DBRS Comments on CIT’s Third Quarter Loss, Senior Ratings Remain at A (low) - Negative

DBRS has today commented that its ratings of CIT Group Inc. (CIT or the Company), including its Issuer and Long-Term Debt rating of A (low), are unchanged by CIT’s third quarter loss. This comment follows CIT’s earnings release indicating a net loss of approximately $317 million for the third quarter of 2008. The trend on the Company’s Issuer and Long-Term Debt remains Negative and the trend on its Commercial Paper rating R-2 (high) remains Stable.

CIT’s third quarter loss was driven primarily by a $455 million pre-tax non-cash writedown of goodwill and other intangibles related to the Vendor Finance business segment. Further impacting the quarterly result was a $28.4 million pre-tax charge for workforce reduction and facility closure, as well as an $18 million pre-tax loss on money market fund investments. Removing these one-time items, income for the quarter was reduced to approximately $95 million, evidencing pressure caused by the weakening U.S. economy, the strategic reduction in new loan origination and the Company’s constrained liquidity position. During the quarter, CIT increased its credit loss reserves by $75 million, reflecting the anticipated effects of a slower economy on its loan portfolio. The Company also reported reduced net finance revenue as a percentage of earnings assets on higher cost of funding, decreased lease margins and higher non-accrual loans, while earnings were lifted somewhat by a non-reoccurring tax benefit.

While the third quarter saw unprecedented volatility in the global capital markets, the Company continued to make progress in addressing its liquidity position. CIT prepaid $2.1 billion in bank borrowings and repaid $1.5 billion of unsecured term debt while refinancing $6 billion of secured lending facilities. DBRS views CIT’s ability to renew its secured facilities, albeit at higher costs, during extremely difficult market conditions as evidence of its strong franchise and the overall quality of its core commercial asset portfolio. In addition, CIT Bank’s deposit base grew by $800 million during the quarter, adding an incremental amount of funding diversification. At September 30, 2008, the Company had $7.7 billion of cash, of which $900 million was restricted largely to securitizations. DBRS notes that access to $600 million of cash held in the Reserve Primary Fund – a money market fund investment in orderly liquidation – remains limited; however, CIT currently expects 97% recovery on these funds. Although the Company projects that its liquidity plan satisfies its funding needs for the next 12 months without accessing the unsecured markets, given the current markets, funding and liquidity risk are elevated and remain a chief focus of DBRS.

Capitalization remains adequate, with the ratio of total tangible equity-to-managed assets improving to 9.12% at September 30, 2008, up from 9.02% at June 30, 2008, and 8.33% at March 31, 2008. Further, DBRS recognizes that CIT retains a level of financial flexibility as it ended the third quarter with 76% of its commercial assets remaining unencumbered.

Asset quality measure remained within expectations, given the current economic environment. Net charge-offs as a percentage of average finance receivables increased 0.95% this quarter from 0.56% last quarter and non-performing assets increased slightly to 2.08% of finance receivables, up from 2.03% in Q2 2008. Net charge-offs in the consumer segment, which consists of student loans, was basically flat for the quarter at $30 million. However, 60-plus day delinquencies and non-performing assets in this segment increased from last quarter, with the non-performing asset increase driven largely by the private student loan portfolio. DBRS notes that 95% of the student loan portfolio consists of government guaranteed student loans, which have minimal credit risk as they are guaranteed by the federal government to at least 97% of principal and accrued interest.

The Negative rating trend on the long-term debt reflects DBRS’s view that the current difficult operating environment may add further pressure to CIT’s balance sheet and earnings profile. Further, although CIT’s management has taken the appropriate actions to secure funding and protect the franchise, ratings will be pressured should CIT’s access to funding be reduced or should its forward liquidity cushion diminish beyond the current level. In the longer term, ratings may be pressured by the increasingly encumbered balance sheet. DBRS believes the deteriorating global economy will delay CIT’s core commercial segments’ ability to achieve consistent revenue and earnings growth. DBRS remains concerned that the reduced level of profitability due to pressured margins, lower loan volume and increased credit costs will weaken CIT’s ability to protect its strong franchise, which underpins the rating.