, thanks.

Operator
Your next question comes from the line of Eric Wasserstrom from UBS. Please proceed.

Eric Wasserstrom - USB - Analyst
Thanks. Joe, I'm trying to reconcile the guidance about the asset growth with all the different pieces going on. There's $1.3
billion of aircraft assets that are coming on. I guess that's partially offset by a run rate of depreciation and then I guess there's
some, some home equity running off. So what would you actually suspect that, the core commercial business is, what do you
think the underlying growth rate of those assets will be?

Eric, you're talking about over the year?

Yes.

In terms of round numbers, we'd have to see how the second half of the year looks from a liquidity perspective. But, let me give
you a couple thoughts. First aerospace, delivers over the full year. As we talked about, we think that you know, we'll be able to


FINAL TRANSCRIPT

finance those essentially through sales and then on top of that we have the other financing we talked about. The mortgage
portfolio, the amount of cash we're getting has decreased significantly, but let's say it's $400 million a quarter and the other
opportunity for growth we see that doesn't use balance sheet financing per se is growing assets in the bank and we expect to
put several billions of dollars in the bank over the year. The other thing is that we continue to look for an improvement in
syndicating-- originating and syndicating loans. I think when you put it together and look at the full year, I think excluding home
lending, around a 5% growth rate point-to-point is what we have in our thinking.

All right, all right. Great and just very quickly on the student lending business. Could you tell us approximately how much of
your portfolio is consolidated, versus unconsolidated, versus private?

The private percentage is around 6% or so. I'll have to get back to you on consolidated. I don't have that at the top of my mind.
We'll probably have it by the end of the call, if not, we'll get back to you directly.

Thanks very much. I did miss a piece of Bruce Harting's question as I think about this on severity.

I did miss a piece of Bruce Harting's question as I think about this on severity. And severity is flat. It was a qualitative question.
I can't give you a good answer as why it's flat. We are happy it didn't get worse. As we look at charge-offs in the quarter, most
of them related to second lien positions,or a lot of them related to second lien positions, disproportionate amount,
disproportionate related to '06 vintages, but we were quite happy with it being flat. As I said in prepared remarks, that's not
something we're counting on continuing. But we will take it if it does. Sorry Bruce, I missed that. I don't have a specific answer
for you. That's how I'm feeling about. Sorry, operator, go ahead

Operator
Your next question comes from Matt [Bernel] with Wachovia.

Matt Bernel - Wachovia - Analyst
Good morning, guys. Just a quick question on capital. Obviously you're stated capital ratios are up fairly dramatically over the
last quarter. Joe, you mentioned that you're planning on further increasing those capital ratios over the course of 2008. I wonder
if you could give more color on that and I guess a related question is, you know, equity-like securities are now comprised a
larger portion of that ratio than they did a couple years ago. Have you gotten commentary from the rating agencies if you're
capped out on that?

I don't remember saying that we anticipate improving capital ratios, but I should have said it so thanks for bringing it up. How
the numbers work, is we're holding asset growth relatively thin. We announced our dividend payout at least for the first quarter
of the year. Based upon what we're talking about when you put it all together on returns and earnings. We are looking at


FINAL TRANSCRIPT

improving the ratio above where it is. On the non-common component of our equity, I would say for some of the agencies we
have room and in some of the agencies we don't have room. So the way we think about it, at least in terms of '08, we do not
have specifically on our mind if we had a capital rate using the hybrid market. I would say Moody's in particular, has a ceiling
that we are bumping up against.

Matt Bernel - Wachovia - Analyst
Great, I have a couple other questions, but I'll do those offline, thank you.

Operator
Your next question comes from the line of Sameer Gokhale, of KBW.

Sameer Gokhale - KBW - Analyst
Good morning, I just had a question as far as your thought process, looking at the next 12 months, I think you said you're not
assuming a recessionary environment. I was wondering why, you go through your planning process, it wouldn't be safer for
you to assume and plan for a recession if one doesn't materialize, that would be more upside, I want to get your thinking on
how much flexibility you have in the business if we do get into recession by some accounts we are already in one. Just want to
get your thoughts on that.

I didn't articulate what I was trying to say as well, I didn't want to get into a discussion about what's a recession, what's not a
recession. We're 1% GDP growth, rates coming down, credit costs going up, whether it, whether it goes over the line into
recession or not, it certainly was a much bleaker and defensive outlook for 2008 than we've had in the past couple years where
we've basically been, you know, building in quite a bit of asset growth and quite a bit of liquidity. And we'll be reviewing our
plan with the board every quarter because there are a number of variables and certainly, you hit the target on one of the big
ones which is just what's the economic outlook going to be. To the extend that we haven't been severe enough in, in our
assumptions, we would obviously start to ratchet credit down tighter, asset growth I think would be less, we do have a series
of businesses that are somewhat counter cyclical in terms of our restructuring business, dip finance, you can look at factoring
commissions and some some ways as premium unrisk insurance. The retail outlook got much worse. I think you would see a
significant increase in factoring commission rates. You go back to 2002 with surcharges on K-Mart and the like, factoring
commissions were about 75 basis points. Today they're about 50. So there's quite a bit of upside potential on that. So as the
economy got worse, we would clearly try and take a more Draconian approach to the business. The fact that we have 1/3 of
commercial finance assets gives us some geographic dispersion and once again, our fourth commercial finance businesses are
somewhat diversified across equipment types and credit exposures.

That's helpful, thank you for color, Jeff. And one of the things I was wondering on a different note, aircraft portfolio with sale,
at one time when you were contemplating the IP, that talk was that you were considering perhaps putting in $1.2 billion or so
planes into that structure, you know, now that the IP seems to be off the table works it be safe to assume you're contemplating
you're just a whole loan sale of aircraft assets of $1.2 billion and locking say $200 million or so plus of equity in the business? I
got confused on the secured financing which I think was on new placement, versus the sale of order planes through whole
aircraft sales.


FINAL TRANSCRIPT

No, I think you have it right in terms of, you know, we were not, we got left on the runway in terms of our IPO and so we've gone
back to a more traditional, just sale of, sale of the asset and I think you have that right and you know, we'll be, we'll be accelerating
those time-wise so that we don't get left, this year. So we're, we're already underway in terms of taking bids on a pool of about
25 to 30 aircraft.

If I confused you on the financing side of that. You had it right on the financing side as well. One of the financing ideas we have
the most thinking on right now in the aircraft portfolio is financing, the new deliveries this year and an international structure.
So that would be what I was talking about in terms of financing, outside of what Jeff described on sales.

Okay, that's terrific thank you.

Operator
Your next question comes from Howard Shapiro of Fox, Pitt.

Howard Shapiro - Fox-Pitt Kelton Cochran Caronia Waller - Analyst
Just two quick questions if I could. The first is, I just wanted to make sure you have no exposure to the financial guaranty ratings
and then the second question is, if you could just help us quantify maybe over 2008 the head winds you see from the
discontinuation from the Dell relationship?

I'll tell you, since Joe sat on the board of the Dell joint venture, I'll leave the second one to him. To our knowledge we don't have
any exposure to, to the financial guaranty sector, Howard.

Okay, great, and Dell?

Tough one, Howard, in terms of disclosure, but if we look alternate, you know, the more recent run rate, I'll say, the earnings
contribution on a quarterly basis have been, the last few quarters have been somewhere between $9 and $14 billion from the
equity pick-up. So that's the way I'll leave it.

Okay, thanks very much.


FINAL TRANSCRIPT

Howard, I might add, we also don't have exposure to CIT sponsored SIBs or the like or CDO squared or any of that type of thing.

Operator
Your next question comes from the line of MikeTaiano from Sandler O'Neill and Partners. Please proceed.

Mike Taiano - Sandler O'Neill and Partners - Analyst
Hi, good morning. Couple questions. To what extent have you guys utilized rate freezes on mortgages in your home lending
business that have reset? To what extent do you expect to employ that going forward and did that have impact on earnings in
the fourth quarter and the home lending book.

When you say rate freezes, you're talking about modifications? To defer increases.

Yes, basically. Instead of increasing you just keep the rate where it is.

Right, right, I would say that it had, in the second half of the year we got the program up and running, and I'm, I'm thinking that
in December about 16% of the rate increases were modified. And, Joe and I and others next week are supposed to review a
broad scale program for rate modification. So, we thought, on a manual basis, it takes a long time. What we're reviewing would
be something that would be much broader and probably internet oriented where we could get to a much broader swath of
mortgage holders. So I think that'll be a big part of our plan going forward in terms of how to optimize returns out of the
portfolio. So I think we'll adopt that broadly. Hopefully that's helpful.

Okay, and I guess you're assuming something in your outlook for next year, then, right? In terms of overall earnings impact?

Yes, we are.

Okay, and then a separate question on, just a follow-up on capital, you guys are above your 8.5% target. I presume the gain
from the sale of planes will help and the slower growth will help. Given sort of the uncertainty in the market right now, how do
you guys feel about doing, you know an additional equity raise at some point, you know are you open to do that? Would you
presumably do it you know, sooner rather than later or any thoughts you have on that would be helpful.


FINAL TRANSCRIPT

Sure, just one thing on the sale of the planes, you know, this isn't so much driven by a need for gains. In other words, we could,
we could put together a much prettier pool of airplanes than we're currently marketing. This was, I'd say as much risk management
as anything else, all right?

Right.

In terms of capital, you know, I think you put it correctly in that right now we don't feel like we've got a hole that we have to fill
on the balance sheet, but it's obviously a difficult market. It's an evolving market and I think that the way we're looking at this
is if more capital would provide demonstrable benefits to our funding costs and we could find that in one package, it would
certainly be something we'd look at. Right now we're quite intent on optimizing the cost of funding so that we can do the best
job on profitability. So if an opportunity were to present itself, in which bolstering our capital position, I think we'd consider
that.

Great , that's very helpful,

Operator, before you get on, there was a question we wanted to come back to, the breakdown of our school lending book. $9
billion of consolidation in addition to the 5% or 6% I said was private.

Okay, I think we'd like to draw the Q and A to a close here. Just a couple of closing comments. I think as you've seen from Joe
and my comments, we're focusing on core commercial financial franchise. We're doing our best to put the home lending behind
us so we can refocus on four core businesses. We'll have to be nimble in 2008. Our business plan is contingent on certain
assumptions. We'll have to see if those play out in terms of the economy. We do think the last two quarters despite performance
in Home Lending portfolio have demonstrated the resiliency and flexibility of the franchise. And in some ways that exemplifies
why we are going to celebrate our 100th anniversary in February of this year. I want to thank you employees and particularly
you on the phone, investors for your support of CIT. Thanks very much.

Operator
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.


FINAL TRANSCRIPT

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