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CIT Group $131 Million 4th Quarter Loss

CIT Group Inc ., the largest independent commercial finance company in the U.S., reported a fourth-quarter loss because of bad home mortgages and the declining value of its student-loan business.

The $123.2 million loss before preferred dividends, or 69 cents a share, compares with a profit of $266.8 million, or $1.31 a share, a year earlier, the New York-based company said today in a statement. The full-year loss was $81 million, or 58 cents a share, compared with a profit of $1.05 billion in 2006.

Chief Executive Officer Jeffrey Peek stopped originating home mortgages last year to focus on providing loans and advisory services to mid-sized companies. CIT will cut its workforce this year by 5 percent, or about 330 jobs, Peek said today on a conference call.

``We are doing our best to put our home lending behind us,'' Peek said. ``We will retreat to our core.''

The company reduced the workforce by 4.4 percent in the fourth quarter with the sale of a leasing business and ended the year with about 6,700 employees. It will record a $50 million pretax charge in the first quarter for severance and related costs.

### Press Release ###########################

· Net loss for the quarter of $131 million, $0.69 per share
· Commercial businesses post solid new business volume and double digit returns
· Bolstered credit loss reserves - mortgage and other portfolios
· Wrote off goodwill in student lending business
· Balance sheet strong; tangible capital ratio of 8.8% - above target

NEW YORK – January 17, 2008 – CIT Group Inc . (NYSE: CIT) today reported a net loss of $130.7 million, or $0.69 per share, for the fourth quarter of 2007, reflecting the impact of several noteworthy items discussed below, versus net income of $259.3 million, or $1.28 of diluted earnings per share, for the 2006 quarter. For the full year, the net loss attributable to common shareholders was $111.0 million for 2007, versus net income of $1,015.8 million last year.

“We were not pleased with our reported loss this quarter, which primarily related to charges on our home lending and student lending businesses -- two sectors that have recently experienced significant change. However, our commercial finance businesses performed well and continue to demonstrate the value of the CIT franchise in our core markets,” said Jeffrey M. Peek, Chairman and Chief Executive Officer of CIT. “We ended the year with strong capital ratios. Our strategic focus for 2008 is centered on our core commercial finance segments and maintaining balance sheet strength.

 “We expect overall market conditions to remain challenging for some time. Key to our success this year will be our ability to reduce expenses through improved efficiencies and further diversify our funding sources. To that end, we are right-sizing the business to better support our core commercial finance segments and creating a more streamlined organization focused on delivering value to our customers and shareholders.

“As we enter our centennial year with many challenges before us I am confident that our established position as a leader in middle market financing will allow us greater success in 2008 and beyond.”

Fourth quarter results include the following previously disclosed items:

· A $297 million increase in reserves for credit losses, including the establishment of a $250 million reserve for the held-for-investment home lending portfolio and increased general reserves primarily for unsecured consumer loans (decrease to EPS of $0.96);
· Charges of $42 million related to home lending receivables held for sale, including those sold during the quarter (decrease to EPS of $0.14);
· A $313 million goodwill and intangible asset impairment charge related to the Company's student lending business, reflecting decreased market valuations for student lending businesses, and lower profit expectations as a result of higher funding costs (decrease to EPS of $1.59); and
· A pre-tax gain of $268 million on the sales of CIT's interest in its Dell Financial Services (DFS) joint venture and of its U.S. Systems Leasing portfolio (increase to EPS of $0.85). 

Other noteworthy items impacting the fourth quarter include:

· A  pre-tax loss of $13 million in Home Lending, excluding the above-mentioned items, principally due to impairment of retained interests on past off-balance sheet securitization transactions (decrease to EPS of $0.04).
· A release of $27 million of tax liabilities relating to our international operations (increase to EPS of $0.14); and
· A write-off of $16 million of capitalized expenses related to the terminated capital raise initiative of an aerospace leasing company (decrease to EPS of $0.05).

In addition, the Company expects to record a pre-tax restructuring charge of approximately $50 million in the first quarter of 2008 for severance and related costs, with expected annual savings of $60 million.

Consolidated Financial Highlights:

Net Finance Revenue

· Net finance revenue was down 9% from last quarter due to higher funding costs and up 4% over last year on higher asset levels. Average earning assets increased slightly from the prior quarter and strongly over last year due to commercial finance loan and leasing volumes. 
· Net finance revenue as a percentage of average earning assets was 2.67% down from 2.96% for both last quarter and last year, reflecting higher funding costs in the current market, including the securitization of home lending assets late in the third quarter and the decision to maintain excess cash balances.
· Operating lease net revenue was 7.22% of average operating leases, up from 6.90% last quarter and 7.09% last year due to strength in aerospace rental rates, partially offset by lower railcar utilization. 

Other Income

· Other income includes the gain of $247 million on the sale of our interest in the DFS joint venture and the gain on sale of the U.S. Systems Leasing business of $21 million.
· Other income for the quarter as a percentage of total net revenue (net finance revenue plus other income) was 29% (excluding the DFS and systems leasing sales gains), down from 43% in the prior year quarter, principally on lower syndication fees and receivable sales gains.
· Fees and other income declined from last quarter, largely in our U.S. vendor finance business unit due to lower joint venture and other revenues.
· Factoring commissions were up slightly over last quarter and the prior year on increases in factoring volumes.  
· Gains on receivable sales and syndication fees were down significantly from last quarter and from the prior year quarter due to: 1) less syndicated loan fees reflecting more challenging syndication markets, 2) no sales of home lending receivables and 3) fewer sales of student loans.
· Loan sales and syndication volume, excluding the sale of home lending assets, was $1.9 billion (22% of origination volume), up from $1.2 billion (13%) in the prior quarter and down from $3.5 billion (31%) in the prior year quarter. The increase from last quarter was primarily in Corporate Finance.

Credit Quality – Commercial

· Overall commercial credit quality remained strong, although credit metrics weakened from very favorable prior period levels.
· Net charge-offs as a percentage of average finance receivables were 0.43% for the commercial businesses, up from 0.34% last quarter due to lower recoveries in Corporate Finance and higher losses in Vendor Finance, but improved from 0.55% a year ago.
· 60+ day owned delinquencies for the commercial businesses were 1.47% of finance receivables, up from 1.33% last quarter, primarily due to increases in Vendor Finance due to the integration of leasing platforms and Corporate Finance.
· Non-performing assets for the commercial businesses were 1.15%, up from 1.03% from last quarter and 0.87% last year, primarily in Vendor Finance and Corporate Finance.

Credit Quality - Home Lending

· Reserves for credit losses of $250 million were established for home loans held for investment, reflecting higher past due loans, past due loan migration trends and further deterioration in the home lending market during the quarter.
· Net charge-offs in the home lending portfolio held for investment were $6 million. In addition, losses of approximately $110 million were applied to the discount during the fourth quarter.
· The discount on home loans held for investment was approximately $450 million at December 31, 2007, resulting in total reserves and discount of $700 million on outstanding loans (unpaid principal balance) of $9.3 billion held for investment.
· Home lending related assets held for sale were approximately $500 million, against which there is a $145 million valuation allowance.

Credit Quality – Consumer

· Net charge-offs in the Consumer segment were $24.4 million, up from $13.5 million last quarter and $5.3 million last year, due to higher losses on unsecured loans and private (non-U.S. government guaranteed) student loans.
· 60+ day owned delinquencies were 4.93%, down from 5.24% last quarter and up from 4.52% a year ago.


· Salaries and general operating expenses were up from last quarter and up from a year ago. The current quarter includes $16 million of expenses for the write-off of capitalized expenses related to a terminated capital raising initiative in our commercial aerospace business due to market conditions. The quarter also includes legal accruals, and certain integration related costs in our international operations in Vendor Finance. Expenses excluding these items were down from last quarter and last year, driven by lower incentive compensation accruals and lower headcount.  
· Employee headcount totaled approximately 6,700 at December 31, 2007, down from 7,010 last quarter and 7,345 a year ago, primarily due to reductions of home lending personnel.

Income Tax Provision

· The fourth quarter results included $27 million in favorable tax adjustments related to a reversal of tax liabilities in our international operations.
· The fourth quarter effective tax rate was also impacted by the goodwill impairment, which has no associated tax benefit.
· Excluding these items, the effective tax rate was approximately 18%, due primarily to a higher proportion of international earnings.

Volume and Assets

· Origination volume for the quarter, excluding factoring and home lending, was $8.7 billion, flat with last quarter and down from $9.8 billion a year ago. Commercial loan and lease volume was up for the quarter, offset by lower student lending originations. The decline from last year is also due to lower Transportation Finance volumes (due to equipment delivery timing) and the construction business sale in the 2007 second quarter.   
· Managed assets were down slightly from September 30, 2007 as the company controlled balance sheet growth in a difficult market environment coupled with seasonal run-off in Trade Finance.
· Finance receivables held for sale were $1.6 billion at December 31, 2007, down significantly from $3.9 billion last quarter, reflecting the sales and syndications of loans in the pipeline. 

Capitalization, Funding and Liquidity

· Capital markets volatility continued through the fourth quarter of 2007. While we continue to access the unsecured debt and commercial paper markets, we have done so at reduced levels and higher spreads than our historical averages. If these market conditions persist, we expect that we will continue to satisfy a higher proportion of our funding requirements through the asset-backed markets than we have historically.
· The ratio of total tangible equity to managed assets at December 31, 2007 improved to 8.82%, from 7.69% last quarter.
· During the quarter we funded our business in the unsecured debt and asset-backed markets. Unsecured financings for the quarter totaled $3.5 billion, including a $690 million convertible debt offering. In the secured markets, we raised $0.8 billion secured by home loans, $1.0 billion secured by student loans, and $0.6 billion secured by equipment.
· Commercial paper outstanding declined to $2.8 billion from $3.6 billion at September 30,2007.
· Alternate liquidity at December 31,2007 exceeded $15 billion, and included $7.8 billion of committed and available bank lines, $2.2 billion of committed and available asset-backed facilities and over $5 billion in available cash and equivalents.

Segment Results:

Corporate Finance

· Total net revenues (the sum of net finance revenue and other income) increased from the prior year as revenue from higher assets and increased advisory fee income was partially offset by lower gains from loan sales and syndications.
· Net finance revenue as a percentage of average earning assets improved slightly from last year, as better pricing opportunities existed in the middle market lending environment.   
· Net charge-offs decreased from last year. Delinquencies and non-performing assets increased slightly from last quarter and last year.   
· Excluding construction finance business, which was sold during the second quarter of 2007, volume increased 6% from last year.
· Return on risk-adjusted capital was 11.1%, down from last quarter as higher finance income was offset by lower other income from syndications and increased provisioning, but was up from the prior year on lower credit costs.

Transportation Finance

· Total net revenues were up from last year due to asset growth and higher gains on equipment sales particularly in rail, as well as continued full lease utilization of our commercial aircraft portfolio.
· Net finance revenue as a percentage of average earning assets after depreciation was up from last year as strength in non-operating lease margins and aerospace rentals was partially offset by a modest decline in railcar utilization.      
· Credit quality continued strong with net recoveries, and lower delinquencies and non-performing asset levels.  
· Volume was solid, but down from the prior year. We leased ten new aircraft this quarter (compared to four last year). The prior year included loan fundings, in addition to the lease order book. All but one aircraft in our scheduled aerospace delivery order book through December 2009 have been placed.
· Return on risk-adjusted capital declined from last quarter to 14.2% and declined from the prior year, as the current quarter includes the write-off of $16 million of capitalized expenses related to a terminated aerospace capital raising initiative and as the year ago period benefited from the release of deferred tax liabilities.

Trade Finance

· Total net revenues were up slightly from last year.
· Factored volume increased from the prior quarter and was unchanged from the prior year.
· Net finance revenue as a percentage of average earning assets decreased from the prior year on higher funding costs.
· Net charge-offs were unchanged from last quarter and down from last year. Delinquencies and non-performing loans were both down from last quarter and last year.
· Return on risk-adjusted capital improved to 18.9% from both last quarter and last year.

Vendor Finance

· Dell purchased CIT's interest in the U.S.-based Dell Financial Services (DFS) joint venture, resulting in a pre-tax gain of $247.1 million, and the U.S. systems leasing portfolio was sold, resulting in a pre-tax gain of $21 million.
· Excluding the above transactions, total net revenues were down from last year, as higher net finance revenues driven by asset growth were offset by lower yield-related fees, joint venture and other income.  
· Net finance revenue as a percentage of average earning assets after depreciation was down from last year, reflecting higher funding costs. 
· Credit losses were up from last quarter and last year. Delinquencies and non-performing asset levels increased over both periods, primarily driven by U.S. operations due to the integration of leasing platforms.
· Profitability was negatively impacted by reserves for legal settlements and by higher one-time rent expenses in our international operations totaling approximately $8 million.    
· Total new business volume grew 22% over last year driven by international operations. U.S. volumes were also up, as declines in Dell volume were offset by new vendor relationships.
· Return on risk-adjusted capital was higher due to the above-mentioned gains.

Home Lending

· Total net revenues were down from last year reflecting lower asset balances, higher funding costs (principally on the prior quarter securitization) and charges of $42 million related to home lending receivables available for sale, of which $525 million (approximately $870 million unpaid principal balance) was sold during the quarter. 
· The current quarter provision for loan losses was approximately $256 million. 
· Delinquencies and non-performing assets increased from last year reflecting continued deterioration in the housing sector.
· Paydowns on loans held for investment in the quarter totaled approximately $365 million.


· During the quarter, we incurred $287 million in goodwill and $26 million in intangible asset impairment charges.
· Total net revenues were down from last year, as higher net finance revenues driven by asset growth were more than offset by higher funding costs.
· Net charge-offs increased primarily in unsecured consumer loan portfolios. Delinquencies were down modestly from last quarter, but higher than last year.
· New business volume decreased from last quarter and last year as we managed growth down.
· Return on risk-adjusted capital for the segment was lower due to the above factors.

Corporate and Other

· Corporate and other expenses, principally contains certain credit loss provisioning, preferred stock dividends and other financing costs, dampened return on equity by approximately 190 basis points this quarter and 80 basis points last year.