CIT Group Inc (DEL) (CIT)

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CIT Group Inc. (CIT)

Q1 2009 Earnings Call Transcript

April 23, 2009 9:00 am ET

Executives

Ken Brause – EVP and Director, IR

Jeff Peek – Chairman and CEO

Joe Leone – Vice Chairman and CFO

Alex Mason – President and COO

Nancy Foster – Chief Risk Officer

Analysts

David Hochstim – Buckingham Research Group

Andrew Wessel – J.P. Morgan

Moshe Orenbuch – Credit Suisse

Matt Burnell – Wachovia

Mike Taiano – Sandler O'Neill

Christopher Brendler – Stifel Nicolaus

Bill Carcache – Fox-Pitt

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to CIT's first quarter 2009 earnings call. My name is Carmen, and I’ll be your operator for today. Participating in today's call from the company are Jeff Peek, Chairman and Chief Executive Officer; Joe Leone, Vice Chairman and Chief Financial Officer; Alex Mason, President and Chief Operating Officer; and, Ken Brause, Executive Vice President of Investor Relations. At this time, all participants are in a listen-only mode. There'll be a question-and-answer session later in the call. Please limit your questions to one per firm. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

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

Ken Brause

Thank you, Carmen, and good morning. Welcome to CIT's first quarter conference call. Our call today will be hosted by Jeff Peek, our Chairman and CEO; Joe Leone, our CFO; and, Alex Mason, our President and Chief Operating Officer.

Following our formal remarks, we will have a question-and-answer session. We do ask that you limit yourself to one question and then return to the queue if you have additional questions. We’ll do our best to answer as many of your questions as possible in the time allotted today.

Elements of this call are forward-looking in nature and may involve risks, uncertainties, and contingencies that may cause actual results to differ materially from those anticipated. Any forward-looking statements relate only to the time and date of this call. We disclaim any duty to update these statements based on new information, future events, or otherwise. For information about risk factors relating to the business, please refer to our SEC reports.

Any references to certain non-GAAP financial measures are meant to provide meaningful insight and are reconciled with GAAP in the financial tables accompanying our press release. For more information on CIT, please visit the Investor Relations section of our Web site at www.cit.com.

With that, it’s my pleasure to hand the call over to Jeff Peek.

Jeff Peek

Thank you, Ken, and good morning to everybody, and welcome to our first quarter conference call. With me this morning are Alex Mason, our President and Chief Operating Officer; and, Joe Leone, our Vice Chairman and Chief Financial Officer. Nancy Foster, our Chief Risk Officer is here as well and she'll join us for the Q&A.

It's certainly been a challenging start to the year. We will share our thoughts and key matters impacting our business both for the quarter and prospectively, and then we’ll be delighted to take your questions.

CIT's value proposition is fairly straightforward and focused, extending credit to mainstream, small, and midsized businesses. It is clear that many of these enterprises are struggling as a result of the deep and prolonged recession. Sales are down significantly across most industry sectors. Businesses are experiencing further contraction in the availability of liquidity and credit resources, severely limiting restructuring options for those whose business models have been challenged.

Clearly, as evidenced in our results and that of our regional banking peers, the weak economic environment had a much greater impact on certain segments of our corporate loans portfolio than we have anticipated previously. While we are certainly disappointed with this quarter's credit metrics, it maybe better to evaluate our underwriting to a full business cycle rather than in a specific point in time. We do believe that we are taking the appropriate action to quickly recognize losses that have occurred to aggressively build reserves in anticipation of future losses and actively manage the portfolio to maximize our future recoveries.

Now on the positive side, we are making good progress on our transition to a banking platform. We have maintained a strong balance sheet and managed considerable liquidity. And we’re seeing the benefits of the expense reduction initiatives we took in 2008.

Now, I want to focus on our transition to a bank holding company. We’re working very hard to transition CIT from a wholesale market funded finance company to a deposit funded bank holding company. A task that would be difficult even in the best of times and is that much more challenging given the current economic, financial, and political environment. As we work our way through this transition, our four objectives remain the same.

First, we need to manage liquidity while the credit markets remain upside down. We want to limit credit risks during this economic downturn. We need to navigate a path back to profitability and in some ways, most importantly, we need to preserve the value of our core commercial franchises, so that we can reap the competitive benefits when the environment improves.

I am pleased to report progress on our bank transition. Last week, we received regulatory approval for the initial phase of our 23A waiver request. We transferred $5.7 billion dollars of our government guaranteed student loans and $3.5 billion of related debts, mostly conduit financing to CIT Bank. In connection with this asset transfer, we’ve now moved about $1.6 billion of cash from the bank to the holding company.

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