cit 2004%20q1

CIT
Moderator: Valerie Gerard
04-22-04/10:00 am CT
Confirmation #6401042
Page 1

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

CIT

April 22, 2004
10:00 am CT

Operator: Good morning my name is Summer and I will be your conference facilitator.
At this time I would like to welcome everyone to the CIT First Quarter
Earnings call. All lines have been placed on mute to prevent any background
noise. After the speaker’s remarks there will be a question and answer period.

If you would like to ask a question during this time simply press star and the 1
on your telephone keypad. If you would like to withdraw your question press
star 2. Thank you Miss Gerard you may begin your conference.

Valerie Gerard: Thank you. During this call any forward-looking statements made by
management relate only to the time and date of this call. And we expressly
disclaim any duty to update these statements based on new information future
events or otherwise. For information about the risk factors relating to our
business please refer to our SEC reports, quarterly reports, annual reports.
Any references to certain non-GAAP financial measures are meant to provide
meaningful insight and are reconciled with GAAP in the Investor Relations
section of our Web site at www.CIT.com.

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With that I would like to turn the floor over to Al Gamper.

Al Gamper: Thank you Valerie, and good morning everyone to our first quarter conference
call, a quarter which I think represents a good start for 2004.

According to my positives and negatives as I usually do; On the positive side
of the ledger, I was really pleased with the improvement in our margins, we
saw this quarter, which we had expected but we delivered on.

Our credit quality continued to improve - I think Joe will give you more detail
about that. But the trend in credit continues to get better and I think it will
continue to get better as the year progresses.

We had a respectable amount of new business this quarter. And I look back to
last year’s first quarter and probably would say that adjective respectable was
probably modest. It was a lot better than last years first quarter and the tone
of the business and the tone of the environment and demand this quarter
compared to a year ago was substantially better.

Our return on equity is 13% this quarter. Last year at this time it was 11%.
That is real progress as far as I am concerned - and I think one of the most
important demonstrations of improved profitability for this organization. And
keep in mind that’s happening with two units still under performing and
putting a drag on us.

We also added a new director this quarter Gary Butler President of ADP - a
fine organization not too far from here up the road. An organization with a
great record and he has a great record.

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And along those lines we have been reviewed by at least three organizations
with - in terms of governance and got really high - some of the highest ratings
in terms of governance, which I think speaks well for the governance
principles as well as the governing people, the board of directors, who are
outstanding.

On the negative side expenses, were a little higher and Joe will talk a little bit
about that. Expenses were a little higher than we expected and there is some
work left to be done there. And of course, our Equipment Finance and
Aerospace units while making progress, are still - still have a lot of challenges
ahead of them.

Two interesting things that happened subsequent to the March 31 closing:
one, we have announced an acquisition, which will close sometime in the
second quarter, and Jeff will tell you about that. But it is a perfect fit for us
and it will be good for us the second half of this year when it is on board. It
makes a lot of sense. And we have worked very hard on it this first quarter
and we signed up recently. And I expect it will close sometime in mid-June.

And secondly, we have signed an agreement to sell our Argentina operation
subject to regulatory approval in Argentina. That will take place in the second
quarter. There will be a nominal - a very nominal gain from the sale of that.
But that - I think that a settling operation which is very good for us.

Overall I guess I would call this a typical CIT quarter where we delivered on
our game plan and delivered well. When 5800 people from Dublin to
Danville, from Tempe to Toronto did what they do very well, worked very
hard, and I appreciate that.

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At this point I will turn it over to the Jeff and Joe show with Jeff being the
first one up.

Jeffrey Peek: Thanks Al and good morning to everyone.

Let me echo what Al just said. CIT posted an extremely solid first quarter.
We have very good momentum and energy within the organization. And while
we still face some challenges like restoring profitability to historical norms in
Aerospace and Equipment Finance our portfolio businesses continues to
benefit from the credit and funding improvements begun in 2003. Credit
statistics are still getting better and our borrowing costs are at very
competitive levels. And the positive trends we have seen in credit and
funding are now carrying over into expanding volumes and asset growth.

The first quarter is typically slow in our business for several reasons, but
volume was strong this quarter rising 16% March over March. Much of that
increase is coming from our flow businesses where we are succeeding in
growing assets both organically and by acquisition. And managed assets are
back about $50 billion. Excluding run off in the liquidating portfolio managed
asset growth was about 1% for the quarter and 7% versus a year ago. Owned
assets are 12% higher than in March 2003. Securitized outstanding have
declined gradually over the last year, as we have been funding home equity
originations on the balance sheet, that’s because there is a cost advantage in
funding them this way and we basically like to hold the asset.

Now with that I would like to review some business highlights for the quarter.
I will start with Specialty Finance, our largest segment, where, as Al
mentioned, we announced an acquisition last week. This is not a first quarter
event but I would like to focus on this deal for a moment. Specialty Finance
agreed to buy $520 million in technology assets from GATX Corp. Based in

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Tampa, Florida, GATX Technology Services, a leading vendor independent
lessor in North America, provides leasing solutions from the mainframe to the
desktop in the network. And, this acquisition is another excellent example of
the type of “bolt-on” acquisitions that we seek; one that fits in nicely with our
existing core technology financing business, strengthens our market
leadership position and meets our return on equity hurdle for acquisitions.
The portfolio is very complimentary to our own middle market leasing
business - there is very little customer or geographic overlap. We like this
business because its got above average returns for CIT. Now while the deal
terms were not disclosed, I can assure you that we paid a conservative
premium relative to net asset value.

Now turning to the first quarter business highlights for all of Specialty
Finance, new business generation is quite robust - increases in every business
line compared to the same period a year ago. Consumer and international
volumes were supplemented with some bulk receivable purchases - two home
equity portfolio purchases and a technology leasing portfolio in Europe.

With respect to the vendor programs, volumes increased from the prior
quarter. We also won some new, albeit smaller, vendor relationships and even
rolled out a new program for Honda in Australia.

Our home equity business had a solid quarter as well. Volumes were up
solidly even without the $400 million plus purchase of bulk receivables.
These transactions bring total owned and managed home equity assets to
almost $5 billion, up 33% from a year ago and 10% from year-end. Given the
relatively small size of our position in this asset class, we believe we have the
ability to grow this portfolio through origination and bulk purchases even in
the face of gradually increasing interest rates.

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Finally, volumes in our Small Business Lending operations were up about 6%,
a significant achievement given that the 7a loan program had been capped for
most of the first quarter. So, we are particularly encouraged about this unit’s
prospects given the removal of the loan cap by congress earlier this month.

Commercial Finance here, year over year volume was strong in both factoring
and asset-backed lending units. In Commercial Services, our factoring
business, volume was up and we benefited from the two acquisitions that we
completed in this sector in 2003. In fact, March factoring volumes set a
monthly record for CIT factoring. Also during the quarter, this unit smoothly
integrated the HSBC portfolio into its operations and we got very positive
feedback from the clients.

Now for Business Credit. New business volumes were up nicely from the
same quarter last year. That is important because this quarter the first quarter
is typically slow for this unit. While the lending dynamics here continue to
shift the away from the large DIP financings and significant restructuring and
bankruptcy fees toward more traditional working capital loans, that’s okay,
because this type of transactions is typical of a recovering economy. All in all
we are seeing signs of a stronger more attractive deal market in Business
Credit.

Now for Structured Finance. In Structured Finance one large project finance
charge-off dampened the profitability for the quarter. Still, if you look
through that the fundamentals here are as good as there is a renewed sense of
optimism among its borrowers, which is reflected in stronger volumes relative
to last year. The large deal market is showing signs of life again. Financing
activity in the communication sector is quite high and we are seeing lots of
new business opportunities in the various media sectors such as publishing
cable and broadcasting. When we come to power and energy deals we

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continue to see new opportunities there. So overall, Structured Finance is
seeing more positive signs-in terms of new opportunities and higher fees-than
it has seen in quite some time.

Now lets talk for a minute about Equipment Finance. As Al said, this unit has
made good progress over the past twelve months. Volumes were down
seasonally from year-end as demand for construction equipment normally
slows until the spring, and that was especially true this year given the severity
of the past winter. But compared to last March, the first quarter of 2003,
volumes were up 11% reflecting strength in the construction machinery and
corporate aircraft sectors. In these sectors collateral values are improving,
inventory levels are declining and demand is increasing.

As Al touched upon, profitability also improved from last quarter reflecting
lower credit losses and higher equipment gains. The firming of this
marketplace is yet another positive economic signal. Still, Equipment Finance
business volumes have a way to go. We need real and sustained improvement
here.

Lastly Capital Finance. Rail continues to do exceedingly well with utilization
remaining very high - about 99%, which reflects an increasing demand for
railcars as the global economy accelerates. Lease rates on both cars and
locomotives continue to increase reflecting not only a better outlook for
business, but also a higher car replacement cost and growing delays in
congestion on the railroad system. Locomotive demand is also quite high as
the Class 1s are struggling to hire and train qualified crews and deploy reliable
power to meet the growing freight needs. As car supply tightens and
congestion worsens demand for our very modern fleet should be at a
premium. Clearly the outlook for rail is improving and we feel very good
about the timing of last year’s acquisition of Flex Leasing.

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On the Aerospace side, fundamentals are improving especially outside of the
US where the majority of our plans fly. Volumes for this unit are down due to
fewer aircraft deliveries as we are focusing our efforts on placing new
deliveries and planes coming off lease. That focus has paid off as our entire
new 2004 order book has been committed with lessees. And the only new
delivery we had in the first quarter was a Boeing 737, which we placed with
an existing customer.

Now, in summary, let me say again that our businesses have a lot of positive
momentum. The economy is expanding, showing real signs of improvement.
That is clearly reflected in our volume growth of 16% March over March.
And we are getting some traction with respect to asset growth, both organic
and by acquisition. And that gives me real confidence that we will realize our
2004 target of 8 to 10% growth in assets.

The first quarter performance puts us firmly on a path toward achieving the
financial goal we have set for ourselves this year. As Al said at the top of this
conversation, this quarter was a typical CIT quarter. We feel confident about
the balance of the year given our business momentum.

I look forward to sharing more of the CIT story with all of you at our Investor
Conference on June 9 in New York.

Now let me turn the floor over to Joe.

Joseph Leone: Thanks Jeff and again good morning everybody. Yes I think we had a very
solid quarter. The financial results were strong, and it does reflect a lot of
momentum I see throughout the franchises. And we have made significant
progress towards our financial goals. Profits were up from a year ago and

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return on equity, very important metric for us, was over 13%. And four out of
five units were up in profitability from the prior year. Let me give you some
color on certain selected financial areas.

First margin, I have mentioned in prior calls that our margin has many
dynamics. Let me give you some insight as to some of the happenings this
quarter. We saw 14 basis point improvement in margin essentially from lower
funding costs with interest expense from the refinancing we did over the last
two quarters including the PINEs call being at very attractive levels.

And we also reduced excess liquidity levels. Finance income was a bit lower.
Yield related fees were down - it was slightly short quarter for us in the
calendar. And rates were a little bit lower in the period. And those factors
reduced margin by 3 to 4 basis points.

You often focus on our operating lease margin so let me spend a moment
commenting on that. Operating lease margin increased slightly this quarter in
both dollars and percentages. We have described over time that our portfolio
has been migrating towards longer live assets, planes and trains from
technology on the operating lease side. Rental income fell in the quarter about
$10 million and depreciation was down $14 million. We saw slightly better
pricing in our small and mid-ticket leasing business and utilization levels have
remained very strong in both air and rail with some improvements in lease
rates in rail. This operating lease portfolio improvement increased margins by
about 4 basis points.

Risk adjusted margins increased about 30 basis points to 3.09%. We had
lower charge-offs in addition to the lower funding costs. And that is very good
progress we made, in the quarter, towards our goal of 3.5%.

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Credit quality. Charges-offs were $99 million. More importantly core
charges-offs were $73 million, 98 basis points below a 100 basis points, as we
were in the third quarter of last year. Jeff mentioned the only significant item
we had in charge-offs - we had - that increased quarter to quarter was
Structured Finance reported higher loses due to a write-off of a non-
performing loan in the project finance area. We continue to see improvement
in past dues and we are working hard at taking that charge-off level even
lower.

Loss reserves. Very strong. Total reserves were $637 million and we
provisioned an amount equal to charge-offs, excluding telecommunication
losses of about $14 million, which we applied to the telecom reserve that is
dedicated to it. We picked up about $7 million in reserves through the
acquisitions we made. And general reserves, excluding the telecom in
Argentina, increased to $531 million. And were down slightly in percentages
and that is due to the better credit quality. We have about $93 million left in
the telecom reserve. Our Argentina reserve remains at $12.5 million. And we
continue to have very strong discipline around our credit loss reserve levels.

Funding. Another very solid quarter in the capital markets. We issued $2.8
billion of debt about evenly split fixed and floating. Fix rate issuance included
five and tens at 79 and 103 basis points over Treasuries. If we look back a
year ago we issued five year at 138 basis points over Treasuries. On the
floating side, we did $460 million two-year floaters at about 8 basis points
over LIBOR and $1 billion of three-year floaters at 20 basis points over
LIBOR. A year ago we did two year at 43 basis points over LIBOR. So, the
improvement in funding costs continues.

Looking ahead, we have scheduled debt maturities for the remainder of 2004
of $5.6 billion. That includes two - just short of $2.5 billion of fixed rate debt

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at an average spread of 130 - 137 basis points over Treasuries. And we have
$3.2 billion of floating rate debt at an average spread of about 57 basis points
over LIBOR. So, we should be able to continue to make progress on our
money costs.

We also took advantage of an improved bank market and we extended
liquidity. We renewed our bank facilities ahead of schedule. The transaction
was over subscribed and we attracted some new participants. We now have
$6.3 in committed facilities in three equal traunches, due in April 2005,
October 2008 and April 2009. That improves an already strong liquidity
position. We established our Australian dollar facility to support our growth
in Australia and to support our CP and MTN funding programs there.

And our capital base continues to expand with our leverage ratio, tangible
equity to managed assets, increasing to 10.7% much stronger than our target
but consistent with our strong balance sheet philosophy.

Let me spend some time in interest rates sensitivity, particularly in light of the
recent run up in interest rates and expectations for possible further increases.
CIT has performed very well in rising rate environments. These
environments, rising rate environments, generally are accompanied by an
expanding economy and that meant better volumes for CIT and even better
credit quality.

Having said that, we have a very comprehensive capital management
framework in the company and we manage interest rates and liquidity risks
very well. We follow consistent funding strategy here at CIT, for at least as
long as I have been here and that has been since the mid 1980s. And if you
look at our earnings performance through cycles, our funding strategy not
only is designed to mitigate interest rate sensitivity, it has served us very well.

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Specifically, we are a matched funder which means we target the match, the
tenor and basis of our assets with the same on the liability side. That means,
for the most part when we originate that fixed year, three-year asset, we fund
it with a three year fixed liability. Whether it is a straight piece of debt or a
floating note swaped to fixed. And our businesses price and are measured
based upon this funding discipline - matched funding discipline.

Let me give even more specifics. One of the approaches we look at in a
comprehensive approach - this is just one-is a maturing GAP approach. We
try to match cash flow liability and assets. Let me give you a simple way of
looking at this. At year-end, just using December 31 numbers, we had fixed
rate loans and leases of about $21 billion. At year end about $16.5 billion of
our liabilities, after swaps, were fixed rates. If we allocate half of our tangible
equity to fund part of those assets, that leaves us with about $2 billion of fixed
rate assets funded with floating rate debt. And that difference relates to our
consistent strategy of funding fixed rate asset flows with maturities of less
than one year with short-term variable rate debt. If rates went up, the impact
on our margin would not be very significant.

A second way we have of looking at interest rates sensitivity is duration. Our
liability duration is slightly longer than our assets duration. Which means that
our assets re-price a bit faster than our liabilities. Of course these are two and
only two simple ways of looking at risk management amongst many we use.

We look at timing of rate resets, possible improvements or movements in our
funding spreads and other ways of allocating equity and margin at risk. The
point is we manage this closely and we are not overly sensitive to interest rate
movements up down sideways. Hopefully that is helpful.

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Operating expenses. Al mentioned that was on his negative side of the ledger.
Versus a year ago, we are up $22 million versus the prior quarter up $11
million. Let me give you some color. Compared to a year ago - we have the
cost of the acquisition we made in 2003 in rail and factoring. We have issued
restricted stock in lieu of some stock options in mid 2003 and early 2004 and
those costs for restricted stocks are amortized through P&L. Sarbanes Oxley
compliance costs were higher as we started in earnest our compliance with the
standard, and that related to outsourcing and professional fees to help us
through a cost and documentation - a cost bubble with the documentation
standard. Versus the prior quarter employee expenses were higher as they
generally are in the first quarter. Benefits were higher and incentive
compensation was slightly higher. We spent more on advertising we are
growing the organization and again Sarbanes Oxley on a quarterly basis were
up.

Partially offsetting this were credit costs. Credit and collection costs have
come down reflecting the improvement in past dues. When we pull it together
our efficiency ratio was 41%, and we are disappointed about that. Our
business mix is different but we continue to target to get it into the mid 30s.
But first we need to get into the high 30s. And let me tell you a few ways
we will get there. I think we will make progress in three ways. First, the
denominator will improve, as our margin - our funding costs continue to
improve. And that - right now our funding costs are deflating our efficiency
ratio by a point - 1 to 2%. Second, our expense spending levels relative to
asset levels need to improve. And we will focus on efficiency in initiatives as
we always do. And third, some of the Sarbanes Oxley implementation
expenses should reduce over time.

A couple more points. We did make a reporting change in the quarter to
better match our public reporting with the way we are measuring our

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businesses today. What we did is, we took underwriting commissions on the
debt we paid, which had been in operating expense, and move that to interest
expense. So therefore, now our all-in funding costs are included in our
margin. No bottom line impact obviously, but it does change some of our
expense and margin metrics. Debt related fees in the first quarter about $8
million and the effect of that re-class is lowering margins by 9 basis points
and improving expenses to managed assets by about 7 basis points. So, small
impact on our metrics. We restated prior period figures to conform with this
presentation to help you in your analysis.

Finally, our board approved the share repurchase program that we will use for
employees stock programs. We had a similar program the last time we were
public. Over the last nine months, we have been covering employees’
exercise of options through open market purchases at the time of exercise.
We will now be in the market with a regular, and we believe a more efficient,
program. This will not have a significant impact on EPS or leverage ratios.
Our share count of about 216 million shares will not change significantly as a
result. With that, I will turn it back to Al.

Al Gamper: And we will turn it over to the operator for questions from all of you - go right
ahead.

Operator: At this time I would like to remind everyone if you would like to ask a
question please press the star 1 on your telephone keypad.

Question: Two questions. First, I was hoping you could give us a little more flavor of
what you are seeing competitively, or starting to hear about loan growth at
banks picking up. Are you starting to see some of that in terms of competitive
forces?

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And secondly, just in terms of fee income, I know there is a seasonal
component to that, and it did DIP versus the fourth quarter but seemed,
particularly in the fee and other income line light relative to last year. I was
hoping you could give us a little clarification there.

Answer.: I will take the first part - the first part, I think, loan demand - clearly business
activity is better now than it was a year ago. It is hard to make judgments
quarter to quarter because I would like to go back a little further. But if you
look back a year ago I remember the call very well a year ago.

And I kept saying things are kind of muddling along saying nothing-big
happening. This time we see much better demand and the banks are seeing
that demand there is no question about it. And so are we. It hasn’t really
translated into aggressive pricing yet. We have seen a little bit more
aggressive lending in terms of multiples of EBITDA and things like that on
certain deals. We’ve seen that take place in the last couple of months. but
overall I think tone is good. Looking beyond that, beyond the deal
marketplace which is very transactional or look at the flow business, the flow
businesses were in both the technology business or the home equity business
or the factoring business or the equipment finance business. The tone there
seems to be much better. I’m hoping it will continue that way as the year
progresses.

And it was, to some extent, a bad winter. People use the bad winter as an
excuse an awful lot for softness. But in that bad winter the loan, demand
wasn’t bad at all so I’m hoping it’ll get better.

We’re going to take the issue of fees but the first quarter is generally a softer
quarter than the fourth. The fourth quarter, I don’t know whether its human
nature everybody wanting to get their deals done so they make their bonuses

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in the beginning of the year. Bonuses are - you're not thinking as much about
bonuses at the beginning of the year and deals don’t get as aggressively done
or pushed. So there is a lull in the first part of the year and that’s one of the
factors.

I think a dimension of your question was year to year, First quarter versus
first quarter fees and other income were down. Let me give you two things,
two reasons, to analyze or think about.

First, we’ve described this over time. We have seen a migration in our
commercial finance ABL Business Credit unit to more traditional working
capital loans to the middle market as opposed to restructuring. They carry
with it a slightly lower fee component.

Secondly, we had mentioned earlier the significant change we’ve had in our
funding strategy and the impact it’s had on our home equity portfolio with
managed assets down or securitized assets down. And some of the income
stream you get in a securitization shows up differently in a P&L than an
owned asset. So we’re having more margin from putting the home equity
loans on balance sheet but obviously with securitized assets declining we’re
getting less the income on that servicing component. Those are two of the
more significant reasons year to year.

Question: Hi guys. Just wondering if you could comment I guess obviously you
mentioned the share buyback is more to cover option issuance. Where do you
feel kind of your capital ratios are relative to maybe increasing the dividend?
One could logically assume just doing some math that you’re probably even
some flexibility almost to double the dividend over the course of the next
year. Can you comment on that?

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Answer: Yes. Not likely, not likely. Let me give you my perspective. First of all, the
buyback program is solely for the option - I think is that a good word to use-
solely for the option purpose. Not to buyback shares for any other purpose
but it’s for the options that could be exercised and putting those away. We
want a disciplined, systematic program rather than buying on a hit or miss
basis which I don’t think makes sense. That’s the first thing.

Secondly, I mean our capital ratios are very strong today. We could put on a
lot more assets. I think they are very strong in terms of our capital ratios. We
could put on more assets and take them down. I’m comfortable especially
with the improving credit quality and improving returns.

Lastly, the board will look at dividends from time to time as they did this past
year and they increased the dividend 8% this past year I think and we felt
comfortable with that. But I don’t see any reasonable board action on
dividends until probably next year, at the beginning of the year, when we take
a look forward and a look back.

I would just add that, as we look at some of these acquisitions, the fact that
we’re well funded and well capitalized, it gives us the ability to go right in and
make an offer without any kind of financing out. So, we kind of like where
we are I think in terms of our capital ratios as it allows us to be pretty
aggressive in looking at these medium size acquisitions.

That’s a good point and it helps a lot especially when you’re competing
against somebody who wants to – competing as a buyer with a financing out
or a financing qualification.

Does that answer it?

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Question: Sure that makes sense. I guess if I could follow up I mean where are you kind
of thinking about that ratio long-term? Or what payout ratio are you thinking
about long-term?

Answer: Our payout ratio now is around – is about 15% 16%. I think when we went
public back in way - how long ago was that? In July two years ago, I think we
said our payout ratio was going to be under 20% and we had – that was kind
of our target under 20% payout ratio, 15% to 20%.

That’s my concept of where its always been. I mean if you have a 15% return
on equity and you paid out 20% of that, that gives you an internal growth rate
of about 12% without increasing leverage. That’s a good capital generation
rate that gives you the ability to grow assets or acquire assets without having
to stretch your ratios.

I think that’s kind of our – our concept and we want to stick with that concept
for now. Alright.

Question: Hey good morning. Did you mention what the recovery rates have been doing
in Equipment Financing? I know you gave an overview. And what would
you consider kind of satisfactory returns for Equipment and Capital Finance?
I see in your press release you’re talking about, return on assets around 1%
right now in both businesses. What are you hoping for over the next 12 or 18
months?

Answer: Well going back to recovery, recovery rates haven’t changed that much. We
found in the Equipment Finance business when it’s dead, its dead and we
haven’t had a lot of recoveries there in this deflationary and tough
environment over the last two years.

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But I would say that the equipment value rates are getting better, the
secondary marketplace is tighter and therefore that should all go well for
write-offs going forward. The write-offs in severity shouldn’t be as high.
That’s how I’d answer that.

In terms of the second question; Targeted returns. If you look back the
numbers you quoted were pretax weren’t they? There’s a 1% to 1% is that a
pre or after?

Question: Well it just says return on AEA was 88 bps.

Answer: Traditionally we would think that our Equipment Finance business, if I go
back to the good days, was running a return on equity at between 12% and
13%. About 12% to 13% return. I would think in returns of equity rather than
return assets. You get a 12% 13% return on equity target for our Equipment
Finance business. And we really have to get into that area. And in our
Capital Finance business, our traditional return on equity in that business was
in the high teens. 17%, 18% and we got that through both margin and gain on
sale of equipment. What’s missing these days is a soft margin and very little
gain on equipment sales because the market is soft, they don’t sell in that kind
of marketplace. Does that give you a perspective? I mean I think we should
be, low teens to mid teens in Equipment Finance and high teens in the Capital
Finance business. The traditional Capital Finance business we’re talking
about aerospace and rail.

I think that’s a fair way of saying it but the returns we show are after tax.

Question: Okay and I mean is that reasonable over say an 18 month timeframe?

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Answer: Well, I hate to be pinned down to that because 18 months from now you’ll call
me up and say I was wrong. Or tell Jeff he was wrong, I was wrong. I think
we’re moving in that direction so I don’t want to put a timeframe on it, but it’s
a real challenge to keep moving in that direction and I think we are.

I think we’re getting better returns in the rail business and I think the
Equipment Finance business will get better as I think the Equipment Finance
will get better as we get some more volume and more growth in that business.

Question: Okay. Just one more. It’s, I guess in the 10K when you talked about 200
basis point shift in rates is only – its only a 3% sensitivity in net interest
income. Does that include any – I don’t think it does but maybe you can
verify this. Does it include any debt refunding benefit you get as your spreads
obviously are narrower from a year ago?

Answer: No it – I just want to make sure that everybody understands the question – or I
understand the question. Our disclosure is about a 100 basis point.

Question: Oh I’m sorry yeah.

Answer: Okay it’s about a 100 basis point change. No we do not assume any
refinancing benefit in that calculation.

Question: Okay so hypothetically if you – 100 basis point rise in rates could be
neutralized by the debt refunding.

Answer: Well there would be - as I articulated earlier, we have debt maturing this year
at significantly higher spread than we would hope to refinance that that’s
number one. And number two, what we’ve seen through other cycles whether
this is the same or will be different, we’ll see. But as interest rates increase

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and credit quality improved and the overall economy improved, actually
borrowing spreads did improve somewhat. But that is not built into our
model.

Question: Good morning. A couple of quick ones, first a point of clarification. Eight to
10% asset growth you talk about that’s managed, owned or both?

Answer: Think of that as owned, We talk about owned because I think our managed
will go down as we securitize less and the secured portfolio runs off. So
we’re kind of focusing on owned assets in a sense because it’s the owned
that’s going to be the target of growth. And you saw our securitization levels
are - my guess is secured – managed will run down, is it fair to say?

Securitized will run down, managed will continue to increase.

The securitized will run down, managed will increase because owned will
increase. So I would focus on owned.

Question: And then secondly, I was hoping you could talk a little bit about the home
equity business. I mean you mentioned it had some good growth and you
think it can still grow despite a rise in rates. Could you just spend a moment
talking about that? How you source the business, how you protect against the
volatility of pricing there, some of the competitive dynamics.

Answer: Well, we source it through a wide distribution of brokers to our regional
offices and through the brokerage system which we have thousands of. We
tend to focus more on the fixed rate product rather than the floating rate
product. We’ve been in rate environments up and down, we’ve been pretty
good at sourcing this kind of business through a wide variety of products

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because I think we have a very good distribution or origination system
nationwide, that covers the whole country.

We supplement that growth with portfolio purchases. I think we referred to a
couple purchases and we make these purchases from time to time from parties
that don’t want to hold and we buy them. We tend to do that on a, two or
three of those a year. That supplements the overall organizational growth.

This year our first quarter was pretty much on expectations in terms of
volume. We expect to be pretty much right, as we’ve heard, be pretty much
on our planned volume for the year.

There isn’t clarity, we are somewhat affected by refinancing exuberance or
not but it hasn’t been bad – it hasn’t had that big impact on it. We are holding
those portfolios now because we think it’s more profitable to hold them than
securitize. Done better on a balance sheet basis than it’s done on asset back.

I think the other thing is particularly when we do these bulk purchases as well
as just in our week to week origination we focus quite strongly on the types of
spreads we can get. So, we wouldn’t be putting these assets on unless they
met our spread criteria.

Well that’s the other thing. We don’t have this big monster to feed here. We
don’t have 6,000 branches and offices all over, unlimited cost structure since
we rely on somebody else’s distribution system with thousands and thousands
of brokers out there.

So, there’s no pressure to do – if we have to do $150 million a month and we
only do $135 million, it isn’t the end of the world. We’re not forced to stretch
on rate or credit or risk so it’s not that kind of pressure on the organization.

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It’s one small line of business. It is indeed business here. That’s part of this –
parts of the diversity so, the world doesn’t come to an end if we suddenly see
a fall off in volume in one product line.

Question: Okay that’s helpful. Maybe one last little one. Should we see much
variability in the operating expense line depending on whether your growth is
primarily organic or acquired? Or is that not a big enough difference to really
see?

Answer: Well the acquisitions aren’t that big in terms of expenses. If you think about it
we’ve acquired – if you look at the acquisitions we made they don’t bring
with them that much expense as the factoring acquisition brought some. I
think of all the leasing equip – the railcar leasing brought a little.

The one we’re now bringing in, we’ll probably end up with quite a bit of
consolidation since we have an existing operation. So its incremental
expenses, there’s no question about it. But the incremental is not, one plus
one doesn’t give us two it gives us 1.2 or something.

One point one (1.1).

Yeah 1.1 and the factoring is a classic example. I mean, I boost about this but
our factoring volume for the first quarter of this year we did publish that
number at my – its 50% more than it was last year.

Nine billion versus six.

Nine versus six and our headcount is up from 780 to 820 or something like
that, 60 people increase. So what is that? A 5% increase in people and a 50%
increase in volume. I consider that good productivity. That’s what we need in

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an organization like this so. In fact, there will be incremental expenses from
these acquisitions there’s no question about it. But there should be
incremental profitability that exceeds that.

But most of these acquisitions we’ve been able to get the financial assets and
then have our pick of the people and so we think there’s terrific operating
leverage in these deals we’re doing.

Question: Good morning guys. First of all, thanks very much for your run through in
terms of the interest rate sensitivity. I thought that was very useful. But let
me ask a corollary question if I can. How much work have you all done in
terms of looking at your customer base and if there are segments of your
customer base that may be more or less impacted by a – an outsized rise in
rates over the next 12 months?

Answer.: That’s a really good question because the rate environment is so low today.
Let’s look at the commercial customer base because that’s most of our
business here.

A lot of our customers are fixed rate borrowers. So to the extent that we say
they’re fixed rate borrowers at, the rising rate does not have an immediate
impact. But there’s some that have a floating rate.

I think the fact is that the rate environment is relatively low and if you’re
paying a 50 or 100 basis points rise in rates when the Prime rate goes up 50 to
100 basis points we’re at the low end of the scale of a fixed cost scale, here so
I don’t think its immediate impact.

If the Prime is at 10% it’s one thing but if it’s 3% or 4% or 5%, you’re not
talking about a big increase. So I don’t think that the big immediate impact on

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a lot of our customers from the rising rates. There’s a lot more liquidity in the
marketplace, the economy is a lot better. I think there’s an interesting to
there’s an awful lot of liquidity in the marketplace for them to borrow at.

And I’m not – I don’t see the pressure right now in those environments unless
you’re talking about, 300 or 400 basis point rise in the Prime rate you don’t
see that kind of impact. I don’t see that kind of being that impactful right
now. And I don’t think anybody is going to see that kind of – I don’t think
anybody’s predicting that kind of escalation in interest rates.

Question: Let me ask one other question. In terms of the acquisitions that you routinely
get a chance to look at, I’m wondering if you’re seeing more acquisition
opportunities given the generally better outlook for the economy over the next
12 months. And could you just spend a second characterizing the seller’s
price expectations relative to maybe where they might have been a year ago.

Answer.: I want to talk a little bit about that because he’s been working on quite a few
of them but I don’t think we’re – I don’t think we’re seeing anything more
today. I mean the flow isn’t any greater. You get different flows. You get
those brought to us by bankers which have generally: are pretty publicized.
And then the ones that we buy on our own and quite frankly of the four – the
five acquisitions we made one, two, three, four of them were all we found on
ourselves basically right? We had a banker for one. And so the ones that
come to us from bankers, we love to have them but they tend to be shopped a
bit. The ones we find on our own tend to be a little bit more attractive and
less - more attractive for us. But I don’t think the flow has been any greater
in the last couple months than it was last year. We looked an awful lot.
We’re very disciplined, it has to be – it has to give us the kind of returns, it
has to fit into our business, it has to be a quality name and that discipline is
going to stick around.

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What are your thoughts on that?

I agree with you totally. I mean, to the extent that we are seeing more, we’re
also seeing more competition in terms of other buyers. So I think a lot of
what’s happening is, people are restructuring trying to define core versus non-
core.

I think this GATX situation is a great one where that unit I think is a better fit
with us just with some of the other pieces of business we have, than it might
have been for them. And so it’s like finding its natural home.

So, keep in mind that we’re in the marketplace looking for $400 million deals,
$500 million, $600 million deal. We’re not likely to run into the Bank
America and JP Morgan in a sense because their world has got a lot more
zeros on it than we do. And so keep that in mind.

Question: And just one final add on to that. You’re looking for $400 to $500 million
deals what’s the – is there any appetite at all for a deal two to three times that?

Answer: Well, I think the answer is it depends on quality, characteristics, fit. I think
we have the capital to do a deal bigger than $500 million. We have the capital
to do a deal that has a billion dollar number on it but it has to fit. It has to
have the right returns. We don’t want, marginal returns. We’re going to get it
for you in the third year of the plan. It better be while I’m still around.

The other thing is the size of these in terms of the assets are like 1% of our
total asset base. So if, we’re six months or a year late in hitting our 15%
return, that’s something we have to deal with but it’s not that significant in the
overall scheme of things. So we really we like these because they’re, high

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probability of success, low risk type of acquisitions in businesses we know.
So that’s how we get to the size.

Question: I have two questions. The first is getting back to the capital levels. Can you
update us on any discussions you might be having with the rating agencies
about your capital levels and whether that relates to a rating upgrade at all? It
would seem that at this point they would have to feel comfortable with what’s
occurred over the past year to two years.

And secondly, just on the issue that we were just talking about in terms of
acquisitions, maybe going the other way, are there any business lines or pieces
of business lines or assets beyond the ones that you’ve already set aside that
and beyond your comments today about Argentina that you would consider
perhaps not as core to your business as you initially thought?

Answer: Well the first question on the rating agency I’m going to get help here. We
have had – we’re in good shape with the rating agencies. That’s how I would
describe it. Will we get our rating upgrade? I don’t think rating agencies are
likely to give upgrades too quickly these days.

They’re conservative in their approach. And I think the two issues that we
still I think struggle with to get a higher rating, are return on equity, that’s the
one, and I think the things with wings – airplanes, I think that there’s still a
concern about the aerospace portfolio. And our return at 13% still probably
looks a little low. So I think as we move our returns up and the airplane
market turns around, I think this company is well positioned for a rating
increase.

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You’ve covered a lot, We’ve had our regular annual updates with each of the
three agencies and it was very comprehensive with a lot of senior management
participating. And as said – those reviews went very well.

I think capital is only one issue in, our ratings and I think we’re very well
positioned, very strongly positioned in our current ratings category today
across the board. And I think where we need to make continued progress in
the rating agencies eyes – they look at a few things. Capital, I think, we’re
very well positioned. Governance, as it was mentioned, we’ve got very, very,
very strong marks.

I think where we still need to make some progress, and we had a good quarter,
and we talked to the agency yesterday about the quarter, is in profitability.
ROE, they would like to see it higher than where we were at 12%. Now we’re
at 13%. So they sort of agree with where we’re going on that. And credit
quality, we still need to make some progress moving our credit costs down
below the 1%. And we’re at 98 and I still think we’ve got room to move.

I think when we get the profitability a little higher and the credit quality a
little bit better, then I think, we’re not only strongly positioned in those rating
categories, I would argue that we are strongly positioned in a higher rating
category. So, it’ll take a little bit more work and a little bit more performance
and we’re working hard at it.

Your other question. We’ve identified the businesses that are in that
liquidating mode, the franchise, the MH, we’ve identified those. We’ve got
Argentina, of course was pretty well identified, and we’re liquidating our
CLEC portfolio.

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Those are the ones within a – we don’t have anything else. Well, quite
frankly, if we had I don’t think I’d announce it on a conference call like this to
the world. That’s something we’d have to get our act together on and do it in
a more disciplined mannor to be very blunt about it.

But there’s nothing else out there that’s a burning issue. But I can tell you
that Jeff and Joe have just gone through with all of us a strategic planning
process and the big issue is return on equity. And those businesses, they can’t
give us the return on equity that we need within a reasonable timeframe, are
under the microscope. And you know what they are.

We need to get the returns up in businesses and you’re running a business
around CIT and you got an 8% return on equity and next year it looks like its
going to be 10 and the year after that 12, that’s good. But if it looks like next
year is still going to be eight and the year after that eight, that’s not so good.
And so the equity discipline in terms of how we allocate that equity to
businesses is going to be greater going forward and that’s the only way – the
only disciplined management way we can get the returns into the mid-teens
and get the recognition from the whole marketplace, equity agencies and debt
holders that we deserve I think.

So that’s a long-winded answer to we’re not going to tell you in a sense but
we don’t have anything right now that’s burning, other than the ones that
we’ve already identified.

Question: Good morning. You had an earlier question about competition. But maybe
kind of flipping that around the other direction you – your growth target in
loans for the year is actually higher than it was right now. Is that just seasonal
or are there specific businesses where you’re seeing kind of improvement in
the expectations for growth?

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Answer: I’m not sure I received our growth target higher. The first quarter growth was
around I don’t know – annualized it was about 8% wasn’t it? And so I don’t
see that too much higher than our target. That could get augmented a little bit
by the acquisition but I’m not sure its running higher. It’s running – in fact its
running around the lower end of our 8% – 10% growth but I think it’ll catch
up as we go through the year especially when we add $500 million for the
acquisition.

I’m not sure we got all of your question. But, our 8% to 10% growth in assets
is a long-term goal for annual growth. The first quarter historically is a little
slow for several of our businesses. That’s part of why in our prepared
remarks we were emphasizing the volumes this quarter versus the first quarter
2003. And you can see some of the sectors growth – the flow businesses,
vendor, small ticket leasing, home equity, factoring - we’ve had good growth.
And we continue to think those are going to do well. Things like Equipment
Finance we’ve had less growth. Some of that is seasonal because of the
weather and some of it’s also they’re liquidation portfolios.

And quite frankly, the aircraft business will pick up in the second half of the
year because we have more deliveries in the second half of the year and we’ll
get growth in that business. That’s contractual growth as we can pretty well
identify it and that’ll catch up on the second half of the year.

Right I mean, we probably like a little bit more growth in rail we just can’t
find the railcars.

Question: Could you guys comment on factoring a little bit? You guys have seemed to
of bought up the whole industry and I’m curious what kind of competition you

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see and more importantly what kind of pricing leverage you might start to
have in that business?

Answer: Well, we haven’t bought up the whole industry because, its interesting and
there’s still quite a few factors out there. But we have another sense of
competition, – there’s a credit derivative marketplace, there’s the bank
marketplace that has receivable financing and the companies like American
Credit and Indemnity and AIG, they write credit insurance. So I wish we had
it all but we don’t. It’s still a very big credit insurance marketplace that we’re
in.

But having said that, we’ve got a very big commitment to the marketplace. It
looks good. We’re going to have a big growth this year over last year because
of the two acquisitions. But this is not a high growth business like this year
it’ll be growing but then once we get to the – and we got to this size - the
growth goes back to – our traditional growth here is 6% to 8%, 5%, 6%, 7%,
8% depending on the economy. The real improved profitability with that
kind of growth is to make sure you get your operating efficiencies into an
organization that are terrific and keep your credit expenses down. So you can
have – you can translate top line growth to better bottom line growth through
operating efficiencies. And we’ve been terrific at that over the years in
factoring. That’s the use of, the digitized world rather than the paper world.

What else could we cover in factoring? Business – the retail marketplace
looks pretty good these days. Knock on wood credit looks pretty good.
Consumers are buying and that’s a good sign and we’ve got and a very
disciplined credit process or our credit quality. Even last year, even going
through the bad economy in the last two years our credit in factoring was
exceptionally good with the exception of a couple of write offs and we moved
some money off on the K name. But other than that it’s been pretty good.

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And March was a terrific month for us as we said. I mean we broke our
record by more than a little.

Question: Have you raised prices at all in the last couple of years or is it pretty much
static pricing in all volume and efficiency improvements?

Answer: No. Believe it or not it’s a price marketplace we haven’t raised prices. It’s a
little bit like the insurance business. When you have a Kmart blow up on you
like when a ship sinks or, a company has a problem, insurance goes up
dramatically. When the ship sinks, shipping insurance goes up. When K-mart
went into bankruptcy, the marketplace tightens up. The premiums were
higher on insurance. And now that it’s come out and things are better, prices
have softened a little bit, as a matter of fact, in the last six months. So there is
not that kind of - pricing discipline isn’t with us. It’s with the marketplace.
And it really has to do with credit. When you have big bankruptcies or big
explosions – and hopefully we won’t have any – then you get better pricing.
Things get better and the quality of the retail marketplace looks better, well
pricing gets a little soft and everybody’s out there scrambling for business.

So the real key to improve profitability is efficiency and credit. Those are the
two levers. We can’t pull the pricing level, but we certainly can pull the credit
and efficiency levers. And we do that I think very well.

Question: Thanks. I apologize if you’ve already touched on this. And I know that you
mentioned that you were all set for 2004 aircraft deliveries. But I was
wondering if you could talk about where you are with planes coming off lease
this year.

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Answer: We had seven re-price in the first quarter, and three of those were at pre 9-11
rates, so four were at post 9-11 rates. I think we have about 15 or so, maybe a
little bit more than 15, coming off lease the remainder of the year. And most
of those are at post 9-11 rates.

Question: And how many of those 15 are already satisfied, or are those the ones that you
still have left to do?

Answer: Those are the ones we have left to do.

But we’re highly confident we’re going to lease them because we don’t start
looking until maybe 60, 90 days before they come off lease. And one other
fact is that historically – and it continued through last year – about two-thirds
to three-quarters of these generally get placed with the same airline. So it’s
not like we’re looking for a brand new totally new customer for every client.
So keep that in mind.

Question: Thanks. I’ll try to keep this short. It’s close to lunchtime. I’m hungry.

Two questions, first on the volume related fees and yield, just a little more
color – which business lines typically experience the most seasonality?
Which business – or is some of it related to the continued slow environment in
Equipment Finance? The line I’m looking at on the fee side is the fee letter
income down pretty sharply even on the year-over-year basis and if you could
just give me a little more color there on how I should be thinking about that
one.

Answer: I think we talked this a little earlier. First, volume-based fees – I think you
had a question of where is that more than in other areas. I would say two

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areas where we get higher fees proportionately to the volume are in the more
highly structured bigger ticket transactions that we would do in Business
Credit and Structured Finance. The other business would have a more annuity
flow and a more regular flow to the fees.

Year-to-year fees and other income – I addressed two reasons earlier why they
were down. One, in the ABL business last year, particularly in the first part of
the year, there were a lot more bigger ticket dip restructuring financing kind of
deals that come with bigger fees than what we’re doing now. Business flow
has been very good. But what we’re doing now is more traditional working
capital lending to the middle market, which comes with a very good return, a
very good rate, but not the big structuring fee up front. That’s number one.
Number two, there is an earnings dynamic that I described earlier. As we put
more earnings on the balance sheet, the margin dollars are higher as opposed
to when we securitize them and get securitization servicing income, the fee
income component is higher. So that tends to move down as we securitize
less.

Question: Okay. I think I got that. I’m just trying to figure out is there some seasonality
benefit that you’re likely to get going forward, and which business lines
would benefit from that.

Answer: Yeah. And in the first quarter, as we’ve been saying – articulated earlier and
Al had some in his comments – the first quarter in certain of our businesses
volume wise is the weakest quarter of the year. So during the year, as
business volumes pick up seasonally, particularly look at the fourth quarter
strength where we have the absolute strongest quarter, fee income should
progress nicely as the economy improves and as the calendar moves forward.

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Question: Okay, fair enough. The second part of my question is – I seem to ask this
almost every quarter, but maybe one day I’ll understand it – but the disparity
between the improvement in owned delinquencies and the relatively flat
owned NPAs, does that mean anything?

Answer.: Well, NPAs are down a little bit this quarter. One of the issues I think in
Equipment Finance, we had named one NPA that was current, and the reason
that we put it on NPA, because we want to be cautious about things, because
we have some concerns about the credit. So that probably accounts for the
biggest discrepancy. But then, if you look back at the EF there, NPAs were
coming down nicely over the last five or six quarters. So that’s one issue.
I think you’ve got to watch this more than just quarter-to-quarter. I expect
that our NPAs and our delinquencies will continue to move in the right
direction. They’re still a little high in my perspective in terms of percentages.
But I think you’ll see more of it come down. Does that cover it, or maybe we
have to wait until next quarter and try it again? What do you think?

Question: I’m not – I guess I’m still waiting for that light bulb to light over my head.
The numbers I’m looking at are basically that NPAs were flattish and
delinquencies were down. I’m just trying to understand what that means. Is it
collateral value related, or is it some different items that went into the non-
performing category but yet weren’t delinquent?

Answer: I’ll try it. I think the light bulb did go off in your head because that’s a
question that we asked when we started, said how can this be. But some of
it’s timing. And Al described it. Our past due is a contractual metric. And
our non-performing has some discretions to it. So, on a conservative way, we
had about a $20 million loan in Equipment Finance that we had some concern
about, the ultimate collectibility. But it was current so it’s not in the past

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dues. But we chose to put it on non-performing and that’s a little bit of a
disconnect.

Does that mean anything? We think we’ve got that credit risk factored into
not only your reserving but our provisioning. So I think both metrics have a
nice forward look to them in terms of what it’ll mean in the ultimate charge
off number. But I think you’ve got it.

But I think, if you took that 20 out of it, put the non-performing 20 lower,
you’d see that you wouldn’t have asked that question probably. But that’s
probably the biggest single factor that makes that swing.

Question: Okay. Quickly, I wonder if you could tell us what the purchase accounting
benefit was in the quarter, if any, there’s much of that left?

Answer: It’s very small, It’s very small. I don’t have it in front of me. But I think it
was two or three basis points on the margin benefit. I mean it’s so small I
think even last quarter we talked about deleting the disclosure. But we need
to show it to you because of the prior quarter comparisons. So that is small.

But I think I just need to revisit this because I was passionate about this over
the year. The reason why it’s only 2 to 3 basis points now versus whatever it
was before, let’s call it 20, is we realized that benefit. When we refinanced
things like PINEs and other things that were at a higher rate. That benefits
actually moving into our margin in an interest cost real way. But I think it
was always real, so minimal math.

Question: Okay. And I guess could you discuss what potential uses were considered or
how we should think about the benefit from that debt call? Obviously you
didn’t have to build reserves.

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Answer.: It went into capital. And it built our capital base and we can leverage it 10 to
1 the way I look at it. It goes back to our point before. We have stronger
capital. If another acquisition comes along, you don’t have to worry about
getting financing for it. We can make the acquisition without financing
contingencies. And it’s a – we had no use for it. The idea of putting it into
my retirement account didn’t go down well around here.

Question: One last thing – I wonder, if somebody could talk about the interest sensitivity
of leasing aircraft and railcars. It doesn’t seem as though those lease rates are
closely linked to interest rates and yet you’ve got to fund the purchase of those
long-lived assets.

Answer.: It’s a good question because in a sense, there is. I think over the long run they
have to be related to capital cost. You can’t have them over the long run-
leasing rates that don’t cover your capital costs. They shouldn’t be in the
business. But in the short run they don’t react that way. So the question is
what funds do you – if you have a 30 year - railcar, do you borrow 30 year
monies is the question. Or do you borrow – since we don’t hold the railcar for
30 years because we turn them over and all that, we probably wouldn’t put 30
year money. If the average turn over was six or seven years, we’d put six or
seven year money.

That’s right. I think you have to look at this over a longer period than a few
months. And I think there is some correlation with the lag or with some delay
in leasing rates moving up for a variety of reasons, the economy’s better, the
supply, as mentioned earlier, there’s not a lot of railcars to be bought. What
does that mean? That means rates got to move up. And why is that – because
the economy is better. So, maybe there’s a direct linkage on some of the
things that are more floating rate in nature. But there’s also a less direct

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linkage in terms of better economy, fewer railcars there for rental rates going
up.

So, the way we finance it and the way we think about this is behavioral in a
way in that we look at the history of what’s happened in terms of resetting, re-
pricing of rental rates. And we fund it according to that history and behavior
we see. We think we’ve got it right.

Question: And that would work aircraft too?

Answer: Historically that’s worked in aircraft. We think about more recently is the
behavior going to be different because the whole industry is different. So the
other thing that we’ve been doing is, as I mentioned earlier, we’ve been doing
a little bit more longer duration financing than we historically did. And that’s
for a variety of reasons, and one relates to what you’re talking about now.

Question: These Business Development Corps that seem to be sprouting up like weeds
all over the place. Do you have a comment on overlap or lack of overlap?
And what you know about the businesses that they’ll be lending to and how
that impacts your Structured Finance or Commercial Finance, number one?

And number two, I’m sorry, could you just very quickly – you said fixed rates
are $21 billion.

Answer: Yeah, I’ll go through that again. I’ll go through it again.

Okay. The question on BDCs, which I think the acronym should be “Be Darn
Careful”. I don’t know enough about these, but that doesn’t stop me from
giving my opinion, does it?

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I think to some extent it’s a healthy sign that there’s kind of a capital coming
into a marketplace looking for deal. That’s a good sign. It’s a sign of
optimism. It’s a sign the economy’s getting better. There’s going to be deals
in the marketplace. That’s a plus quite frankly.

The question is, here at CIT, we’re not a virtual corporation, as some of the
BDCs will be. We’re a real corporation. We have origination capability. We
have credit capability, collection capability. We’ve got it all. So, we in a
sense, can link to some of these I think. I think they could be a source of
business for us, and they could be a source of buying some of our deals.
That’s the first thing.

Secondly, I think they’re going to take more risks than we did. I think they’re
going to take more mezzanine debt. They’re going to take more equity type
risk, longer-term financing. That’s all right too because we don’t take that
risk. A healthy junk bond market is good for CIT. You know why? Because
a lot of our commercial finance deals need that layer of financing. And we’re
not going to provide it. We’re not taking that risk. And if they take us out,
that’s all right because we want to be taken out. We don’t want to be in there
for 30 years on these deals.

So I don’t see these as a threat. I’m not sure exactly what role they play. It
could be a little destabilizing, if they get very aggressive on pricing. But if
they get very aggressive on pricing, they’re not going to get the returns for
their holders. You can’t be aggressive on pricing and take high risk and get
good returns. So I think there could be a link from us to them because we’ve
got it all. They have capital. And we’ve got some terrific resources and
ability to use some of that. And we can do some partnership. And we
actually work with some of these firms on deals already in some of these
companies that are into mezzanine debt or quasi equity range because we take

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04-22-04/10:00 am CT
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the senior debt, senior secured, and they’re partners with us, and we all work
together.

So I think overall I would look at this positively in the sense that the
marketplace is attracting capital for doing deals. You don’t see that – that
doesn’t happen when the world’s falling apart. How these all come out,
whether these are the temporary – is this the securitization phase that comes
and goes, or is it permanent, we don’t know.

I agree. I think the question’s going to be how many of these actually get
funded and actually end up functioning. Right now, there’s a lot of buzz
about them obviously and a lot of filings. And I think we’ll take our
traditional kind of cautious way and we’ll wait for the first wave of these and
try and figure out if they’re actually going to be viable parts of our business or
not. And then we’ll figure out how we have to deal with them.

The answer for you on the debt side.

Just to summarize. One way we have of looking at it’s simplified and static.
But let me give it to you $21 billion of our loans and leases are fixed rate at
the end of the year, $16.5 billion of our liabilities after swaps are fixed rate.
We’ve got to make a choice of how to fund that. Just using half of our equity,
$2.5 billion, that leaves $2 billion of the fixed rate asset portfolio funded with
floating rate liabilities. So that’s sort of the balance sheet for you.

Albert Gamper, Jr.: I want to bring the conference to an end by thanking everybody joining us.
And just to reaffirm our commitment to continuing the kind of improvement
you’ve been seeing over the last several quarters at CIT, improvement in
credit quality, improvement in margins, and improvement of profitability, we
really take those long-term goals seriously. We’re going to move and march

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towards them in a judicious manner. We’re going to look at acquisitions in a
prudent manner, as we have in the past, and kind of continue to deliver the
kind of results we’ve had in the last couple quarters. And you’ve got our
commitment to that. So thank you very much for joining us.

Operator: This concludes today’s conference. You may now disconnect.

END

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