cit 2003%20q3

CIT Moderator: Valerie Gerard

10-23-03/10:00 am CT Confirmation # 3122518

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The following transcript has been provided by a third party transcription service for informational purposes only. The transcript has been reviewed and edited by CIT and in our opinion is the best interpretation of the statements made on the call. The actual conference call may have differed slightly.


October 23, 2003 10:00 am CT

Operator: Good afternoon. My name is Tesheba and I will be your conference

facilitator. At this time, I would like to welcome everyone to the CIT Third

Quarter Earnings Conference Call. All lines have been placed on mute to

prevent any background noise.

After the speakers’ remarks, there will be a question and answer period. If

you would like to ask a question during this time, simply press star then the

number 1 on your telephone keypad. If you would like to withdraw your

question, press star then the number 2 on your telephone keypad. Thank you.

Ms. Gerard, you may begin your conference.

Valerie Gerard: Thank you for joining us today. I’m Valerie Gerard from Investor Relations

here at CIT. With me is Al Gamper, our Chairman and CEO; Jeff Peek,

President and Chief Operating Officer; and Joe Leone, Vice Chairman and

Chief Financial Officer.

During the following discussion we will make certain forward-looking

statements in an effort to assist you in understanding the Company and its

results. Information and comments made by management during this



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conference call relate only as of the date and the time of such call. CIT

expressly disclaims and undertakes no responsibility to update or alter such

information based on new information, future events, or otherwise.

Our actual results may materially differ from those presented here. Additional

information concerning certain of our risk factors that could cause such a

difference can be found in our quarterly and annual reports filed with the

Securities and Exchange Commission.

Similarly, we may refer to certain non-GAAP financial measures that

management believes provide meaningful insight into our financial condition

and/or operating results. For a reconciliation of these non-GAAP measures to

GAAP, please refer to the Investor Relations section of our Web site at

www.cit.com. And with that, let me hand the floor over to Al Gamper.

Al Gamper: Thank you, Valerie, and good morning to everyone. The

performance for CIT during this past quarter I would describe as similar to our

previous quarters this year. Good progress on our game plan, recognizing that

we still have work to be done at the organization. I put my little scorecard

together as I usually do here with our pluses and minuses.

Let me go through the pluses I see in the quarter’s results. Improvement in

credit quality was a real plus. Continued improvement in the credit markers

and we’ve been working very hard on that. Secondly, we’ve seen some

improvement in our margin as our funding costs have come down and that’s

another plus for the quarter. We’ve seen business volume pick up in the

organization. Not in all of our businesses, but in a lot of those businesses and

I think that’s also a good sign that we see. Fourthly, a fitting acquisition:

buying the GE factoring operation this quarter fitting in very nicely into the

organization, I think, is a long-term plus in this organization. We’ve seen an



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improvement in our return on tangible equity, which I’m pleased with. I think

the last plus I put on is the arrival of Jeff and the management reorganization

and responsibilities that took place this quarter. I see that as an important

event in the quarter with long-term, positive implications.

On the minus side – and there are always minuses as you know – and there

were some the things that disturbed me -- our Venture Capital business had a

loss. We had $11 million dollars in write-offs again. That was a

disappointment. The second minus I would say, is the Equipment Finance

business environment we serve there is still soft. And while we’ve seen

continued improvement in our credit quality, but still the businesses we serve

are not buying, spending, and increasing their loan demand. And the third

negative I see, that the airline industry is still in a struggle period.

Overall, we’re very pleased with the results and, again, pleased that we can

report progress on our game plan.

If you look at our businesses – and I would just like to run through them very

quickly, how I see them right now. In our Commercial Services business, our

factoring business, the GE acquisition is clearly a plus that brings good

customers and expanded client base. It’s a perfect fit into this organization

and I think it has good implications for the future for the business. Overall,

retailers are somewhat optimistic about the season coming up. You read

about it constantly in the paper. What we’re seeing is they’re very optimistic

but they’re also very mindful of keeping their inventory levels under control.

So we haven’t seen the material pop up in that business but it’s been steady.

Our Business Credit business – it’s interesting what’s taking place there. The

major news being restructurings and bankruptcies have slowed down -- that’s

good news. Of course that means that the fee business is slowing down for us



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a little bit. But what we’re seeing taking place now is sort of a transition to

the more traditional working capital and we hope, the deal marketplace, which

will expand.

On to the Specialty Finance areas. On the consumer side, home equity

business has been steady and we augment it with some very interesting

portfolio purchases. On the commercial side, where we’re financing a lot of

office products and technology, it’s been good, strong, which gives me an

indication that companies are still investing now to improve productivity.

And we see that in a lot of those programs.

Our Structured Finance business has been busy. The large projects have

slowed down but the communications and media business has been strong and

our advisory fee business has been very good.

Equipment Finance, I talked about before – the markets we serve, machine

tools, printing, construction, trucking, transportation – there isn’t that kind of

significant PP&E investment taking place there, so business is slow. But

we’re making real progress on the credit collection side. The corporate

aircraft marketplace, which is in this segment, we think is beginning to firm

up a little bit. Production cuts, delays, substantial production cuts in corporate

aircraft were made. The marketplace prices seem to be getting a little better

there, so we see the bottoming out of that marketplace.

On our Capital Finance side, the rail business, as you’re going to hear, is very,

fully leased, very leased. Leasing, where utilization is very high, but the lease

rates are a little soft. But they’re moving up though as the economy improves,

which is a good sign. And the air finance business is, I would describe, as I

said, is still struggling. There’s no indication that we’ve seen a dramatic

turnaround there but we haven’t seen anything get any worse. So we’re



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seeing some firming in some areas. Yet the elimination of the SARS epidemic

has clearly worked the Far East back and it’s brought travel back, which is

very important.

So overall, we see some markers of improvement in the economy. I think a

lot of it is talk. We hope we’ll see that manifest itself into some real increased

demand going forward. So I’d say it looks better in this quarter than it did

past quarters and clearly better than it did a year ago. And I think the

important thing is CIT is well positioned right now.

Capital – our internal generation of capital is over 10% present rate, which is

strong. Access – we’ve got access to the capital markets at attractive rates.

And the third ingredient, people – we’ve got the people who can deliver. So I

think we’re well positioned at this time and the cycle in this time, and the

calendar in this time, of the year.

With that, I’d like to ask Jeff to make a few comments. He’s new to the

organization but he’s got a lot of experience with the financial services

industry and he’s got some observations for you. Jeff?

Jeff Peek: Thanks, Al, and good morning to everybody. Before I begin talking about my

first seven weeks at CIT, I wanted in my own words, to tell you about my

background. My primary career focus for the last 30 years has been financial

services. As a young investment banker, I covered the financial services

universe at AG Becker. And then, for some 20-plus years at Merrill, I

managed several different areas of the firm including investment banking,

research, and asset management.

Most recently I was Vice Chairman at Credit Suisse First Boston responsible

for asset management, private client, and the clearing businesses. Now, I



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believe that this executive perspective on a breath of financial services

businesses will be quite useful for CIT, particularly as it faces increased

competition from commercial and investment banks, as well as the insurance

company segment. And also, I have had significant international experience,

which I think will help CIT expand its global platforms.

Now here at CIT, my first priority has been to spend dedicated time with each

of the businesses so that I’m better acquainted with all of the nuances in the

many markets we serve, so that I can better analyze the opportunities and

challenges in the marketplace. I’ve been busy. So far I’ve met with our

businesses here in Livingston, in New York, Toronto, Chicago, and Tempe.

And next week, I’ll be headed out to visit with several of our European

operations. And by early December, I’ll have visited Los Angeles, Oklahoma

City, Dallas, Charlotte, and a few other cities where we have significant

operations. Once I conclude this travel tour, these series of meetings, I’ll

focus on fine-tuning CIT’s strategy for the future as we finalize our 2004

business plan and refine our long-term strategic plan. I will say, although it’s

early, thus far I’ve met with many executives from CIT and I’m delighted

with the depth of talent and the energy throughout the organization.

Now in traveling to these CIT locations, one of the most frequently asked

questions of me is what attracted me to CIT. Actually, the answer is pretty

simple and straightforward. Ever since I covered financial institutions as an

investment banker bank in the 1970s, CIT struck me as one of the premier

names, one of the very best companies in the commercial finance arena. And

that impression has stayed with me for these several decades. CIT has

excellent brand recognition. Everybody in the business knows CIT. And the

Company is highly regarded for its integrity, credit culture, and solid

management team.



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Now from a personal perspective, this being my first earnings call, I do think

there’s a significant opportunity to take this Company, which is already

successful in its own right, to the next level. In my view, CIT’s future is

bright and it’s certainly well positioned to benefit from a recovering economy.

I do believe I can add value here, and I look forward to taking a leadership

role alongside the Office of the Chairman and Al in writing CIT’s next

chapter of growth and success.

Al Gamper: Thank you, Jeff. I’m sure you look forward to these quarterly conference

calls that we have too. Joe, would you like to do a review of the financials

please?

Joe Leone: Absolutely, Al. Thanks and good morning, everyone. Welcome again.

Excuse me, I have a little tickle in my throat so bare with me.

Net income for the quarter – I think we had a successful quarter, $0.69 up

from $0.65 last quarter. And as Al discussed, the key fundamental

profitability drivers continue to improve. Al mentioned Return on Equity

improvement, we made it back over 12% -- 12.2% and ROA increased to

about 164 basis points.

And when you look – and we did disclose the segment profitability in the

press release again this quarter – the improvement was broad based across all

units, save one Commercial Finance, which continues to have a very

outstanding ROA.

Quick review of the numbers in the segments. Al covered some of the

strategy in the business prospects. Specialty Finance had a very solid quarter.

Its return on assets improved well over 2% to about 225 basis points. Volume

was strong – home equity volume was strong in the offices, in the basic



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platform. But we supplemented that with portfolio purchases as we saw more

assets being offered in the wholesale loan market.

Managed assets were up about $600 million to almost $19 billion. We did

extend our vendor finance relationship with Avaya through September of

2006. We continued to make progress on improving the international

profitability; that’s something that we’ve been hard at work at, or the unit has.

And credit losses have improved. We saw a return to more normal levels of

home equity loss. We told you we had a slight pick up last quarter.

Our SBA unit was very recently named, once again, the Number One loan

volume lender – fourth year in a row -- a very big quarter overall for Specialty

Finance.

Equipment Finance made progress on the credit front. Al mentioned some of

that. Our charge-offs went down 100 basis points from June, and over 200

basis points from the prior year, and that was throughout the portfolio’s

construction and the rest of the industrial portfolios.

Core losses were 125 basis points, still high but a significant improvement.

Collateral values, a little bit better, but time to liquidate the assets remains

long. Our new business volume up a little bit but Al mentioned we still see

some sluggishness there. Overall, Equipment Finance has done a good job of

reducing costs, both credit and operating, in the absence of top-line growth

opportunities.

Capital Finance income improved. You can see that in the segment results --

principally due to higher rail profitability. Additionally, we had some higher

gains that more than offset continued softness in the aerospace rentals.



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Managed assets were up $100 million, principally due to new deliveries in the

airplanes, and utilization rates are at 99% and 98% at air and rail. Capital

Finance had no charge-offs in the quarter. We did restructure the Air Canada

leverage lease from non-performing. It is now a performing operating lease

and you can see that in our metrics.

Pulling the plane portfolio together, we had 204 planes and a net investment

of about $4.6 billion -- that’s up one plane and about $100 million -- although

there are some ins-and-outs. We took delivery and placed three aircraft this

quarter. We provided financing for another new plane and we disposed of

several aircraft.

Of the 204 plans, three are not flying. Two of them have leases pending. The

weighted average age of the fleet is seven years. Ninety percent of the

investment remained in narrow–immediate body aircraft.

Looking at the new order book, all five of the remaining 2003 deliveries are

placed, and six of the 14 2004 deliveries have commitments. And we

continue to make good progress on the remainder of that order book. When

you look at the order book, you’ll see some ins – and – outs. We’ve had some

movement as we work with the manufacturers to best meet our client needs.

As we mentioned earlier, we just financed one new aircraft apart from the

existing orders, and we shifted some deliveries back to ’06 and ’07. And our

customer base in the aerospace portfolio has been increasing and is

diversified. We have about 10% more customers this year versus last.

Commercial Finance grew about a billion dollars this quarter, mostly

factoring. Half of that was from the GE acquisition Al described, and some of

it’s due to seasonal ramp up for holiday shipments. We did see a migration

away from DIP financing and we’re hopeful that we will continue to see some



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improvement in the working capital needs of industrial America. Credit

quality was better, charge-offs were down, past dues were down. It was a

very solid quarter overall for Commercial Finance.

Structured Finance had very strong fee generation, good advisory mandate in

our regional aerospace, and project finance portfolios. The return on assets in

the business is over 225 basis points. Without asset growth, that’s not the

objective here, the objective here is to grow assets modestly but earn fees on

the value we provide. Telecom assets were $625 million – that’s down from

about $710 million a year ago -- solid overall results here.

Looking at consolidated results, new business volume was up this quarter –

5% from the prior quarter – and higher volume in most businesses. Year-

over-year, we’re up 25% as Specialty Finance had very strong performance in

vendor and home equity.

Good asset growth – $49.3 billion, up a billion and one-half from last quarter.

Excluding the growth in factoring, we had an annualized growth rate of about

5%. Securitization outstanding is down a bit. We reduced our securitization

activity, more on that in a minute. And we did grow assets $1.7 billion from a

year ago.

Margins are up – there’s a little noise in the margins from a new accounting

pronouncement. The net margin is shown as flat at 3.8% but the dividends on

our preferred capital securities now are included in interest expense due to this

new accounting pronouncement. And the rules do not allow us to conform

prior periods. But for analytical discussion purposes here, putting it on a

comparable basis, net finance margin would have been up five basis points

and that’s principally driven by lower funding costs. Finance income fell a bit

as loans repriced at a lower interest rate environment and yield-related fees



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fell slightly, about five basis points, on lower activity in Business Credit.

Interest expense declined about 11 basis points and the factors were some

excess liquidity -- more on that later -- lower short rates, higher level of CP

and improving spreads.

If you look at risk-adjusted margin, we’re down – I’m sorry, we’re better by

about 21 basis points, adjusting for that accounting-required change, we’re up

about 25 basis points. Again, to be clear, the loan provision did exceed

charge-offs. But the way we look at it this quarter, the total loan provision of

$83 million exceeded charge-offs excluding telecom, which totaled $80

million. The telecom charge-offs – remember -- get charged directly to the

reserve. So we think we had a very good risk-adjusted margin improvement

there.

Operating lease metrics continue to be impacted by the migration mix change

in the portfolio from short-term leases to longer-lived assets. If we look at the

unbundling of the margin, rental revenues declined a little in excess of $15

million and depreciation was down around $20 million. So the lease margin

was up a bit and that was basically because of improvements in Specialty

Finance and Structured Finance. Lease returns in Capital Finance, which is

the majority of the portfolio, about 77%, were flat.

Other revenues are up a little bit to $221 million and that’s despite

significantly lower securitization gains. Fee income was up $17 million -- the

strong Structured Finance fees I mentioned before, and strong earnings from

the vendor finance business. Factoring commissions were up from the prior

quarter – that seasonal volume increase. Commission rates remain strong and

rates have held year-over-year.



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Gain on securitization sales was $18 million, only 8% of pretax income.

That’s down from $34 million, 15% last quarter. We tempered our

securitization activity. Gains as percentage of receivables were principally on

the Equipment Finance front, which have lower gains than home equity assets.

That’s when you look at a percentage gain on the receivable securitized; it

was lower this quarter.

Al mentioned venture capital loss has continued to have a drag on earnings,

$11 million in losses this quarter. And while the portfolio continues to run off

on its normal course, we will continue to look for ways to accelerate that

liquidation of the direct portfolio where we have about $160 million left.

Operating expenses up a bit -- $238 million, up $10 million from the prior

quarter, principally due to higher incentive and other employee-related

expenses and some slightly higher origination expenses. If you look at our

ratios, we have 2.06% assets and efficiency ratio was 42%. And this upward

trend, despite that, we continue to be very focused on expense control. We

ended the quarter with fewer headcount than we had in June, down a little

over 50. And we’re disciplined here, and we believe there’s a lot of leverage,

operating leverage in our platforms.

Credit quality improved again; losses were down – our third consecutive

quarter – to 123 basis points and were down below $100 million level overall.

Most of the improvement was in the core portfolio and we were down below

100 basis points there. Telecom charges were $11 million, about the same

level as last quarter. Losses on the liquidating portfolio declined on lower

losses on the franchise finances portfolio.

We look at the forward-looking markers, which we’ve been talking about all

year. Both owned and managed delinquency were under three percent for the



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first time since December 1999. The improvement was broad based with

principally the improvement in Equipment Finance and some improvement

from Capital Finance because of the restructuring of the Air Canada lease.

Non-performing asset trends are positive. We were below $900 million for

the first time since the middle of 2001.

Loss reserves -- $750 million; breaking that down for you -- $500 million in

the general reserve, $117 million left in Telecom and $135 in Argentina.

General reserves were up on a dollar basis because we had more receivables.

They fell on a percentage basis because of the improved credit markers. We

did charge the $11 million of Telecom losses against the reserve, which is

now $117 million dollars and we remain comfortable with that reserve.

Argentina, we have yet to take any charges against the $135 million reserve

we established a while ago. We’ve been collecting payments, resolving

accounts, converting peso to dollars, continuing our discussion with the

Argentine government on our shortfall from the change in currency a year or

so ago. And we will take charge-offs against the reserve as we bring these

actions to closure over the next few months. We believe the reserve is

adequate overall.

Capital leverage -- Al mentioned it. We grew capitalization by $120 million.

Ratios remain strong at 10.4%, at 6.2 times. And we made an acquisition and

continue to have strong capital ratios. Tangible book is just under $23 a share.

Funding and liquidity – continued progress -- liquidity is strong. We renewed

our unsecured credit facilities. We had strong support from the banking

community and the facility was well oversubscribed. Where we stand now is

we have $6.2 billion in backup facilities: $2.1 billion due in October ’04, a

one year facility; $2 billion due in March ’05; and $2.1 billion due in October



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2008, a five-year. Pricing was in-line with expectations and the only financial

covenant is the $4 billion dollar minimum net worth test.

Cash increased $850 million to $2.3 billion as we prefunded some of our Q4

financing expectations. Average cash investments during the quarter declined

$150 million to about $625 million. A very strong and active quarter in the

capital markets – CP increased a bit to $5 billion, demand was strong, pricing

was attractive, LIBOR less six/seven bps, and maturity is relatively long at 47-

days with about a third of the portfolio over the year-end turn.

The issues this month, or this quarter I should say, $2.5 billion in round

numbers: $750 million two-year floater, LIBOR plus 43 basis points in July,

$300 million one-year floater, LIBOR plus 15, and an 18-month floater,

LIBOR plus 27. Those are in August. And then in September, we did a three-

year floater at $200 million, LIBOR plus 40. As you can see the pricing is

getting better. We did a September three-year, pricing on the floater that was

tighter than a two-year floater we did in July. We did do a fixed-rate deal, a

three-year fixed-rate deal at Treasury’s plus 83. If you look at our benchmark

out there, five-year, we’re now trading at about 80 basis points over

Treasury’s – about 20-25 below AA-rated banks.

We continue to manage interest rate and liquidity risk in the same

methodologies as I’ve described over the years to you. And about half of our

assets and half of our liabilities, are fixed-rate or floating rate.

Securitization – we did $1.3 billion in this quarter. It’s down about $325

million from last quarter. We are trying to get it back in line with more

historical norms. We did not securitize any home equity product this quarter.

We thought the cost of financing was significantly dear to us relative to

unsecured financing. We did do a public Equipment Finance deal this year –



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first time in a while – about $800 million. The weighted average cost was

about 225 basis points in line with comparable unsecured terms. Our backup

facilities remain strong.

We do have about $1.25 billion of debt securities that are callable and they

were issued about five years ago by the former AT&T Capital Corporation.

So, we acquired these in an acquisition. They’re callable at par in December

’03 and January ’04. They are listed on the New York Stock Exchange under

the symbols “CIC” and “CIP.” I think you may know them by the more

common name of PINES, which are Public Income Notes.

They carry coupons of 8.125% and 8.25%; these were marked down in

purchase accounting to about 7.5%. In light of the high coupons, we currently

anticipated calling these securities. If we do, we would have a nonrecurring

gain estimated at about $90 million pretax, $55 million after tax, because the

cash redemption price, which is par, is less than the current carrying value of

securities, which we marked in purchase accounting. These nonrecurring

gains would be spread over the quarters coinciding when we redeem those

notes or call those notes. Of course we are refinancing them, if we do,

because of lower interest rates. If we do that, it would provide some margin

benefit for us going forward.

If you look at this debt picture in total, given our scheduled maturities, the

debt call, some asset growth, and the term financing requirements, we think

for the remainder of the year is about $3 billion; you factor in some of our

cash balances. We’ll use the U.S. Global and MTN market for most of that

issuance.

Next year, looking forward, we have about $7 billion of term debt maturities –

that’s a lower maturity load than we’ve had the last two years. We had about



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$8 million – I’m sorry, an $8.5 billion the last few years. CP will continue to

run about $5 billion in the U.S. And we will be relaunching a Canadian CP

program, which will be modestly sized.

I think that sums up a very strong business and funding quarter and with that

let me turn it back to Al.

Al Gamper: Thank you, Joe, and I think it also sums up some progress we’re making. As

Joe goes through this in detail, as he did here, you can see we’re making real

progress in our game plan. That’s important – quarter-to-quarter

improvements. And the first two questions might be, “What are going to do in

the fourth quarter? What are you going to do next year?”

With regard to the fourth quarter that we are in now I see us making continued

progress. Getting to the levels that we said we would get to last year in

earnings when we talked about looking ahead a year. And I see that fourth

quarter kind of progress being made again.

With regard to next year, we are in the process, as Jeff talked about, of putting

together our budget and our three-year plan, which he’s working on very

heavily and spending a lot of time with. So I don’t think this is the time to

make any prognostications about next year.

We’re not going to give EPS guidance per se but we will give some color

when our plan is done. We will give guidance regarding our assumptions –

our planning assumptions and the general tone of the businesses, which we

did last year. We will be doing that after we get our planning process done.

With that I thought I’d – we’d turn it over to questions now please, operator.



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Q: Thanks. Hi, guys. A question for you on this debt maturing in the fourth

quarter – am I right it’s about $2.7 billion and is the majority of it fixed? Is

the rate somewhere in the kind of five to six percent range or can you ballpark

for us what the debt maturing in the fourth quarter is?

A.: I think you have it about right. It’s about – it’s in the $2.5 billion area and as I

said we’re looking at financing needs of about three. We have one big

maturity of about $1.3 billion, I think in the middle of November, and we do

have some higher rate stuff maturing. But on the floating rate side, we do

have some attractively priced maturities too. As I said, also, we’re factoring

into that outlook these global debt securities. But I think you have got the

numbers basically right.

Q: Good morning -- just a couple of model questions and then another follow up,

sort of, on the strategic. Can you give any commentary on margins, a little

commentary on, how much better credit costs get? And, the efficiency ratio

trend?

And then on the strategic side, can you get into some specificity on how the

Dell vendor relationship is going and if, in the next year or two, we might see

more similar relationships? Given the success of that, I’ve been surprised we

haven’t seen more of those kinds of relationships growing within the

Company. Thanks very much.

A: Okay, I think with regard to trends, I think we will see continued

improvement in the metrics of margin and credit, but I think to some extent at

diminishing levels. I think the credit improvements have been good and I

think we’ll continue to see credit improve. But the level of improvement may

get a little – it gets more diminished as we move forward.



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With regards to the economy, I think the economy will get progressively

better as we go into the next year and we’re looking forward to that. And I

think we’re well positioned for that.

With regard to the operating efficiency ratio, obviously it slipped and I think

the way that we’re going to get that efficiency ratio down, quite frankly, is

continued improvements in productivity like consolidations and some of our

operating centers that we’ve been working on, especially in Europe. But the

other fact is we’ve got to get more revenue and business in the organization.

We’re a relatively lean organization. I don’t see a lot of cuts to be made to get

it. What we have got to do is that we have a -- we’re positioned well and we

can take on a lot more business without more people in the organization. So, I

think the revenue will drive increased revenue and improve assets. And

growing assets will improve our operating efficiencies there. Because I think

we are relatively lean, although it’s business practice around here and the

business practice going into the plan next year is to look for work

improvements and productivity. And I think if you look back over five or ten

years, CIT has been at a pretty good track record in that area.

In terms of the strategic outlook, we need more flow business in this

organization like the Dell and Avaya and the Snap-On relationships give us --

predictable, contractual, and intimate – we have a predictable, contractual and

intimate relationship with Dell and the contract goes on for several years yet,

and we work very closely with them, in fact expanding that relationship

overseas, where we had very little relationship a few years ago. But that, as a

business strategy, is something we are focusing on, being somebody to sales

finance, on being their captive finance company. I think, as I said --

remember we went back to the road show last year we talked about that last

year the flow business versus the transactional business. The flow business is

the predictability; the strengths of those businesses are very important and so



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we are working constantly to build those relationships. Sometimes they start

small and you earn your way into those relationships but our marketing efforts

are very heavily tended towards those both in Equipment Finance and

Specialty Finance. And we actually had some, we’re planting some seeds in

those areas to build those kinds of relationships. It’s extremely important in

terms of long-term strategy of the organization.

Did that cover the waterfront of that, or do you have anything else?

Q: Is there something unique about the Dell and Avaya that is not reproducible

with other companies out there that you’ve talked to?

A: No. I think these are reproducible because those kind of relationships exist at

competitors of ours too. It’s a question of one, convincing a manufacturer or

distributor that we should be their financial arm, that we put our capital at risk.

We are the risk taker. We’re the credit arm. And a lot of companies have a

cultural – they’re culturally uncomfortable with that. They like to have the

finance arm and the manufacturing arm together. So you have to break that

chain a little bit.

And I think the joint venture concept where you share some of the risk and

you share the upside, I think, is kind of a better intimate relationship as

opposed to where taking all the risk. It takes a while to build those.

Sometimes those relationships start small. We have some in Equipment

Finance and Specialty Finance today where we are one of several. And you

take those relationships basically filling one of several to build a more

exclusive relationship. Exclusivity’s important in this too because then you

have a real partnership.



Page 20

I think it’s – we’re not the only one in this business. I know we’re one of the

big players in this type of vendor finance. Citicorp and GE are very big at

this. But we have to constantly market our capabilities in credit, our

capabilities in operating services, and that we’re a low cost producer.

But I think, as I said, that flow business – you look ahead at CIT for the next

five years – those kind of products are very important to us. I wouldn’t give

up on the transaction business because you saw some of our transaction

business profitability in Structured Finance and Business Credit – darned good

and consistent. But I think that’s the way I would address it.

Q: Thanks. I just had one clarification. Did you say that you think you can bring

Argentina to closure within the next several months, or did I misunderstand?

A: I think we’re going to – we’ve left the reserve in tact since it was initially set

up. Over the next several months, probably continuing into early part of next

year, we’re going to see some settlements of accounts. I don’t know if we’ll

bring the Argentine discussions with the government into focus in the next

several months, but we’ll begin to close our accounts, fully collect accounts,

and have resolution on specific customer accounts. And you’ll start to see

some activity flow through the reserve.

The reserve, which we are talking about, the reserve looks very adequate

today. But the other thing we’re not giving up on is we have a claim. We’ve

got – what’s the polite word? I’ve got to be careful what I say. But they de-

dollarized. We had dollar contracts. They went off those. And we feel like

they have an obligation to us. And we’re going to pursue that obligation

aggressively, whether we collect anything I don’t know. But we plan on

pursuing that obligation aggressively including courts, if we have to, to get

money back from Argentina. They violated a contract with us in terms of we



Page 21

had dollar contracts, and they flipped them to something else. We consider

that to be something we’re going to pursue. And hopefully down the road, it

may take a while. Hopefully, we’ll get some recoveries there.

Q: Good morning. I have a couple questions. First, I wonder if you could just

talk a bit more about the change in depreciation expense and what’s driving

that. Is this a trend that should continue?

A: Yes, I’ll take that. As we talked about on the last few calls, and I think we put

a little bit more or maybe a lot more color in our last Q. What we’ve seen is a

business mix trend occurring where the Specialty Finance originations have

less operating lease component to their originations. While originations are

up, the percentage of operating leases in those programs are smaller. Those

assets are generally three year assets with three year depreciation. So you

have a $100 three year asset, you get $33 of depreciation a year.

Where the operating lease portfolio has been growing is in aircraft and rail –

we made a major acquisition – which have longer lives. So if you had an

equivalent $100 in an aircraft, for example, and you used a 25-year

depreciable life, you’d have $4 in depreciation as opposed to $33 on the same

asset. So it’s a function of that algebra in terms of the mix changing from

growth in longer lived assets and shrinkage in shorted lived assets. Coming

with that are lower rental rates on those longer lived assets, particularly in

aerospace. And that’s why our rental income is down.

I guess, as we look forward, I would expect that mix change to continue. We

still have the order book that will grow the aircraft portfolio. We did have,

one blip in August in the rail portfolio, which was a good blip – not in August,

in April – when we made the acquisition of Flex Leasing.



Page 22

And then on the smaller ticket side, I do continue to see, at least in this kind of

environment, us doing more full payout leases than operating leases on

technology equipment. So I would see those dynamics changing.

But I think this quarter we gave you the breakdown of the lease operating

margins in a little bit more granular detail than we had before. I shared with

you earlier that the rental income was down $15 million because of this mix

change with depreciation down about $20 million. So all the depreciation is

not falling to the bottom line. Some of that’s being offset by the low rentals.

Q: Thanks. And another question was just gain on sales – is it possible now

you’re going to – or you’re still considering securitizing the home equity loans

as financings and you won’t have gains? Is that something you’re…?

A: Yes. Well this quarter, as I said, we modified our program a bit. We

decreased it a bit because of the economics. We looked at the economics. We

will continue to look at the economics of securitization to see if it’s attractive

to us. Now having said that, we like it a lot as a liquidity source. It really

helped a great deal last year to have that, not only opportunity, but capability

to securitize a variety of asset classes.

So we think it’s important for us to continue to prove liquidity to ourselves,

get the market discipline on them, and for the agencies, that we are originating

assets that have a lot of liquidity. So it is possible that next year, when it

comes around when we evaluate home equity, if it’s still uneconomic, we still

may want to prove the liquidity of that asset class – and we could now under

the new accounting rules – and our modified debt indentures do allow on

balance sheet securitization. We could do that.



Page 23

Q: Okay. And then finally I understand CIT doesn’t want to give earnings

guidance. But I wonder if you could refer back to the table metaphor for a

minute and… well it’s upward sloping now instead of flat. So I’m just

wondering should we continue to build the legs at one end or…?

A: Well, what it is – to get to where we wanted to be, it had to be upward

sloping, right? To be flat, we had to do each better a little; second quarter had

to be better than the first – and you know the math – and the third had to be

better than the second. And I do think we will, while the table was flat, I do

like the slope of it. I like the trend of our performance. But I think we’ll

pretty well come in where we thought we would be last year. But you know

what the arithmetic is, and we’ve got to improve each quarter to get there.

And we’re working at it.

Q: Good morning. Thanks very much. A couple of quick questions for you – in

terms of the capital base, where is that relative to where you’d like it to be,

say, three to six months from now? Are you still in sort of a capital building

mode? Or should we assume from some of the recent acquisitions that you’ve

done that you feel pretty comfortable with your current capital level?

A: Well, I think our current capital level looks very good and strong, generating

about 10%. Our internal growth rate’s about 10%, which, theoretically means

we could grow assets at 10% without increasing leverage. And 10% asset

growth is a pretty good number to look for.

But I think it also gives us the opportunity of – if the asset growth isn’t there,

as it isn’t, for instance, in Equipment Finance – it gives us the opportunity to

make some good little plug-in acquisitions that we made this year. Half a

billion in rail and half a billion in factoring – to quote Everett Durkson (sp?)

half a billion here, half a billion there, adds up to real dollars. And I think, if



Page 24

we don’t get the internal-growth, I think we have the capital to supplement

that with what I call sort of quasi organic growth because these things will

really fit right into our businesses very nicely. So I think our capital position

is strong. Our internal capitalization rate gives us 10% growth capability

without increasing leverage. And I think those are both strong indicators.

I’m very mindful that we want to keep– and I do know what I’m saying – we

want to keep our ratings strong. Those credit ratings are extremely important.

So we’re very conscious of that – strong credit ratings, good access to all

levels of the bond markets, or showing some of the improvement here. So,

we’re going to continue to have a strong balance sheet. That’s been sort of

CIT’s mantra since 1908 from what I hear. And I’m going to continue it.

Q: One question on the reserves – you’re obviously getting a little more

comfortable with the overall credit trends in the portfolio. Could you give us

a little more guidance as to what benefits we might see from reserve releases,

if any, going forward? And could I confirm that – it sounded, when you were

talking about Argentina, that activity in the reserve meant some charges

against the reserve, not release of reserves?

A: I think that’s what Joe was talking about. The charges, tallying up, charging

against the reserve, but I can tell you the reserve looks very adequate in

Argentina.

And then the question you asked – to jump in here too because the reserve

issue is an interesting one. I mean, I think we look at reserves each quarter

whether they’re adequate, going through our whole loan portfolio. And I

think my view is we should be conservative. The economy’s getting better.

The portfolio’s getting better. But we still should be conservative in this area.

There’s nobody jumping up and down saying we’ve got a booming economy



Page 25

or great growth I think. So watch words should be conservative, cautious, and

appropriate. Those are the three watch words.

Joe, do you have anything to add?

I think we’ve talked about this and disclosed it in our filing. Reserve

methodology is complex. But you can simplify it – hopefully I can simplify

it. We look at several parameters. What are our impaired loans, which is a

defined accounting term. What are our non-performing loans, which you

know what the definition is. And thirdly, what is our historical loss

experience on the sub-segments of portfolios. And we crank that all together

and come up with a calculated reserve, which we look at whether it’s adequate

given how we feel about the economic cycle.

When we do all that, as you saw over not this past quarter but if you dial back

to the last few years, we generally were increasing loss reserves as the

historical loss experience or ratios deteriorated and non-performing levels

increased. The opposite is true, but I don’t think there was a lot of volatility in

variability because of the diversity of the CIT portfolio. Some of the losses

were higher in certain segments like Equipment Finance, as you know. But

vendor finance and home equity losses were relatively stable versus historical

trends.

So, I think this quarter is very indicative of what we, feel and hope will

continue. Credit markers improve, receivable and balance sheet increases.

And what happened was the loss reserve did increase in dollars because of the

increased receivables, but it did decline slightly in percentages. Because of

the improvement, not only the absolute levels of non-performers but as we

look back 12 or 15 months at the historical loss experience and then project

that forward, we’re expecting some lower losses there.



Page 26

So that’s a lot of words, but there’s several variables to key on. What are the

trends in the metrics? What are the trends in the overall portfolio side? And

where we are in an economic cycle? And I think any reserve decrease would

be gradual because our formulas tend to be long-term looking formulas.

I think it’s a good way to look at it. You’re not going to see a lot of volatility.

And as we come out of the bad cycle and go into this good cycle, hopefully

our assets will grow. So that’s the other side of utilization of those reserves.

Q: Some of my questions have already been addressed. But, I was hoping you

could give us a little perspective, maybe walk us through some of the

businesses that have typically perked up ahead of a broader strengthening? I

know in the past you’ve talked about maybe factoring being an early

indicator. Maybe you could walk us through that list of early indicators that

you have.

And secondly, as we look at improvements in credit quality in areas like

Equipment Finance, I was hoping you could parse out what portion of that is

coming from less loss severity or higher recovery rates as opposed to lower

frequencies of…?

A: Okay. In terms of the businesses early indicators, I mean, you see our

business is stronger today than it was last year at this time. I can’t say it’s

stronger in Equipment Finance, and that is an indicator of, I can tell you,

marketplaces which I mentioned – the machine tools, printing, the heavy

equipment marketplaces. We don’t see any, while we heard about some

optimism, we certainly haven’t seen it there. So, that’s an indicator that things

are going to sort of stay static there. We have seen some pick up even in the



Page 27

corporate aircraft marketplaces and that the firming of prices there. That’s

good.

In terms of the technology or office products segment, the technology

segments we’ve seen some – that would be an indication that business was

going to be pretty good next year in those areas because people are investing

in – the small ticket investing seems to be bigger than the big ticket investing.

Put it that way. Railcar leasing rates moving up – that’s usually an indication

that the economy is stronger, that there’s a lot more movement of goods in the

marketplace.

Factoring – the factoring usually is more of a seasonal indicator rather than a

cyclical indicator. And business has been, I would say, generally good there.

One of the indicators in factoring is credit problems. And knock on wood

here, but the retail marketplace, other than Kmart last year, has been pretty

decent. So we haven’t seen a lot of explosions in the retail marketplace.

That’s usually a good indicator that there’s a healthy recovery taking place.

So it’s a little mixed. But clearly more positive than it was six months ago or

a year ago. But as I said to somebody, the talk’s been good. We haven’t seen

all the walk yet. But we’ve seen some of it. So I’m thinking – you talk to

your economists. I mean, most people think the same thing, that there’s a

gradual improvement. The deal market seems to be better. The private equity

marketplace seems to be firming up a little bit. Another interesting aspect that

we’ve seen, the rise of a few more specialty finance companies that have

come into the marketplace, gone public. That’s usually a sign that there’s an

improvement taking place in the marketplace.

So I think the other indicator is our customers, how they pay their bills. Are

they paying faster? Have they got more liquidity? And there’s clearly – the



Page 28

customers look better today, and that’s usually a good sign for the future. The

question is whether they’re going to use that liquidity and spend. We’ll wait

and see.

But overall, I wouldn’t jump for joy but I’d certainly feel better than I did last

year at this time.

Your other question, is on liquidating portfolios and severity and frequency?

Q: Well, I mean, I am curious on the liquidating portfolio. Perhaps you could

comment on that too. I’d just say, if we look in like a particular segment like

Equipment Finance, maybe you could comment a little bit on what we’re

seeing as far as recoveries and whether that’s a big part of the improvement.

A: So looking at a – let me just summarize the question so everybody knows

what I’m talking about. I’ll answer two questions. First the question is, are

the lower losses in Equipment Finance on frequency side or the severity side?

Is that fair?

Q: Yes.

A: I’d say it’s significantly proportionately higher on the frequency side.

Severity still is about – it’s slightly better than it was a quarter ago, but not a

lot to talk about. So we have – we’re working the problems down. The

collectors are hard at work. The inventory is lower in terms of problems to

work out. So it’s the frequency side that’s driving that improvement.

Now moving to the liquidating portfolios, which is I thought where you were

focused, I would say it’s a little bit of both. On the recreational vehicle and



Page 29

manufactured housing side, I think the severity and frequency are about the

same – no significant improvement.

Where we’ve seen some improvement quarter-to-quarter or let’s say over the

last six months, is on the transportation portfolio where I think both frequency

and severity are a little bit better. And then on the franchise portfolio where

we just have less problems to work through and they’re more individual story

credits. Alright?

Q: I guess you could comment on how you guys feel about, where your debt

spreads are at relative to say bank competition. Are you pleased at the 25

basis points, or do you want to see it kind of narrow even more?

A: I’m never happy. I made that mistake three quarters ago when I said I’d like

to see them at 125 over. The world is relative. You ask the question on a

relative basis.

But I think we are trading close to our ratings levels. I think as we continue to

improve the fundamentals of the company, we have a ways to go in terms of

both credit and profitability improvement. I think that will translate its way

into the value of the securities. That’s what our mission is, and that’s in the

debt side and in the equity side. Improve the credit. Improve the operating

profitability. We moved over 12% ROE. That’s not our target. Our target is

higher than that. We moved the losses to 100 basis point core. That’s not our

target. It’s to move them down. And I think, as we move those fundamentals,

our securities should improve.

Another thing is, we’re very competitive at the rates we have in the

marketplace today. Let no one mistake that. And we don’t just compete on

rate. I mean, competing on rate, if that were the case, CIT wouldn’t be around



Page 30

since 1908. The banks’ and GE’s spreads have always been better than ours

as far as, since I’ve been here for 17 years. The banks could always – most

banks are cheaper and so is GE. They have AAA ratings. So rate isn’t the

only competition. It’s the quality of service, the product line we have, the

locations we’re in where others aren’t in, and the fact that we stick with

businesses. We don’t get in and out of them like some fair weather lenders

do. So it’s just not the rate that’s the competitor. Although I must say we’re

much more competitive today than we were six months ago, and we like to be

in that position.

Q: There’s a lot of drivers of the margin, and most of them seem positive. It

would seem like the margin directionally would be heading up for quite some

time. The only metric that looks like it’s come down is the finance income

yield. Can you comment on when you might see or we would see that

stabilize, or we kind of have trough levels in your view at this point?

A: I think that’s a function of interest rate. Our basic portfolio is a three-year

portfolio. So we have loans that were put on in the 2000 interest rate

environment. They get priced to 2003. So it’s a function of interest rates.

The other thing that was a little bit depressed this quarter versus last, and I

mentioned it, I just want to make sure everybody heard it, was our yield

related fees. Some of our fees do go through our margin, as required by

FASB 91. They’re lower this quarter by about 5 basis points, a nickel, than

they were last quarter. And that was a function of some of the pre-payment

activity and some of the loan activity, pre-payment activity slowing a little bit

with, not a continued decline in rates.

But it’s a lower rate environment. We’re going to have that churn. So

hopefully some of the liabilities that are repricing will be repriced at current



Page 31

rates, and we do have some assets offsetting that. So it’s a function of when

and what we put on.

Q: Okay. And then just lastly, if I may, the reserve – you talked a lot about it but

it does look like it’s kind of sitting out at about two years worth of loss

coverage. Is that a reasonable assumption, kind of, going forward plus or

minus a few basis points?

A: Well, I think as I mentioned earlier, we look at a multitude of factors – our

impaired loans, our non-performing loans, and our historical loss levels. So

you mentioned just one of them. I think the loss reserve has ranged from the

low one plus times to about a little over two times historically. And I would

anticipate, given the maturity of our portfolio has not changed significantly,

it’s still a two to three year average portfolio. So I think that range would still

be true going forward.

Q: Hi, everyone. Can you talk a little bit about the funding strategy from a

duration perspective? It sounded like some of the funding in the third quarter

was a little bit shorter. Most of it sounded like it was under three years. Is

that just sort of a coincidence based on sort of what rolled off in the quarter?

Or was that sort of a conscious decision knowing that the long end of the

curve had moved up a little bit in this particular quarter?

A: No. We did do shorter financing than we had been doing, but that’s because

we’ve got to balance the portfolio. If you look back 12 months, we were

doing longer financing than we really wanted to. If you dial back to ’02, we

did a lot of five and ten year financing. And that’s a lot longer than the

portfolio. So, in terms of trying to continue to keep the portfolio relatively

duration matched within the tolerances that we’ve always run, we need to

have shorter financing. Additionally, we needed to reestablish the short end



Page 32

of our curve. Our credit curve was not what we thought was appropriate and

normal. And by issuing at those maturities we’ve now issued at 1, 18 months,

2 years, 3 years, 5 years, 10 years. We’ve reestablished our credit curve. We

thought that was important for us to do.

Q: My question is on the Equipment Finance business. I’m trying to reconcile

very strong improvements in asset quality numbers against comments that the

business there seems sluggish. Is that – I don’t want to say contradiction – but

the kind of different points of reference, the difference between one being

volume and the other being underlying credit that you already have or what?

A: I think that is the difference. For instance, the credit is getting better. The

frequency is getting better. Severity is staying about the same. Problem loans

are going down. New business, however, the markets we served – and it’s

interesting - we just had a session with a bunch of clients at an outing. And a

lot of them came from that area. And I talked with these people. Some of

them were equipment dealers, some were heavy equipment dealers. And they

just said that there isn’t a big demand for construction equipment. Why? A

lot of states and counties and local governments are strapped for funds and are

putting new money in infrastructure. Machine tool demands are soft. Printing

equipment demands are relatively soft.

So what we have, when I say sluggish, is the demand for business – we’re big

in this marketplace. So it’s not going somewhere else. Somebody else isn’t

getting it. If basic demand is soft, we certainly are not going to stretch on

credit in this marketplace. The customer just doesn’t have the appetite. So

what you have here is a business that’s getting better from a quality

perspective, an asset quality business. But it’s not growing because we don’t

have a lot of new business coming in the door.



Page 33

Now in certain segments – the one segment that’s somewhat optimistic is the

healthcare segment. Healthcare seems to be an area we’ll get some pretty

good growth in going forward.

But sort of the basic yellow iron business is soft because of what’s going on

around the country in terms of construction. So one is an asset question, and

one of them is a volume question. I talk about the volume question being soft.

Q: Okay, thanks. And then on the asset quality front, is there anything that the

company’s doing specifically to help drive those better asset quality numbers?

I know you mentioned that your collection efforts are maybe more aggressive

than they have been.

A: I think to some extent we have to learn from our mistake of this recession.

And Larry Marsiello, our Chief Credit Officer, is doing a lot of review and

study. Because if you look back – the good thing is to look back – what did

we do wrong in 2000 and 2001 to have these kind of credit losses? Were we

too aggressive in our advances? Were we dealing with customers who were

too marginal that we – did we react too slowly?

So I think the most significant area, if we look back and do an autopsy of our

credit experience, I would say Equipment Finance is where we took our

biggest loss. There’s no question about it. You know the numbers. And

Larry and his gang are taking a good look at that. Where were we? Was it

something we should have foreseen? Should we – we’re not the only one in

this category. Everybody else was in it. But should we have been a little bit

more proactive?

So we’re going to learn from that, and put in place perhaps more rigid

advance rates, or have a little different standard. But Larry is taking on that



Page 34

assignment to look back and do kind of a post mortem on – especially that

area, where I think – because, if you look over at CIT overall, in terms of

credit and the cost in the last three years, there’s only one business that I’m

kind of embarrassed about, to be very blunt. That’s the Equipment Finance

charge offs, which were historically – we were very good in that area in the

‘90’s. And we really took some big lumps in it. The rest of the organization

credit costs have not really been that far out of line for a recession, not at all.

Alright?

Q: I’ll beat you to it. It’s good afternoon now.

A: That’s right. We went over the allotted hour. Okay.

Q: That’s right.

A: I’m in trouble with everybody. I’m going to get these calls, you let this thing

go too long. You let it go too long. But if you have questions, we’re prepared

to answer them, if we have the answers.

Q: I will make it brief, but I will beat a dead horse a little bit. I’m just looking

for a little additional color on this Equipment Finance improvement – very,

very impressive. If I look at the difference between non-performing assets

and delinquencies, the decline in delinquencies seems to be a little greater. Is

that an appropriate way of measuring the comments on the severity side that

we’re just not seeing that much improvement in the equipment values yet, but

we are seeing better payment trends?

A: That’s probably a good indication. I mean, delinquencies going down should

lead to – be a leading indicator for less non-performing. And the other way

around, if you look back where our delinquencies are going up, the following



Page 35

quarter our non-performing would go up. So I think that’s a good way of

looking at it. It really is.

Q: Okay. And I guess just your comments on last question sort of just peaked my

interest a little bit. What do you think the mistake has been if you were

embarrassed by the performance? Was it just the bubble of the ‛90’s that

caused way too much equipment to be out there and you were caught up in

that? Or was it something else that was more CIT – related that caused the

weakness over the last cycle?

A: I don’t have a good answer for you there. I think one of the issues was the

bubble in the equipment. What we saw in this last down turn that we never

saw before was deflation in the value of the equipment. It came from

excesses. But we also have another issue taking place in the United States.

There’s a sort of deflationary impact on a lot of businesses, as you know – the

first time we’ve seen that in a while. But it impacted this area – excess

equipment, a lot of people throwing it onto the marketplace, and it’s lasted

much longer. And, we will probably – we’re going to do some looking at why

we went wrong. Were we too aggressive or not?

My feeling is it was an industry-wide phenomena. It wasn’t CIT. If you look

at the specifics and charge offs at equipment finance companies in general,

without naming names I can tell you they all went through the same thing. A

lot of people had trucks and equipment parked around, and some of them still

do. So it wasn’t just CIT here alone. It’s just that we’re, being a big player in

this industry, obviously we would be impacted by it.

Q: Maybe you just hold yourself to a higher standard as well?



Page 36

A: And, I think you have to be conscious of the fact that there can be a deflation

in these marketplaces. We lived in an environment where deflation was a

word you never heard.

Q: Right. Okay. And one quick separate question. Can you update us on your

watch list? I think that was great commentary last quarter that you said you

saw improvement on the watch list. And low and behold, you delivered

fantastic improvement in the markers this quarter. How’s the watch list look

now?

A: I would say the watch list is substantially better than it was a year ago, and

we’re continuing to see improvements on the watch list, which is a good

indicator of credit quality. That’s fair to say looking at the businesses.

Q: Good morning. Thank you. Just a quick question much longer term in nature

– you’re moderately levered compared to your run rate over the years. And I

was wondering – I know it’s not a near-term situation. And you’ve discussed

what you do with the capital you’re generating now. But over the longer term,

how long do you think it takes rating agencies to get comfortable to the point

where you can up leverage a bit?

A: That’s a good question. You have to ask the rating agencies. Jeff can take a

little longer view of this thing than I can. We both talked about this recently.

You know, A+ for CIT sounds good as opposed to A. We were traditionally

in that A+ category. And the question is how do you get there. And I think

it’s a lot of hard work and a lot of - we’ve got more progress on a lot of fronts.

But capital is one of them.



Page 37

I personally think we’re fairly well capitalized today. But you have to realize

what kind of environment - we’re just coming through a very tough

environment, so people should be well capitalized.

I think this is something that Jeff, and Joe, and the gang are going to take a

good look at. I have input into it. But I think the long-term, trying to get the

A+ is a good strategy because it gives you access to a deeper market, a little

cheaper funding, more stability. At the end of the day stable, secure, solid

borrower CIT is a better company for its shareholders at the end of the day.

We certainly have plenty of empirical evidence to show that in the last year.

We’re a leveraged institution. So, at some point the trade off is to try and get

ever higher ratings and we’ll tend to hit the ROE. But we clearly want to be

well rated and well regarded. And we want some cushion within our rating

category. So it’s one of the things that Joe and I and Tom and Larry will be

looking at in our strategic plan.

That’s the best we can answer that right now.

Al Gamper: I think, if we have one more question, operator, then we’ll let everybody go to

lunch.

Operator: Sir, there are no further questions at this time.

Al Gamper: Good. So then I can go to lunch now. Perfect. Well, thank you all for

listening in. I’m glad that we’ve made some progress these last couple

quarters. We’re going to continue to work hard to continue to make progress.

And we’ll talk to you again in 90 days. Thank you.

END

cit 2003%20q3

Economy & Finance

im valerie gerard

factoring business

quarter fitting

good implications

good progress

quarter earnings conference

valerie gerardoctober

continued improvement