CIT-Transcript-2006-10-18T15-001

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FINAL TRANSCRIPT

Conference Call Transcript
CIT - Q3 2006 CIT Group Earnings Conference Call

Event Date/Time: Oct. 18. 2006 / 11:00AM ET

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Oct. 18. 2006 / 11:00AM ET, CIT - Q3 2006 CIT Group Earnings Conference Call

CORPORATE PARTICIPANTS
Steve Klimas
CIT Group Inc. - VP, IR
Jeff Peek
CIT Group Inc. - Chairman, CEO
Joe Leone
CIT Group Inc. - Vice Chairman, CEO

CONFERENCE CALL PARTICIPANTS
Ken Posner
Morgan Stanley - Analyst
David Hochstim
Bear Stearns - Analyst
Steven Eisman
FrontPoint - Analyst
Laura Kaster
Sandler O'Neill - Analyst
Meredith Whitney
CIBC World Markets - Analyst
Chris Brendler
Stifel Nicolaus - Analyst
Bruce Harting
Lehman Brothers - Analyst
Howard Shapiro
KBW Asset Management - Analyst
Matt Burnell
Wachovia Securities - Analyst
Eric Wasserstrom
UBS - Analyst
Craig Maurer
Soleil Securities - Analyst
Moshe Orenbuch
Credit Suisse - Analyst
Jordan Hymowitz
Philadelphia Financial - Analyst
Joel Houck
Wachovia - Analyst

PRESENTATION

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the third-quarter 2006 CIT Group earnings conference call. At this
time, all of our participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's prepared
remarks. (OPERATOR INSTRUCTIONS).



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I would now like to turn the presentation over to your host for today's conference, Mr. Steve Klimas, Vice President of Investor Relations. Please
proceed, sir.

Steve Klimas - CIT Group Inc. - VP, IR

Thank you. Good morning, everyone. Welcome to our third-quarter earnings call. Just a few things before we get started today.

First, we will be hosting our annual investor conference in New York on November 7th. If you would like to attend and have not registered,
please contact us at 1-866-54CITIR.

Second, after our formal remarks, we will move into a Q&A. In an effort to run an efficient call and make sure we get to everyone, please limit
yourself to one question. If you have a second question, please return to the queue and we will come back to you as time permits.

Finally, elements of this call are forward-looking in nature and relate only to the time and date of the 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 refer to our
SEC reports. Any reference to certain non-GAAP financial measures are meant to provide meaningful insight and are reconciled with GAAP in
the investor relations section of our website at www.cit.com.

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

Jeff Peek - CIT Group Inc. - Chairman, CEO

Thank you, Steve, and good morning, everyone. Thank you for joining us on the call. I am pleased to report that CIT had a very strong quarter,
with broad-based organic growth in our major units and our 14th consecutive quarter of record earnings. I'm particularly pleased to witness the
success we are experiencing in executing the growth strategy we launched last year.

Across CIT, we are clearly seen the benefits of transforming to a client-centric, market-focused growth strategy. We continue to be the pre-
eminent brand for financing solutions for middle-market companies and a leading provider of global vendor finance. Our unique structure, global
scope and deep knowledge of middle-market lending and industry expertise allow us to continue to build market share in a very, very large and
fragmented market.

Now, in the quarter, we generated core earnings per share of $1.25. That's a 17% increase over comparable quarterly earnings a year ago, and on
a year-to-date basis, a 15% increase even with the addition of options expensing in 2006.

Return on equity improved to 14.7% as we made progress on achieving our goal of a 15% return on equity.

Revenue increased 19% year over year, driven by record new business volume of $11 billion, up 40% compared to 2005.

Managed assets over the past four quarters are up over $10 billion and up 17% year over year. That growth is widespread across our businesses,
with four of our five segments registering expansion.

Some of that growth is simply a case of better market coverage, but we are also seeing significant productivity improvements, with volume per
sales rep up 21% over the same time period. The efficiency ratio improved to 44%, reflecting that much of the one-time investment we have
made in building our sales organization is complete, and the expected incremental growth in revenueis being delivered.

Of particular note, non-spread revenue for the quarter was up 35% as compared to last year. Non-spread revenue accounted for 43% of total
revenue in the third quarter, excellent progress as we look to build an evenly balanced revenue stream in the years to come.

Credit quality remained strong throughout our $70 billion portfolio, with current period losses well below historic norms and nonperforming
assets at controllable levels.

Clearly, efficiency has been a focus of our investors and top of mind for our senior management team. This quarter, I am pleased to report that
our revenue growth outpaced investment growth sixfold. Our expenses did increase slightly, and that will continue into the fourth quarter, but we
are tracking to plan and our efficiency ratio improved this quarter, reflecting the beginning of a positive trend.



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Our strong credit culture continues to be at the heart of what we do. Credit performance was once again excellent, with net charge-offs of 47 basis
points. Losses remain near historic lows, as we continue to benefit from the healthy commercial credit environment, a diverse portfolio and good
recoveries. Consumer delinquencies did increase, as expected, while overall portfolio quality remains very good.

Now, with that as a backdrop, let me provide you highlights from our five business groups. Let me start with Vendor Finance. We continue to
make great strides in growing our vendor and related customer base. Last quarter, we told you about our new relationship with Microsoft, and this
quarter, we announced our planned acquisition of Barclays' UK and German vendor finance businesses. This transaction will be immediately
accretive, and will improve our corporate return on equity in the first year, as it is being funded entirely with debt.

This deal is very strategic for us. It provides additional scope and scale within a core business, accelerates our international expansion and
solidifies our position as a leading provider of global vendor finance solutions. In addition, the acquisition, which will close at the end of 2006,
will significantly leverage our existing expertise in surfacing vendor relationships across Europe.

I'm also pleased to announce the appointment of Kris Snow as President of Vendor Finance Americas this past quarter. Kris comes to us from
Sun Microsystems, and her appointment reflects our commitment to the continued expansion and development of our vendor financing business.

Now, let's talk about Corporate Finance. Our Corporate Finance business had a terrific quarter, with volume more than doubling to $4.3 billion,
putting the unit up 17% year to date. With six lead agencies and over $800 million of volume, we now rank number 10 in the middle-market lead
tables, up from number 23 at the same time last year. Our vertical industry strategy is working extremely well.

Healthcare originated over $800 million in new business volume, and finished the quarter with a net margin of close to 400 basis points.

Our Communications, Media and Entertainment unit originated over $600 million in new volume, with net margin of 350 basis points.

Our Construction unit delivered over $400 million in volume, and is now generating an ROE of over 15%, well over the corporate hurdle.

Moreover, we are very encouraged with the traction we are seeing in our new initiatives, which include our M&A and commercial real estate
advisory units. We are off to a strong start in these businesses, and they are generating positive returns for us. We expect continued gain and
progress in 2007 from these units.

Now, our Transportation Finance Group is on track for a record year. This quarter, we contracted to lease six new Airbus aircraft to Qatar
Airways of the Middle East when we take delivery of these planes in 2007 and 2008. This strong global demand for commercial aircraft has been
discovered by investors, as evidenced by the attractively priced aircraft leasing IPOs and platform sales. As one of the top three aircraft lessors in
the world, we think that speaks very well for the inherent value of our global aircraft leasing franchise.

Now, the rail leasing market also continues to improve, with high utilization factors, strong lease rates, longer lease terms and attractive returns.
During the quarter, we completed a transaction with Bombardier, which will add over 15,000 cars to our service fleet and bring our rail car
portfolio to over 100,000 cars, clearly anchoring our position as a market leader going forward.

Trade Finance posted record factoring volume of $11.8 billion, and receivables grew about $1 billion in the seasonally strong third quarter.
Commissions were up sequentially on the increased volume, but fell slightly from a year ago, due to the softer retail environment we are
experiencing. The management team at Trade Finance is making good progress working to expand relationships beyond traditional factoring
arrangements, and this quarter had a great win by providing Ecko Unlimited with a $125 million revolving line of credit. Ultimately, we are
making excellent progress in deepening client relationships and gaining greater share of wallet with our large retail customer base.

Now, finally, let me spend a minute on our consumer SBL segment. Returns for this group exceeded the 15% corporate hurdle as we increased
our level of asset sales in the quarter. Taking a look at the individual businesses, home lending returns are hovering around 15%. Volume
continues to be strong, but we have deliberately slowed portfolio growth in favor of maintaining a more consistent percentage of the overall CIT
portfolio. Accordingly, the portfolio is seasoning, and we are seeing an uptake in delinquency because of it. We expect this condition to continue.

Student Loan Xpress continues to perform very well. Third-quarter volume almost doubled from the prior year, with school channel origination
increasing 74% over the same quarter last year. Student Loan Xpress is now on the preferred lender list at over 1,200 schools, an increase of
almost 500 schools since the beginning of the year. Our portfolio now stands at $8 billion, of which we are now servicing half in-house at our
Cleveland servicing center.



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In summary, in the third quarter, we successfully demonstrated our ability to execute on our growth strategy while maintaining our strong risk
disciplines. With that, I would like to turn the call over to our Vice Chairman and Chief Financial Officer, Joe Leone, for a more detailed view of
the financial results.

Joe Leone - CIT Group Inc. - Vice Chairman, CEO

Thank you, Jeff. Good morning, everyone. I would like to give you a little bit more color on some of the financial items that impacted our
quarter.

As an overall statement, as Jeff went through that, you can hear that we had a lot of accomplishment in the quarter. What I saw in the quarter is
continued efforts to better position CIT. You saw productivity improvement. We need to do more. We're trying to position the Company for
sustainable earnings growth and continue to have a very strong focus on ROE.

So, in addition to executing on our core business plans that Jeff just described, we did some other things. We exited some lower-returning
portfolios. We did further leverage our tax structure, and we continued to enhance our balance sheet management strategies that we have been
talking to you about.

Some color on some of these items. First, the tax items. As part of the continuing tax strategies we've spoken to you about, which involve
transferring aircraft to Ireland, we did more of that this quarter, and now about half or more than half of our net investment is operated out of
Dublin. As a result, this quarter, $56 million of our previously recorded deferred US tax liabilities will not have to be paid, and therefore we
reduced tax expense by that amount. That added about $0.28 to the reported earnings per share this quarter.

In a related transaction, we terminated several borrowing transactions we had entered into in 2002, to finance some of these aircraft. That was
about $300 million in financing we did in 2002. We determined if we could move those planes to Ireland without that financing, we could
generate some of those tax savings I just spoke about. We actually did do that, and we refinanced that debt at about a 60 basis points savings as
well, so both tax and cost-of-funds savings. The prepayment cost of that cost us about $0.02 a share this quarter.

As we disclosed in our press release, we also decided to exit certain aspects -- some smaller aspects, but certain aspects of our transportation
finance business in conjunction with this evaluation of tax strategies, et cetera. In rail, we decided to sell a portfolio we had of low-capacity
boxcars and gondolas, and that is part of our strategy to dispose of less economically attractive assets. These assets were much older than our
average fleet, which has a very good young average age of about six years; these were much older than that, and were generating returns well
below our corporate hurdle rate.

In aerospace, we're selling a portfolio we have of aircraft engines. We're no longer in the business of financing engines, but we have these
engines, and these assets were also generating subpar returns and would have required more investment to refurbish the engines. So when we
looked at the marketplace, we thought it was an opportune time to freshen that up. These engines were also older than our average age of our
aircraft.

If you recall, these actions are similar to what we did a year or so ago when we took a look at our aircraft portfolio and sold some older, out-of-
production aircraft. By the way, all of those aircraft have been sold at or near our expected realizable value.

When we look at the air and rail transaction, that cost us about $0.04 this quarter. Finally, we recorded about a $9 million pretax charge to
improve efficiency of certain operations. For example, we're moving our New York rail operation and consolidating that into our Chicago rail
operation, along with some other efficiency initiatives. Most of this charge was severance-related and decreased earnings per share by $0.03.

So, combining these -- and Jeff went through the bottom line. Combining these, these items increased earnings per share by $0.19. So, without
these, Jeff mentioned, our earnings per share was about $1.25, up 17% from a year ago.

A little bit more information on operations and operating drivers. First, revenues -- very strong quarter in terms of top-line growth. Net finance
revenues increased significantly versus the last year in terms of dollars, but on a percentage basis, net finance revenues were down sequentially
about 17 basis points. I know you have questions on that, from the notes I saw this morning. So let me give you some reasons.



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First, 3 basis points is due to the prepayment of that expensive aerospace debt that we needed to prepay to get the tax savings, so that's 3 basis
points. Funding costs were relatively higher, and we saw some impact, as others have, from the yield curve and it's shape. We continued to
lengthen debt maturities in the quarter. The average tenor of the debt we issued was about seven years, and we carried high levels of cash at the
quarter end. These funding items reduced margins by about -- or spreads by about 3 basis points.

Mix is changing, as Jeff went through. That mix change with more student lending in our percentage portfolio also, of course, caused spreads to
decline by about 3 basis points.

Finally, yields-related adjustments reduced spreads by about 5 basis points. What I mean by that -- our ability to charge fees, which enhance
yields, in markets like this where there's a lot of liquidity in the market is more difficult, particularly in corporate finance. Some of the fees that
normally get recorded in this line are shifting into non-spread revenues as a result of our syndication efforts. A little bit more on that in a moment.

These were the larger variances and account for most of the sequential variants. The remainder of the decline relates to market influences, and
overall market liquidity is robust, as you know. Pricing still remains tight, yet I think our pricing discipline remains.

Offsetting this pressure, you saw a very strong revenue quarter. We built non-spread revenues significantly, up to a record $340 million. Fee
incomes were strong and gains on loan syndications and sales were strong. That's on strategy. It's a direct result of our strategy to maximize the
value of what we do best -- originate loans and provide more product and value to our customers.

We have been talking to you about building our loan distribution capabilities to match our origination capabilities, and we are improving those
distribution capabilities. We saw strong balance sheet growth, assets up 6% sequentially. That was after a very strong loan syndication effort.
This quarter, we syndicated $1.8 billion of commercial loans. That was about double what we did last quarter. In the consumer segment, loan
sales were up 30%.

We began last quarter -- we mentioned to you and it's included in our press release and our 10-Q -- disclosing the revenues we earn on these
syndication efforts. We earned about $89 million this quarter, up from $63 million in Q2, so very strong activity there.

On the fees side, Jeff mentioned a lot of strength in a lot of areas, particularly loan structuring and advisory, so a strength in healthcare, energy
and construction. Some of the increase came from sponsor finance and advisory work. Last quarter, I mentioned we have been invested heavily in
the M&A advisory business, particularly in the first half of 2006. We have a very strong pipeline, Jeff mentioned. We closed transactions this
quarter, and we had over $6 million in fees this quarter from that business.

Another new initiative -- or an expanded initiative, I should say -- that has gained a lot of traction is Insurance Services. Revenue almost doubled
from a year ago to about $10 million. It's a fee business, and it's got a very high ROE.

Jeff mentioned credit. Credit losses increased this quarter, and the increase you see in Trade Finance is a direct result of our charge-off of one of
the loans that we put on nonaccrual last quarter. Overall, Jeff mentioned, and you can see in the statistics, commercial finance credit quality is
strong, and we see stable delinquency and relatively low nonperforming levels there.

We continue to work on the nonperforming loans. We spoke to you about other loans in the past quarters, and we previously provided balance
sheet reserves on those accounts and we continue to work on those.

In the Consumer business, overall charge-offs were low, 60 basis points, flat sequentially, down from a year ago. The delinquencies and
nonperformance did increase. Half of that is in student lending, where delinquency is not indicative of losses because of the government
guarantee, which approximates 98%.

The other half of the increase is in home lending, and that is seasoning. Give you some stats on that -- home lending delinquency was about 3.8%,
60 days plus, and the seasoning is just short of 20 months. If you go back several years, when we were about at 20 months seasoning, our 60-plus
delinquency was over 4%. So, while we see the static pool delinquencies rising, I think the metrics are performing within our modeling
parameters.

As Jeff said, we will see delinquencies in home lending continue to rise as we hold the outstandings in that portfolio basically at current levels.
Having said that, we expect to manage the home lending returns including CIT Bank, where many of the assets are funded, to be at or near the
corporate hurdle rate.



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Loss reserves -- a lot of attention in loss reserves in the market. We increased reserves $21 million this quarter. We provided $13 million in
charge-offs to build reserves, and that reflects portfolio growth and delinquency trends. As a percentage, reserves dropped 6 basis points without
student lending, and most of that is due to the seasonal growth in factoring, where we don't provision quarterly because of its seasonality. Overall,
we're comfortable with our reserving.

Texas -- some noise in the taxes. Let me explain what's going on. I spoke about the deferred tax release relating to aerospace. Excluding that, our
effective tax rate in the quarter was about 29%, and that brings our year-to-date effective rate for the nine months to just below 31%. The lower
rate this quarter was a true-up. We are required to true up the rate every quarter, and we trued up the year-to-date through the current-quarter
provision. We continue to work hard on the tax line, and I expect our tax rate to be at or below 31% for the remainder of 2006.

On the funding side, diversity is the key strategy we have been employing, and we have had success. Syndication activities is one example.
Another success -- CIT Bank, $2.2 billion in deposits, exceeding our 2006 target ahead of schedule.

Liquidity -- I mentioned we were carrying excess cash -- $3 billion at the end of the quarter, and we try to stay ahead of our borrowing needs,
particularly in light of the acquisition of Barclays' vendor finance business, which had closed in Q4.

In the last six months, we have received positive outlook upgrades from two of our rating agencies, S&P and DBRS. We continue to remain very
focused on operating the Company at the highest debt ratings practical.

So, not only was the earnings level strong, the return on equity Jeff described, 14.7% -- we were happy with that. It was a considerable
improvement from Q2, and that was on the strength of the strategy of increasing loan and lease originations, increasing syndications and fees and
moderating expense growth.

So, we continue to work hard on improving underperforming businesses. Jeff mentioned the improvement in construction. We disposed of some
underperforming sub portfolios described. The ROE of student lending, including the goodwill that we need to earn a return on, moved to just
over 11%, and that is up significantly from a year ago.

So, to wrap up, we're focused on the return on equity and building franchises that have earnings growth potential. I think that continues to
leverage our balance, and we continue to need to focus on balanced business mix, what we hold on our balance sheet and what we sell through;
improved productivity, very focused on that; and continue what we do best as well, which is prudent risk management

So, with that, let me turn it back to Jeff to add some color on the financials.


Thanks, Joe. Just to recap, we're very pleased with our results for the third quarter. Our business strategy is on track and our commitment to
credit has never been stronger. The economic trends and the business environment underlying our operations continue to be favorable.

We have solid momentum and a motivated group of employees committed to CIT's continued success. I want to personally thank our more than
7,000 global associates for their diligence and commitment to CIT as, together, we build a leading global finance company.

I also want to extend a special welcome to our newest independent Director, Susan Lyne, who serves as President and Chief Executive Officer of
Martha Stewart Living Omnimedia. Her experience and expertise in running major communications, entertainment and retail companies will
bring an increased depth of talent to our Board, and adds to its independence.

Now, as Steve mentioned, we will be providing additional insights into our business operations and information about our 2007 plans at CIT
Investor Day on November 7th in New York City. We look forward to seeing you all there.

Now, I would like to open the call for questions.

QUESTION AND ANSWER



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Operator

(OPERATOR INSTRUCTIONS). Ken Posner, Morgan Stanley.

Ken Posner - Morgan Stanley - Analyst

I just wanted to ask a little nitpicky question, if I could. On the other revenue line item, I saw in the press release the significant contribution
from the advisory and other fees. I was wondering if you could just give us numbers on securitization gains in the quarter and how that compares
sequentially or a year ago.


I'll take that. We do disclose that separately, and securitization gains were stronger this quarter. They were a little over $13 million, up from $6
million a quarter ago, which is a relatively low level. We have been running at a relatively low level in terms of percentage of earnings. The
reason for the increase in the gain was that we securitized, this quarter, loans, particularly out of our Vendor Finance program, that had higher
spreads. So it's in the body of one of the tables right below the income statement, where we breakout for you of all the significant elements of our
other revenue.

Operator

David Hochstim, Bear Stearns.

David Hochstim - Bear Stearns - Analyst

Would you just run through again what might be happening to the net interest spread over the next couple quarters, and remind us what there is
in the way of debt refunding coming up?


Sure. I would say that, first of all, 3 basis points relative to the aerospace prepayment of high-cost debt, take that out of the analysis. So margins
sequentially were down about 13 basis points, in round numbers. I would say that about 3 of that had to do with funding extensions and yield
curves, and about 3 of that or so, 2 to 3 of that had to do with business mix. So those factors could continue, given how we see the business
portfolio mix and growth coming in, and depending on how market rates trend.

The other side of it, which was yield-related adjustments -- that's one that's harder to predict. That's where we get, in certain quarters, certain fees
from the prepayment of debt. In this quarter that was lower, and some of that actually shows up in our syndication gains, because if we have a fee
and defer it and amortize it over time and then we sell the loan, that is brought into income in the basis of the loan.

So that was harder to predict. But on a sequential basis, I would think margins would stabilize somewhat from where we are. It's a function of
where the yield curve goes and how our business mix goes.


Can you give us an idea of how much of the syndication fees moved from spread volume to syndication?


It was a couple of the basis points in that 5 or 6 that I attributed to yield adjustments in the margin.




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How does extending the debt maturity or, I guess, the higher funding costs relate to the match funding that you have done traditionally? Why
couldn't we see the increase in yields at the same time or at the same rate?


Generally, we have a match funding philosophy still. We really run the treasury book the same way from an interest rate perspective. You will
see that data when we file the Q in terms of the percentage of fixed-rate funding we do versus the percentage of fixed-rate assets that we have.
You will see that is all within the same tolerances, and we will give you the sensitivity to 100 basis point interest rate shocks. But that's all within
the way we have managed treasuries for the last 15 years.

What we have been doing is lengthening maturities, however, and we think that's the prudent thing to do, given that interest rates are generally on
the low side. We think that building liquidity is very key, as we look forward to building out the franchise and building the balance sheet and our
funding capabilities going forward. So we have been extending liquidity so that we're managing, so to speak, our going-forward maturities we
have year to year. We just think it's the prudent thing to do.

So if we make a three-year loan in the business, that business is getting a three-year liability cost in its ROE. But if it's on the treasury side, we're
taking that extension cost and putting that in corporate. Hopefully that helps you.


Yes. Can you just, again, tell us how much there is in debt refunding coming (multiple speakers)?


I'll tell you, in the fourth quarter, not a lot. I'll say in 2007, we will talk a little bit more about this Investor Day. It's five years, next year, from
our IPO. Time flies. When we did our IPO, right before we did our IPO, we did a very expensive debt financing. So we have 1,250,000,000 of
five-year maturing in May of 2007, and that has got a cost -- we swapped it to float. It's well over 200 basis points on a LIBOR-equivalent basis.
So, you can do the math on that.

Operator

Steven Eisman, FrontPoint.

Steven Eisman - FrontPoint - Analyst

It's been a long time since I've been on a CIT call. I had a question with respect to your aircraft leasing business. There was a company that went
public a few months ago called Aircastle -- which is, I guess, a competitor of yours, though it's quite a bit smaller -- which has been structured
into a REIT format and has given the Company a pretty high valuation. I'm wondering if you are considering in any way or of hiring anyone from
the outside to look into whether restructuring the aircraft business at CIT in that type of format would make any sense.


We have engaged some outside experts to look at the whole sector for us. We like the quality of our portfolio relative to some of these more
recently assembled portfolios like Aircastle. We look at the multiples of 16 to 18 times, whatever it is now. I think it has done well since its initial
pricing.

We are clearly examining ways in which we could monetize some of the value in our portfolio. We are not really ready to -- we don't really have
a conclusion now, but we're very actively working on it with the senior manager of our leasing outfit. Their order book is very strong at this point.

Steven Eisman - FrontPoint - Analyst



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Would there might be an answer one way or the other by the Investor Day, or no timeframe on it?


I don't think we have a timeframe. Probably by the end of the year, we would like to have concluded our strategy, but the market right now is
very positive for our kind of company. We are looking at a number of different ways that we can try and realize some value for shareholders.

Operator

Laura Kaster, Sandler O'Neill.

Laura Kaster - Sandler O'Neill - Analyst

Joe, I have a question for you. You said that delinquencies in home equity were about 3.8%?


Yes.


Was that up from about 3.35% last quarter?


I believe so. I don't have it in front of me, but it's up from last quarter; that's right.


I apologize if I missed it -- did you give that same type of breakout for student lending?


No, I did not.


Could you tell --?


Student lending -- I mean, you can reverse-engineer it a little bit, if you want. Student lending delinquencies did increase as well, and that's a
function of a bit of the seasoning of the numbers of loans we have in the repayment stage, and the seasoning or the length of maturity that they
have been in the repayment stage.

So, student lending delinquencies are higher as well. Having said that, as I said earlier, there is no concern in terms of the economics, because
most of that, 98% of that, is guaranteed. We have very little private lending in the portfolio.



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For your home equity portfolio, is loan to value still around about 70%?


No. Loan to value has been at about 80% for a while, and I think we disclosed those metrics in our Q.


(Indiscernible) funding.


Oh. No, Steve just mentioned that's at funding, okay. I know what you're referring to now. When we mark it to market, it's still in the low 70's.
That's right.


What I'm getting at -- it's in line with last quarter?


Yes, yes, yes. Let me just repeat, to be clear. The LTV at funding is 81%. Every year, the unit goes through a re-evaluation based upon current
reappraisals, and we're in the low 70's, let me put it that way, based upon current prices.


You said that recoveries again were strong this quarter. Do you quantify those, and can we get sequential quarter and year-over-year numbers, if
you didn't outline that?


I didn't outline it. It's 20 basis points this quarter, which is similar to the last quarter.


Last quarter was about 23?


This is in the 20 area. Okay?

Operator

Meredith Whitney, CIBC World Markets.

Meredith Whitney - CIBC World Markets - Analyst



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I had a couple questions, trying to work on my model and try to put a little more gas in the tank. The fee line is still below where I had modeled
it from the beginning of the year, and the expense line is still higher than I had modeled it at the beginning of the year. Obviously, I'm not saying
that my model is what it should be, but I'm just wondering in terms of, Joe, you had talked about the margin, and given some outlook on that
going forward. If you could give some tangible examples of our where you might extract expenses?

I know you are reorg-ing some locations for some of your operations. Is that going to incrementally drive expenses higher or lower? If you could
just provide some color on that, that would be great.


I'll try to answer that. I guess the way we think about it is there's productivity gains that we need to get. I'm not going to speak specifically about
where we can take out expenses, but there's productivity gains we need to get. Jeff mentioned we had a nice increase in productivity from the
sales force investments, very high double-digit increase in sales force productivity gains.

Having said that, some of the units are performing better than others, in terms of where we are in the seasoning of the sales force. We measure the
productivity of the sales force based upon their tenure with us, and it's not a surprise that the salespeople that are with us of shorter tenure
generally have lower productivity, as it takes a while in certain businesses, particularly commercial finance, to build a pipeline.

So, number-one answer is we continue to look for more returns on the sales investments that we have made; that's number one. Number two,
having said what I said about expense reductions, I still see opportunities for us to homogenize and consolidate our facing with the customer and
the systems we use to both interface with the customer and to record and service leases and loans.

We still have more operating systems and more practices than we need. The operations people and our systems people are working hard at
coming up with a CIT way of doing business, whether we're doing it in Shanghai or Jacksonville, that is similar so that we can extract
efficiencies, best practices, et cetera. I think you will hear more about our operational view at Investor Day.

Hopefully, that's a little color on both the sales and the back-office support side.


If you guys were in sort of heavy buildout mode in 2006, is most of the hiring of new salespeople finished now?


Yes. We think we're probably 95% complete on that, particularly in the second half of the year. I'd have to say you were pretty aggressive on
fees, then, in your model. Because the third quarter was a terrific quarter for us in terms of fees and particularly larger deals and that type of
thing. We still have a number of senior bankers who have joined us within the last 12 months that are just kind of getting going. We don't have a
full 12 months of their production yet. So, maybe that gives you a little bit of optimism that your model on fees isn't quite so far-fetched.


In terms of on a nominal basis, you're absolutely right; fees have grow nicely. I'm just saying, on a mix basis, I probably was a little off.

Operator

Chris Brendler, Stifel Nicolaus.

Chris Brendler - Stifel Nicolaus - Analyst



FINAL TRANSCRIPT

I had a question along the same lines. Can you talk at all about the strength in the fee income, syndication fees? Is that all loan syndication? If
you do bulk home equity sales, do they show up in syndication, or do they show up in the gain on sale of receivables?

Just talk about helping us think about the sustainability of the fees. The investment bankers you're hiring -- are those going to show up in the fees
and other income line?

Then one final question is just sort of help us with what to do with home equity this quarter, in terms of bulk purchases as well.


Wow. Steve Klimas, that one question is five parts. But Chris, I'll try to do my best on it. In terms of geography, advisory fees or fees we get
from using the value we provide in structuring -- we break all this out on the bottom of our income statement; it looks like a note or an extension.
That would go into fees and other income, which were, let's say, flat, essentially, or slightly down quarter to quarter, but very good level. Some of
that is a little bit episodic, but we record $140 million of those kinds of fees.

In terms of asset sales like consumer sales or other loans we may sell as opposed to syndicate, we have not broken that out. You can see, though,
we put them together in geography on the income statement, in a line that's called gain on receivable sales and syndication fees. I would say both
were up quarter to quarter, and we saw a $25 million sequential increase in the aggregate.

In terms of the home lending, we bought and sold approximately $1 billion in terms of home equity bulks, have bought about $1 billion and sold
$800 million or $900 million, somewhere in the $800 million area.

Chris Brendler - Stifel Nicolaus - Analyst

Just to be clear, you said that if you sold $900 million in home equity, that would go into syndication or gain on securitization and sales?


It would go into gain on receivables sales and syndication. What would go into securitization -- where we have a trust that we've established and
did a good, old-fashioned ABS structure, that's the only thing that goes into securitization.

I think Ken Posner asked the first question on this, where I should also have said there's no consumer loan securitizations that we have done this
quarter. We're still on strategy. What we have said to you all is that if we securitize, we will do it with assets that have shorter tenure so that,
really, the only variable we're concerned about is getting the credit loss assumption not right, not the prepayment assumption. So we did not do
any significant -- we didn't do any home lending securitizations, for example, in the quarter; we did vendor-financed securitizations.

Operator

Bruce Harting, Lehman Brothers.

Bruce Harting - Lehman Brothers - Analyst

Any notable movement in the credit metrics that may not just come out in the aggregate numbers? It looks like, for example, Corporate Finance
continues to be extremely low on net charge-offs, but continues to see a little bit of an uptick in NPAs as one area. Any other areas you might
want to discuss in terms of migration and recoveries?


We have had a good level of recoveries almost for a number of quarters here. On the commercial side, we continue to see a lot of liquidity, high
recoveries, credit looks pretty good. I think the one area that I think Joe and I have both telegraphed is we anticipate seeing increasing



FINAL TRANSCRIPT

delinquency in the home lending portfolio. It's manageable; it's not catastrophic. But I think that's -- we anticipate seeing increases there in terms
of delinquencies.

On the other part of Specialty Finance, student lending, vendor, SBL -- I think it's all pretty tranquil.

Operator

[Howard Shapiro], KBW Asset Management.

Howard Shapiro - KBW Asset Management - Analyst

On the syndication business, I know that's fairly new for you guys and it's growing quite quickly. Is there any seasonality that we should be
looking at?

Then, just kind of a follow-up on Bruce's question, Jeff. As you look out into 2007, what is your assessment of kind of the core credit
environment?


I think, in reverse order, I think, as we look at out at 2007, we probably are planning for charge-offs which would be somewhat higher than this
year. We've been saying for a number of quarters that we thought our mix of businesses probably had a norm of someplace around 70 to 80 basis
points in charge-offs and, thankfully, have not approached that. But we're in the beginning of our planning for 2007, and my guess is that we will
plan for a slightly higher level of charge-offs than we will have for 2006, if that's helpful -- not for the full 80 basis points, but we'll probably
factor in something more than 46.


So, some movement towards normalization but not quite there yet?


Yes.


You had a first question, Howard?


Yes. The question was just on the syndication business. Is there any kind of seasonality?


I don't know too much. It probably has to do with loan activity. One of the earlier questioners talked about sustainability of gains from
syndication. We've built up a group of about 50 individuals now in our syndication area, and I think revenues from that unit are pretty sustainable,
because they are basically us making commitments of credit and then selling it down to our hold position. So, that's an activity that goes week in
and week out. That's one of our basic businesses.

Operator



FINAL TRANSCRIPT

[Matt Burnell], Wachovia Securities.

Matt Burnell - Wachovia Securities - Analyst

A couple of asset quality questions. Joe, you mentioned that in the home equity portfolio, you take a look at the current loan to values of the
portfolio on an annual basis. First of all, I wanted to make sure I got that right, and if I am right, I'm wondering, given the current state of the
housing markets relative to the beginning of the year, if there are any specific areas or geographies where you are going back to take a look at
those LTVs to make sure that you feel comfortable with those?


You have it right. I didn't have it right when I answered the question. So just to be clear, once a year, we do go back and sort of update and
underwrite the appraised value of all the homes. The last time we did it, which is not too long ago, it was in the low 70's. So you had that first part
of your question right.

The other part of the answer, I think, is that -- and it's what we have been talking about in terms of our underwriting. We, over the years, have
said our average home price or average loan size is relatively mid-sized or down-market. Our average loan size is about $121,000, $125,000,
which equates to a very moderately priced house. We have avoided some of the coastal markets where you have a lot of appreciation, a lot of
bubble and a lot of depreciation.

So, I would say the same thing. We had that in our risk management practices throughout 2004 and 2005, and I think that will serve us well as we
go through 2006 and have gone through 2006 and into 2007, focused on the average loan size and avoiding some of the areas. Clearly, the coastal
areas, the resort areas, the condo areas have seen that bubble prick, burst or -- as real estate value has declined. But we don't have a lot of that
lending with an average loan size of $121,000. And Michigan, for that matter -- we don't have a lot there.

Operator

Eric Wasserstrom, UBS.

Eric Wasserstrom - UBS - Analyst

I just wanted to get some clarity on the M&A pipeline that you guys were talking about on the call. Is a lot of that related to your relationship
with Piper, or is some portion of that from relationships that you have independently?


We're very excited about the relationship with Piper, and that has contributed to not only the advisory pipeline but the financing pipeline. But I
would say a majority of the backlog we have got in our strategic advisory business really is working our own relationships and new business
development.

Operator

Craig Maurer, Soleil Securities.

Craig Maurer - Soleil Securities - Analyst

Just something you said earlier, that you're seeing a quot;softer retail environment.quot; I was wondering if you could comment on that with a little more
detail, maybe what sectors you are seeing that weakness in?



FINAL TRANSCRIPT


Well, I think relative to -- third quarter is a big quarter for us in factoring and also business capital. We are up probably $1 billion to $1.5 billion
in those sectors in the quarter, which is the buildup of back-to-school and then buildup of inventory for the holidays. I think probably, with the
consolidation of the retailers, whether it's Macy's into Federated or whenever, we're seeing some hesitancy by the big retailers just to book as
much inventory as they might in years previously. We think it's probably going to be an average retail season.

Operator

Moshe Orenbuch, Credit Suisse.

Moshe Orenbuch - Credit Suisse - Analyst

I was a little surprised, Joe, when you said that mix cost the margin a few basis points, given that you had probably a higher percentage of
commercial loan growth than in the past. Could you just talk about the margins that that growth is coming on at?


I don't know if I got your question, but let me try, and then follow up if I don't. Jeff gave some examples of where we see better spreads, in terms
of some of the commercial finance businesses. We did have significant growth this quarter, again, in the student lending space of the portfolio,
which is up to $8 billion. That's what I meant by the mix.

Having said all that, where we see -- and I mentioned this earlier -- where we see some of the margin pressure is in corporate finance lending.
You probably have read about this, seen it and heard from other banks, et cetera, that there's a lot of lenders chasing fewer deals, in terms of
having a lot of liquidity in the market. So in Corporate Finance generally, we see that obtaining increasing spreads or maintaining spreads
because much more difficult, and we have to sort our way through a lot of opportunities to get there.

Then the other factor that I mentioned -- they are not coming with the yield-enhancing fees these that cover some of the origination costs. Those
fees have dissipated, they are skinnier, et cetera.

So overall, I would say I think our core margins or our basic lending margins have held in there quarter to quarter, but some of the net fees we
can get to cover some of the origination costs and the mix, given that we are and have grown student lending, was what I was getting at in terms
of that. So hopefully, that's helpful.

Moshe Orenbuch - Credit Suisse - Analyst

That is, actually. How does that impact your growth plans kind of over the next several quarters?


I think I'll just react to one of them, and Jeff and I have already both said this. The other business that's in consumer that affects the mix a little
bit is in home lending. We anticipate running that book at about the $10 billion, $10.5 billion level as we look out. So that will hopefully be offset
with more robust commercial finance originations, as the sales force productivity continues to improve.

Operator

Jordan Hymowitz, Philadelphia Financial.

Jordan Hymowitz - Philadelphia Financial - Analyst



FINAL TRANSCRIPT

Congratulations on the good commercial loan growth. I had a couple of questions on the mortgage portfolio, actually, and just the concentration
issues. I thought the limit was going to be around 25% home equity and something like 28.7%. Is there a line in the sand that this is the most this
portfolio is going to be as a percent of managed assets?


Well, I didn't do the arithmetic. But we have about $10 billion of home lending assets, and we have about $72 billion of total assets. So I think
we're still true to what we said to you.


I'm sorry; maybe I'm confused. I thought it was 20.4 home lending financing securitized and managed by CIT?


It's about $10.5 million, is my recollection. If you have a different number (multiple speakers).


No, I'm sorry. I apologize. I now look at this -- I was doing the math wrong. I apologize there.

Operator

Joel Houck, Wachovia.

Joel Houck - Wachovia - Analyst

You guys have talked about the kind of continued upward momentum in terms of fee income generation. This 50/50 dynamic which I think
you're talked about in the past, Jeff -- is there a rough timeframe for when you think this can be achieved? Just given kind of the margin
weaknesses, it's clearly a good thing to have it happen. But to the extent that there's more visibility on this, I think obviously it would be helpful
to the valuation of CIT.


I think we're working very hard on it month by month, quarter by quarter. So I don't particularly want to put a destination date on it. But we
would hope that -- we're at 43%, I think, this quarter. We were at 41% last quarter. We would hope we continue to make progress on that ratio.
Some of these fees are pretty predictable, and others are more episodic. So it's a little hard, I think, for us to come down with a definitive date.
But we're certainly pushing the units to focus on fee income. I would hope that that ratio continues to improve.

Operator

David Hochstim, Bear Stearns.


I wonder if, Joe, you could just review the accounting for the engines and the rail cars that you disposed of, and how marking the fair value
differs from the normal accounting for those assets?




FINAL TRANSCRIPT

Sure. In my remarks, I sort of harkened back -- if a year is harkening -- back to a year ago, where we did it with a more significant part of the
aerospace portfolio. The portfolio for leases is governed under GAAP, and it's sort of a hold-to-maturity type of accounting, hold-for-investment.
Once we make the decision that we have a marketing process and an intent to sell, you move from a historical cost basis of accounting to a more
lower of cost of market, a markdown philosophy.

So that's what the accounting rules require. We made the decision in Q3 to exit these portfolios, and we marked it to our estimated valuation. As I
said, when we did this in the third quarter with the out-of-production aircraft -- not the engines but the aircraft -- it took about six months or so, a
little bit more, but in six months we had most of them sold. We realized just about spot on what we had marked it down to market.

Just so you know, the technical accounting will require us to continue to look at that, because it's marked to market. So, until we sell it, we will
continue to mark the lower of marked to market. There's no write-ups; there would be right-downs.


I guess I was really asking -- I guess I was under the impression that a lot of the leases are carried at fair value, which would be the present value
of the cash flows, which would be kind of marked to market, effectively?


No, no. We actually do a little of that disclosure in the 10-Q's and the 10-K's in terms of policy. But the aircraft are recorded essentially at their
historical cost. When we take a look at -- whether it's permanently impaired and vis-a-vis cash flow. So it's a different basis of accounting once
you make the decision to sell.


Is there any more questions out there?

Operator

Sir, we have no further questions. Back over to management for any further comments.


I just want to remind everybody in we're having Investor Day on November 7th in New York City, and we look forward to seeing everybody
there. Thanks very much.

Operator

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes your presentation, and you may now
disconnect.



FINAL TRANSCRIPT

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