CIT_Q4_2006_Transcript

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Conference Call Transcript
CIT - Q4 2006 CIT Group Earnings Conference Call

Event Date/Time: Jan. 17. 2007 / 11:00AM ET

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Jan. 17. 2007 / 11:00AM ET, CIT - Q4 2006 CIT Group Earnings Conference Call

CORPORATE PARTICIPANTS
Steve Klimas
CIT Group - Director of IR
Jeff Peek
CIT Group - CEO
Joe Leone
CIT Group - CFO

CONFERENCE CALL PARTICIPANTS
David Hochstim
Bear Stearns & Co. - Analyst
Meredith Whitney
CIBC World Markets - Analyst
Darren Peller
Lehman Brothers - Analyst
Chris Brendler
Stifel Nicolaus - Analyst
Joel Houck
Wachovia Securities - Analyst
Craig Maurer
Soleil Securities - Analyst
Eric Wasserstrom
UBS - Analyst
Moshe Orenbuch
Credit Suisse - Analyst
Jordan Hymowitz
Philadelphia Financial - Analyst
James Fotheringham
Goldman Sachs - Analyst

PRESENTATION

Operator

Good day, ladies and gentlemen. And welcome to the Q4, 2006 CIT Group Earnings Conference Call. My name is Tanya, and I will be your
operator for today. At this time, all participants are in listen-only mode. We will conduct a question and answer session toward the end of this
conference. [OPERATOR INSTRUCTIONS] If at anytime during the call you require assistance, please press star zero an an operator will be
happy to assist you. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Mr. Steve
Klimas, VP of Investor Relations. Please proceed, sir.

Steve Klimas - CIT Group - Director of IR

Thank you, Tanya and good morning, everyone. Welcome to our fourth quarter earnings call. Just a couple of housekeeping items before we get
started today. First, following our formal remarks we will move into Q&A. Then 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 if time
permits.



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Second, 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 this
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 references to certain non-GAAP financial measures are meant to provide meaningful incite and are reconciled with GAAP in
the financial tables accompanying the press release.

For more information on CIT, please visit the investor relations section of our website at www.cit.com. With that it is my pleasure to hand the
call over to Jeff Peek our Chairman and CEO.

Jeff Peek - CIT Group - CEO

Thank you, Steve, and good morning, everyone. Thanks for joining us. I'm very pleased to report that 2006 was a terrific year for CIT. We
delivered solid financial results and increased value for both our investors and our clients as we worked to leverage our business model for future
growth.

All of our major business units enjoyed increased transactional activity, resulting in our 15th consecutive quarter of record earnings per share. I
can say with great confidence that CIT has never been stronger or better positioned for the future. Today we increased our 2007 EPS guidance
$0.10 to a range of $5.40 to $5.50 per share for this year.

Our higher earnings guidance reflects our strong finish in 2006, the completion of our financial plan for 2007, our solid new business pipeline,
and an improved outlook for the economy. In addition, yesterday, our board of directors approved a 25% increase in our dividends from $0.20 to
$0.25 per share a quarter. This increase signifies our confidence in executing our business strategy and is consistent with our targeted 15 to 20%
payout ratio. We have raised your dividend annually since going public effectively doubling the dividend in the past four years. Now let me
briefly provide you with some of our financial highlights.

Our earnings per share excluding noteworthy items were $1.26 for the fourth quarter, and $4.80 for the year. That's a 15% increase from 2005's
earnings. Even with the addition of expensing options this year. Full year EPS growth excluding the impact of options expensing was 17%.
Revenue growth remains strong in a very competitive market, increasing 16% for the quarter and 15 % for the whole year. More over the revenue
growth was broad based and balanced as we converted our 30-plus percent increase in new business volume this year in to an 18% growth in
managed assets and a 22% increase in non-spread revenue. Our efficiency ratio improved slightly this quarter as revenue growth was almost three
times expense growth.

Heading into 2007, credit quality is solid. Charge-offs increased slightly in the fourth quarter as we wrote down our cow pine exposure and
delinquencies in home lending or higher. However, broad-based commercial credit quality remains excellent and consumer credit performing as
we anticipated. We accomplished much in 2006, and our success was evident across several dimensions, financial and otherwise. I am
particularly proud of the organization we are building and the progress we have made.

Fundamental to our strong financial results has been our ability to attract talented individuals and development a performance-driven culture. We
made strategic hires in critical areas of our business, such as human resources, information technology, vendor, energy and risk management. Our
success on these fronts has been key to our progress, and has better positioned CIT for future growth. Our story in developing a world-class sales
organization has been well documented and communicated. Suffice to say in 2005, we laid the foundation for our enhanced sales culture and in
2006 we built the growth engine, adding over 200 new sales professionals. Their presence is already bearing fruit. Origination volume increased
by more than 30% this past year to over $40 billion, and we have significant future potential here.

Now before I talk about the focus of our strategic plan for 2007, let me first address some key issues that I know are on the top of all of your
minds. As I indicated at Investor Day we have spent time evaluating a comprehensive range of options to further increase the value of our
commercial aerospace business. A key element of our analysis was assessing how we could maintain our commitment to aerospace and at the
same time be more efficient with regards to the growing capital invested in this business. Aware of other recent transactions in the aerospace
sector, we have decided to sell the portion of our portfolio of planes.

Moving forward, we will pursue an asset management strategy for select elements of this portfolio. And our objectives are three-fold. First,
reduce the current capital commitment to the business. Second, provide an ongoing third-party capital source for future originations so that we
can manage our capital investment in the sector. And third, generation fee income for servicing, whereby we monetize our skill set in managing
these assets and relationships. And of course over the longer-term, placing all of our planes in a tax-advantage jurisdiction like Dublin will also
improve the ROE of our commercial aerospace unit.



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Having largely completed our analysis, we have identified a specific portfolio of $1.2 billion of aerospace assets which could be sold. The assets
would largely come from our non-Dublin fleet as the returns we are earning on those planes are not tax optimized. An immediate benefit of this
transaction would be the liberation of approximately $200 million in capital for reinvestment elsewhere in CIT.

As we finalize the structure of this transaction, we are evaluating the alternative benefits of a public or private market execution. That said, we
target completion of this transaction by the end of the summer, and will provide you with further details on this plan in the coming months.
Secondly, as we continue to optimize the composition of our equity account, we may consider a transaction similar to the one we did in 2005,
when we issued 500 million of preferred stock and repurchased 500 million of common equity. This transaction could occur as early as this
quarter, depending upon our capital position and market conditions. This would be in addition to our existing stock buyback program for CIT's
employee compensation plan which we reloaded with 5 million shares this quarter.

Now for us these are two very exciting initiatives and remain part of our broader strategic plan for 2007. As we look ahead, we will continue to
leverage our business model for future growth optimize our portfolio of businesses, focus on the execution of our strategic initiatives and remain
diligent in achieving our financial goals.

Looking forward, into 2007, we expect to deliver another year of double-digit originations growth and increased productivity. Additionally as we
offer our clients a more comprehensive financial services package, we expect continued growth in fee-based revenues and increased levels of
cross selling to our existing customers. Interestingly in 2006, we generated $1.5 billion in new business volume from cross selling and
commercial finance alone, approximately 10% of commercial finances, new business volume. As we continue to grow our originations and
increase our cross selling activities our commitment to maintaining the highest level of underwriting standards will not be compromised.

Now, our expenses will grow more slowly in 2007 and we anticipate that the rate of expense growth will be in the single-digits. We expect
further operating leverage to result as our growth initiatives gain further traction and the majority of the one-time expenses related to our build-
out have been completed. We will continue to strive for increased operational excellence as we grow revenues, rationalize our head count and
implement programs to improve our efficiencies. We look to streamline our middle and back office operations and we're reviewing the potential
for further technology standardization, platform consolidation and offshoring.

With total originations across all of CIT in excess of $40 billion this year, we are making excellent progress in gaining share in a very fragmented
middle market. To support this growth, we're focusing on strategies that will allow us to increase the velocity of assets we are originating. For the
first time in a decade, we are generating assets faster than we can generating capital, and we're becoming increasingly sophisticated with the use
of our balance sheet. Our asset management strategy has shifted from originate and hold to originate and optimize. As we leveraged our increased
asset generation capabilities across a number of business units, we will look to take advantage of all of the liquidity in the marketplace.

Now this asset management strategy enables us to generate incremental revenue, manage our risk and maximize risk-adjusted returns as we
deploy less capital. As part of our asset management strategy we expect to launch our first in a series of CLO transactions in the first half of the
year.

We have identified the necessary human capital, are building the issuance platform and will leverage our existing infrastructure. This initiative
will enhance the risk return profile of our corporate finance business as we fully leverage our competitive strengths. Unique middle market
origination capabilities, proven risk management expertise and efficient servicing platforms. Additionally, this off balance sheet strategy reduces
our overall capital needs and further diversifies our revenue streams by building a family of funds that generate annuity life fee income.

In 2007, international growth also remains a top strategic priority. On January 2nd of this year, we closed on our acquisition of Barclay UK in
German Vendor Finance businesses. We are expanding our offices in Dublin where we remain one of the largest international employers and are
opening a new vendor service center in Shanghai which will serve as our pan Asian servicing center. We will continue to build our international
aerospace business and we have opened a new Asian office in Singapore to support our Asian aerospace customers. We see strong growth in
international factoring and our strategically looking to expand our trade finance business throughout Europe and Asia. By year end, we expect our
international portfolio to approach 25% of CIT's total assets.

While we remain focused on our growth agenda, we remain true to our long-standing risk and capital discipline. Credit remains at the heart of
what we do every day as we discussed at investor day we are elevating our risk management promise to create an even more stable and
predictable credit performance. We will maintain a strong balance sheet with deep liquidity and solid capital levels. We continue to work on
optimizing our capital structure, while maintaining our goal to be upgraded to a single A plus debt rating. Finally acquisitions will remain one of



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the ways we grow our business. We're primarily interested in bolt-on acquisitions that compliment our existing business line. These transactions
leverage our platforms, have low execution risk and achieve a 15% return on investment in the near-term.

Although less attractive, we will also consider more opportunistic and strategic transactions, particularly in Europe and Asia, as we look to
expand our global footprint. With that, I'd like to turn the call over to our Vice Chairman and Chief Financial Officer, Joe Leone for a more
detailed view of our financial results this quarter. Joe?

Joe Leone - CIT Group - CFO

Thank you, Jeff. Good morning, everyone. Jeff just shared with you some of our strategic and financial accomplishments, and he has asked me to
give you some detail on certain financial areas, and I would like to reflect on the progress we made in the quarter on our strategic initiatives.

First I just want to clarify some arithmetic on our EPS. I'll give you how I saw the quarter. Our reported EPS, as Jeff said was a $1.28 including
two items that affect our operating trends. We had about a $0.04 benefit from further releases of deferred taxes related to aerospace. You have
seen us do that in the past this year. And we had about $0.01 cost to finalize the exit cost from our old New York City building. So without these
items our view of EPS-- EPS was about $1.26, up 16% from a year ago. Top-line growth was very strong year-over-year, Jeff mentioned we grew
16%.

That's quite an accomplishment, and we are very proud of that, sequentially, net finance revenue was up $18 million on higher asset levels and
fairly stable margins. We did have some costs in the quarter to pre-- prefund the January-- January acquisition of the vendor-- international
vendor finance platform. And the prefunding depressed margins a bit during the quarter. Jeff mentioned asset growth. It was very strong and we
were up 2.2 billion sequential it was relatively broad-based.

Commercial loans grew about 1.5 billion in the aerospace and corporate finance sectors and student loan growth was also solid that was up about
800 million in the quarter. We're real proud of the non-spread revenue progress it was up to almost $350 million up from a very strong third
quarter and that represented 43% of total revenues. Dial back a year, it was 38%, so very good progress here. And that came, even with our strong
balance sheet growth, I see one of the key successes of the quarter was gains on syndication and receivables sales, it exceeded a $100 million,
those gains as Jeff said we further maximized the value of our loan-generation franchises.

So with very good volume we balanced sheeted some of it and we sold some. In total we sold or syndicated about 3.5 billion in loans and leases,
about 1.2 billion in commercial, and about 2.3 billion in consumer that was more than double last year and about 30% of our business volume this
quarter. So we continue to focus on building non-spread revenues as we transition from primarily a balance sheet model, to an balanced-asset
manager model, with both balance sheet growth and strong syndication capabilities, and I expect that strength to continue. A few words on credit.
I think credit quality was very strong, Jeff mentioned that. Net charge-offs were 58 basis points and recoveries were 18 basis points.

The fourth quarter charge-offs include about a $16 million charge on the cow pine facility a loan we put on non-accrual about a year ago. Our
charge-off on this account was much less than the $62 million specific reserve we had on the account, and reflected a few facts. The affirmation
of our unsecured claim, improvement in the value of the related claims for this credit, and terrific work by our credit workout team. We are
comfortable with the carrying value of our remaining cow pine exposure, net of remaining 10 million reserve on the account.

Moving to delinquencies. Delinquencies increased in our consumer segment part of that increase was in student lending, but this are primarily
U.S. government guarantee. In home lending, we slowed growth, the portfolio seasoned a bit more and delinquencies did increase to about 4
3/4%. Charge-offs in the quarter were about 96 basis points in home lending. As we look forward to 2007 we expect continued high
delinquencies and charge-offs in about the 120 basis point area.

Moving to non-performing levels, they were essentially flat in the quarter as we charged cow pine off, reduced other non-accrual loans in our
business capital unit, and that was offset by higher home lending non-accruals, and we did place a $40 million equipment lease on non-accrual,
and that lease is with a bankrupt water bottling company. A little bit more on that account. We established reserves this quarter of a little over
50% of that exposure, based upon our current estimate of collateral values. Said another way, we reserved our exposure to this water bottler,
while we worked to maximize our outcome just as our credit folks did in the cow pine situation.

Staying with credit but moving to reserves, total loan loss reserves ended the year at 659 million. In the quarter we provisioned 68 million, which
was about $4 million more than our charge-offs excluding cow pine. As I said on prior calls we look at reserve adequacy in many ways. One of
the primary matrix we look at is the loss reserve without specific reserves on imperative accounts as a percentage of receivables without student



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lending. Our general reserves, so to speak. And this quarter that ratio strengthening to 1.3%, up about seven basis points sequentially. And that
sets the reserve at a level of more than two times fourth quarter charge-offs. Specific reserves for impaired loans were approximately 50 million
at year end and they were down significantly from September, reflecting a lower level of impaired loans.

Overall we remain comfortable with the adequacy of our reserves. Moving on to efficiency. Jeff mentioned a few of the initiatives. Expenses did
increase modestly in the quarter and we saw some efficiency ratio improvement sequentially, and we're at a little over 44%, but we have more
work to do here.

We have ongoing efficiency initiatives that will help the metrics in 2007, and we see in 2007, the growth rate in expenses moderating to single-
digits, and anticipate double-digit revenue growth. Having said that a little outlook on Q1, we do expect first quarter expenses would be a bit
higher than Q4 with higher FICA and higher acquisition-related expenses. Regarding FICA, we see that at the beginning of the year due to the
restart cost and bonus payments and regarding acquisitions, the Barclay Vendor Finance business we bought internationally will add operating
expenses, principally related to head count of between 150 and 200.

Taxes. We had a great year in terms of the tax front. In the quarter our tax rate actually increased a bit. It was 31.6%. And it was higher, due to a
greater proportion of our earnings coming from U.S. operations this quarter. In 2006 overall we made great progress making sustainable
reductions in your tax costs.

As I look to 2007, I still expect a tax rate to be 30% or better as we continue to increase our non-U.S. earnings, including the Barclay acquisition
and the strategies Jeff outlined earlier. Moving to funding, 2006, another successful year, funded approximately $18 billion term debt, average
term of five years, and we grew the CIT Bank to a deposit bank of a little below $2.5 billion. That exceeded our expectations, and the unit did it
at a lower cost that we planned.

Looking to 2007, we'll be active again, but expect a slightly lower amount of debt issuance, due to the maturity lengthening we did and our asset
manager initiatives. The bank should grow to over $4 billion. So still a lot to do and still a lot of progress to make. A debt maturity worthy of
mentioning is our April 2007 maturity of 1.25 billion, one of our most expensive liabilities, and we believe we can refinance this at a savings of
about 150 basis points or maybe even better.

Moving to capital, Jeff mentioned a lot about our capital initiatives, I'll talk a little bit about that. Capital ratios were strong at year end, about
9.4% and in early 2007, we said we closed on the international vendor acquisition, and pro forma for that, our capital ratio will be in the 9% area.
And we continue to work hard on our capital methodology internally and with discussions with the agencies, and we're taking our allocations
down to specific businesses, portfolios and sub segments.

Based on this detailed analysis, we are very comfortable with our capital levels. They will support our growth objectives. And we expect
continued strong internal capital generation. As Jeff said, we're also analyzing the composition of the capital base. At year end non-common
equity was about 10% of our total capital. We can take that up to at least 15%, which equates to about 500 million in capacity for a non-common
type of security that Jeff spoke to earlier.

On the rating agency front, in November, FICH upgraded a long-term ratings outlook to positive. So that is three out of four agencies with a
positive outlook on our term debt. We manage our business and capital strategy to maintain the highest ratings possible, and as we said our goal
remains an A-plus A-1 term debt rating. So in summary we had a very solid fourth quarter we start 2007 very well positioned from a financial
perspective. Growth was better than expected.

We made progress on non-spread revenue initiatives and asset manager initiatives with more to come. At the balance sheet level, capital reserves
remain very strong in liquidity and funding is excellent. I would like to thank my 7,000 plus colleagues at CIT for great performance and I would
like to thank you our investors for your support and continued interest with that I think Jeff has some closing remarks.


Thanks, Joe. Just to recap, we are extremely pleased with our performance in 2006. We have very good momentum as we begin the new year.
We remain focused on the continued execution of our business strategy, which we believe will deliver us and you another year of record
originations, double-digit earnings growth and improved returns.



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Our new brand identity, which we're working hard on, combines the relationship, intellectual and financial capital of CIT. It continues to
differentiate us in the marketplace as we redefine the meaning of capital. And as we begin the count down for our 100th year anniversary next
year in 2008, I do want to personally echo Joe's thanks to all of our global employees for their continued hard work and support. This motivated
employee base has been instrumental to our past success and remains critical to our continued efforts to build a leading global finance company
to the middle market. Now, we would like to open it up for some questions.

QUESTION AND ANSWER

Operator

[OPERATOR INSTRUCTIONS] Ladies and gentlemen, if you wish to ask a question, please press star one. If your question has been answered
or you wish to withdrawal your question, press star two. Questions will be taken in the order received. Your first question comes from the line of
David Hochstim with Bear Stearns. Please proceed.

David Hochstim - Bear Stearns & Co. - Analyst

Thanks. I wonder-- could you just talk through the income statement effect of selling those aircraft assets, what-- what you envision in the way
of lost spread income and tax benefits and what kind of servicing our management fees you could get? And then what you might envision doing
with that capital?


Good question, David. The question relates to selling approximately, as Jeff said potentially selling $1 billion of aerospace assets, and how that
will impact our financial results. Can't be as specific, David with all of the parts of your question, but I'll give you some thoughts that we have on
it. First of all, as we said, we're looking at the assets that are not tax optimized, so we continue to expect to have the tax benefits from the fleet
that we have been showing you in our 2006 results.

Second the aerospace business net of depreciation has been improving in terms of its margins all year. And I think on balance, we don't expect a
lot of dilution or accretion to our margins as the result of the sale. We'll see how that place out.

Thirdly, and I think very importantly, we expect the fee component to make up for spread-- loss of spread. And that is sizing very well with our
overall strategic objectives to not use the balance sheet but get paid for expertise. In this part of the business we see a lot of value in our servicing
platform, given the leadership industry position we have, the expertise we have, and the complicated nature of servicing those assets. Operating
leases with a lot of turn and a difficult type of collateral class. So we think the fees on that management stream will be attractive relative to our
costs and the value-add that we bring. So that's a little bit on the financials, David.

David Hochstim - Bear Stearns & Co. - Analyst

Would the tax rate on the servicing or the management fee income be lower? Can you run that through Dublin, or what is the tax effect of all of
this?


You are ahead of me on that but I would think as we look at what and what planes that are potential for sale, principle being non-Dublin based, it
would probably be a U.S.-based tax rate on those earnings.


Thank you, David, let's go to the next question, please.



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Just to add-- David the only thing I would add what Joe said we're not looking at that as a one-shot transaction, we're looking to create a vehicle
that would have ongoing value with us in terms of partnering with new asset originations and the like.

Operator

Your next question comes from the line of Meredith Whitney with CIBC World Markets. Please proceed.

Meredith Whitney - CIBC World Markets - Analyst

I have a point of clarification and then a question. My point of clarification is, is the announcement with the aircraft factored into guidance? The
revised guidance? Hello?


Yes. And say that again.


Is any of the-- does anything that alias with the strategic plans for the aircraft business factor into your revised guidance?


Well, yes, as we look into 2007, if we do this sale, that's factored in to our thoughts on the earnings for the year. Any gain or loss on a significant
transaction like that, would not be a normal operating earnings kind of transaction in our view, if that's what you are getting at. The motivation,
here, Meredith as we have been talking about and we said is to free up capital and have an ongoing source of non-spread revenues and ongoing
source of capital to help us finance this business.


Sure but the revised guidance isn't contingent upon a seller or lack thereof?


No.


And my question is admittedly early but the 1.2 billion in hypothetical or potential sale, do you imagine you would sell that at book or premium
to book? What has your banker said?


As we said the principal objective is to free up capital on the business, have an ongoing source of capital. I think it would be early for us to
speculate on that.



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I'm looking for a little extra source of capital.


I am too, Meredith, so I agree with you. Thank you.


Next question, please.

Operator

Your next question comes from the line of Darren Peller with Lehman Brothers. Please proceed.

Darren Peller - Lehman Brothers - Analyst

Hi. Would you guys mind commenting on how you see the effects of the new legislation in related to student lending and if it may effect your
business strategy going forward assuming it does get through the house today and going forward through the senate at some form, and have you
thought about that and how it effects the actual strategy going forward in the overall business?


I think we have thought about that a little bit in terms of the impact. We think the impact this year is going to be pretty de minimus. We'll see
what actually comes out, after all of the speeches are made. But, you know, because it impacts new loans rather than existing loans, we think the
impact will be pretty de minimus this year. Someone told me maybe it's going to impact Sally May a nickel this year in earnings with a
substantial larger portfolio. So we're watching it. We have people down in Washington, but in terms of our guidance this year, we really don't
think it's going to impact things too much.


Okay. The preferred stock issuance, real quick is there guidance including that now the buyback also, the new guidance?


The guidance that we just gave incorporates our plans in optimize our capital, which does consider the possibility of doing a preferred or a hybrid
debt security, yes.


Thank you.

Operator

Your next question comes from the line of Chris Brendler with Stifel Nicolaus, please proceed.

Chris Brendler - Stifel Nicolaus - Analyst



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Hi, good morning, guys. I'm going to ask this question in a complicated way to try to get as many questions in as possible. I wanted to focus on
the syndication activity as well as the home equity book. If I had to identify a potential trouble spot for 2007, I think it would be your home
equity book. I think you said it went up to 4.25, I'm showing 3.77 last quarter. So it's up a good 650 basis points or so. And we're obviously I
think at the cusp of greater charge-offs in that business. So what are you doing to reduce your risk exposure in home equity. You talked about
$2.3 billion of consumer sales to get securitization and syndication. Is that the primary source of that? Are you selling new business whole loan?
Are you thinking about securitizing some of that sub prime business and have you thought about putting any mortgage insurance on that portfolio
to sort of insulate yourself from those risks, and how do you feel about that portfolio right now? Thanks.


Yes, thanks, Chris. That's a fair question. Yes, the delinquency did go higher and I think it went slightly higher than what you had mentioned,
and I did give some thoughts on how we look at our '07 costs and '07 plans in terms of losses, so it will go higher. What we thought about, in
terms of managing the risk in that portfolio we have been speaking about for the last quarter or so and its unchanged. We are limiting the growth
that we have in that portfolio. If look at Q4 versus Q3, you'll see it's down a bit. And we did sell about $1 billion or so of home lending
production in the quarter. I do not-- we do not have any plans currently to securitize the portfolio, because in our view, that's not transferring the
risk, we view that as a financing, and we view that as expense of financing relative to other alternatives we have.

I do not specifically know the answer to your mortgage insurance question, but what we have done is monitored and managed the portfolio matrix
very tightly to a portfolio that we feel more comfortable with relative to what we see in the overall environment. For example, a FICO score has
been consistently in the mid-630 to 640 and it's unchanged. Our average loan size has been managed down to about $120,000, so we have
moderately prized homes. We have stayed away from some of the coastal areas. Some of the same risk metrics and risk management techniques
we talked about will continue into '07 with the change of we don't expect growth in the balance sheet or outstanding portfolio in home lending,
that would include any securitization if we did any, but we have no plans to do so. We'll continue in '07 to have loan sales as our way of
managing the balance sheet, because we do expect the branch network to produce a nice level of production. So hopefully that's responsive Chris.


It is one quick follow-up. Just if you could comment on how it's performing relative to your expectations, and have you disclosed how much
stated income loans you have done?


You know, it is performing about on our expectations. I would the delinquencies is slightly higher than we would like and losses is slightly
higher than we would like, but 95 or 96 basis points in the quarter is not unusual.

We do think it could go up to the 120 basis point area and that's the guidance I gave you. In terms of the stated income percentage, I don't have
that off the top of my head. We will try to get it before the call ends, if we can, if not we will get it to you.


I know you have beater home equity portfolio than most, that's why I was wondering about that I know you have a lot of fixed rate and a little bit
on IOs.


On the IOs it is 10% or less and there's no negative AM, I can tell you that. No Negative AM products in the portfolio. The last thing I say,
Chris, in response to your question, which is topical, is that you got to put it in perspective of CIT this is 10 billion of our assets on 75 billion, and
it's a part of CIT that's significant, but it's not all of CIT. That's the diversified business model that we have.




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I have to find something bad this quarter, right?


Thanks for the compliment, Chris.


Thanks.


Next question, please.

Operator

Your next question comes from the line of Joel Houck with Wachovia, please proceed.

Joel Houck - Wachovia Securities - Analyst

Thanks, good morning. Jeff, I'm wondering if you could elaborate on one of the first comments you made with respect to guidance, you said, I
think, that you now have an improved outlook for the economy. What is driving that? What has changed the last three, from the last conference
call to cause you to kind of say that?


Well, I think, Joel, with the exception, of, you know, the mortgage lending which we just covered in some detail, I think most of the other
businesses look pretty good us to. We had a very good-- obviously the third quarter was very good for us in fees, but December was a very good
month or us, and we're seeing a lot of deal submissions, our credit and risk people. So we-- you know, we-- across most of our businesses we feel
very good now.


Okay. Is that-- that applies to credit as well, I guess?


Yes. I mean, on-- I think as we said in our prepared remarks on business to business credit, the commercial finance credit side, I don't think one
could really wish for much better conditions than we have got right now with all of the liquidity and the level of activity.


Okay. Thanks, Jeff.


Okay. Thank you.



FINAL TRANSCRIPT

Operator

Your next question comes from Craig Maurer with Soleil, please proceed.

Craig Maurer - Soleil Securities - Analyst

Yes, good morning. Question on the aerospace portfolio, you had discussed-- I believe you said you had expected it to be roughly a quarter of the
assets by the end of the year. I noticed this morning, American Airlines published-- their parent company published their first profit since 2000. I
was wondering if you could give us some of your thoughts on the U.S. Airline Industry and if you have any plans in shift some of your future
plane purchases back towards the U.S. market? Thanks.


Craig this is Joe. Could you clarify what you meant by a quarter?


I had thought-- and correct me if I'm wrong-- that you said by the end of '07 aerospace could represent 25% of your assets.


No, I don't.


I'm sorry, I misunderstood.


What we may have said earlier is that international assets in total would represent 25% of our assets. We have a significant vendor finance
business and a trade finance business and just made an international acquisition. So maybe that's what we had said. Just to clarify.


Okay.


Just on the U.S. Airlines I would talk a little bit about the numbers. We do see an improvement, obviously in the U.S. airlines, and if you look
closely at one of our disclosures in the back of the earnings release, where we detail our aerospace portfolio. You'll see we had a very good
growth quarter in aerospace. The U.S. percentage of the fleet increased. So we have made some more credit extensions to U.S. airline, and you'll
see the loan book increased, and most of the loans that we made were done-- were done in the U.S. So a couple of things. One, we wanted to
diversify our product so we did that not only in operating lease, but we did that in loans, and in the loans we had equity behind us and lastly it's
U.S. As we look forward we continue to see-- as you read in the journal we continue to see a probability and possibility of consolidations in the
U.S. airline industry, which would improve overall profitability as we look forward. If you look at our, again to summarize, if you look at our
aerospace fact sheet, I think you'll see some of what you're looking for.




FINAL TRANSCRIPT

Okay. Thanks.


Next question.

Operator

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

Eric Wasserstrom - UBS - Analyst

Thanks. I-- Jeff, if we can just get back to some of your top-down comments, and in particular, your goal of a 15% ROE, and I was just looking
at what your current equity is, and sort of run rating the retained earnings that you produced in the period net of dividends and all of that. And it
suggests on a 15% ROE it would put up earnings that are closer to 5 3/4 than to the level that you guided to. Could you just reconcile that for me.


Well, I think some of the stuff we, I think we said this in our press release, and Joe mentioned it a little bit in terms of the equity base we have
now. One of the issues, a little bit is that the equity base has grown.


Uh-huh.


We talked a little bit about leverages the common equity base with a preferred issue, should the market and the rating agencies get an alignment
on that. But we think this year we lost about 30 to 35 basis points because of the expensing of options, cost us about 35 basis points in terms of
ROE, so we have 15% as our goal. And we look a little bit to try and leverage the equity base, Eric.


Okay. So in other words, part of it is from some of the fundamental improvements and efficiency improvements, in terms of the accelerating
revenue growth, but some of that if it were to occur this year would also be from capital optimization.


Yes. Capital, you know us well enough that capital optimization has been one of our themes for the last two or three years.


Yes, and very successful thanks, Jeff.


Thank you.



FINAL TRANSCRIPT

Operator

Your next question comes from the line of Moshe Orenbuch with Credit Suisse. Please proceed, sir.

Moshe Orenbuch - Credit Suisse - Analyst

Thanks, I was interested by the statement about assets growing faster than capital for the first time and was just wondering how that dove tails
with the whole asset management and CLO business. It is kind to handle that overflow, or it is actually kind of a business in and of itself where
you target a certain amount per period to do in that form? I mean, how are you kind of approaching it?


I think there are two or three facets of it. One is, we think we have origination skills across several different asset classes, so we want to try to
leverage those. And we do think that we can handle the overflow and that we can build this into a business. This-- we're not going to go through
all of the preparatory to work just issue one CLO, so we see that as something we can do, on a reoccurring basis, and we have been told that our
origination capabilities in the middle market, would be distinctive as opposed to just buying a CLO of the [inaudible] fortune100 or something
like that.

So we're working hard on that I think it also is part of the originate and optimize phrase that we talked about. We found a couple of lines of
business where the ROEs don't particularly allow us to put them on their balance sheet and make much progress toward our 15% goal, but we can
still originate the assets and sell them in the secondary market, and take a point home. So, I think it has allowed us, to enter act with some
customers that we know. We just couldn't kind of get the return to put it on the balance sheet. So, you know, I think there's several parts of it, but-
- and the aerospace ties in to it a little bit also. I think you'll see us have two or three initiatives where we're managing pools of assets for others.
Is that helpful?


Yes. And do you anticipate that kind of growth of the asset growth-- kind of out stripping capital growth for the near-term? Foreseeable future.


I think we anticipate that for 2007.


Got it. Thanks.

Operator

Your next question comes from the line of Jordan Hymowitz with Philadelphia Financial please proceed.

Jordan Hymowitz - Philadelphia Financial - Analyst

Yes, I was wondering if you can talk about the trends in the margin assumed in your guidance?


Jordan, say that again? Trends in the margin as to-- it broke up.



FINAL TRANSCRIPT


Assumed, in other words in your 540 to 550 what are you assuming for the margin?


We're assuming basically margins stabilized essentially where they have been for the last quarter or two at the last quarter we have been at about
3%, plus or minus a couple of basis point. And as I mentioned this quarter we did have some carrying costs to prefund the acquisition that we
made on January 2nd. So were targeting flat margins, we will be helped a little bit with that debt maturity I mentioned. It seems like pricing is
still tough out there, I don't think it is getting worst but it's relatively stable, and as I mentioned earlier, we'll probably restream our home lending
growth and that has slightly lower margins than some of the other opportunities we to grow. It's overall putting it together, basically stable.


Super, and when you talk about the asset growth, you are assuming next year as well.


Sorry, repeat that--


I apologize, Joe.


No, that's okay. It's me. So go ahead.


Can you also talk about what type of asset growth, managed asset--


Yes, that's an interesting question, and as the model changes it becomes slightly more difficult to answer, but we continue to see balance sheet
growth opportunities, that are relatively significant. I think it's a going depend on the velocity, success, timing of some of the asset manager
initiatives that we have been talk about, Jeff specifically talked about in response to the prior question in his script. I wouldn't be surprised along
the lines of what we have had in the past of high single-digit, low double-digit on balance sheet asset growth but we'll see how the asset manager,
capabilities, mature and progress.


Thank you. And congratulations on a great quarter.


Thanks, Jordan



FINAL TRANSCRIPT

Operator

Your final questions from the line of James Fotheringham with Goldman Sachs. Please proceed.

James Fotheringham - Goldman Sachs - Analyst

Joe, Just looking for a bit more detail about your exposure to the water bottling company that you reference, which I assume is the nature. What
accounts for the difference between the $130 million leasing exposure that's I saw in documents that CIT filed with bankruptcy court in
Pennsylvania, versus the $40 million which I assume includes both leasing and lending exposure that you reported this morning?


Right. Generally the answer is participations on the lending and leasing situation at origination so I guess in the documents you were looking at.
It would show CIT as the agent on a certain facility. But we participate those exposures down generally at the origination date or close thereto.


And the $40 million is both leasing and lending exposure combined?


That's our total exposure.


Thank you very much.

Operator

I would now like to turn the call back over to management for closing remarks.


That's all we have today. Thank you very much for your continued interest in CIT and support, and investor relations will be available to answer
your follow-up questions. Thank you all and have a good day.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.



FINAL TRANSCRIPT

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