CIT Group (CIT)

Q2 2011 Earnings Call

July 26, 2011 8:00 am ET


Kenneth Brause - Executive Vice President of Investor Relations

Scott Parker - Chief Financial Officer, Chief Accounting Officer and Executive Vice President

John Thain - Chairman and Chief Executive Officer


Michael Turner - Compass Point Research & Trading, LLC

Sameer Gokhale - Keefe, Bruyette, & Woods, Inc.

Kenneth Bruce - BofA Merrill Lynch

Donald Fandetti - Citigroup Inc

Bruce Harting - Barclays Capital

Moshe Orenbuch - Crédit Suisse AG

John Stilmar - SunTrust Robinson Humphrey, Inc.

Michael Taiano - Sandler O'Neill + Partners, L.P.

Christopher Brendler - Stifel, Nicolaus & Co., Inc.

Henry Coffey - Sterne Agee & Leach Inc.



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Good morning, and welcome to CIT's Second Quarter 2011 Earnings Conference Call. My name is Stacy, and I will be your operator for today. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Ken Brause, Director of Investor Relations. Please proceed, sir.

Kenneth Brause

Thank you, Stacy, and good morning, and welcome to CIT's Second Quarter 2011 Earnings Conference Call. Our call today will be hosted by John Thain, our Chairman and CEO; and Scott Parker, our CFO. We will have a Q&A session following our prepared remarks and do ask that you limit yourself to one question and a follow-up and then return to the queue if you have additional questions. We will do our best to answer as many questions as possible in the time we have this morning.

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 2010 Form 10-K that was filed with the SEC in March. Any references to certain non-GAAP financial measures are meant to provide meaningful insights and are reconciled with GAAP in our press release. And for more information on CIT, please visit the Investor Relations section of our website,

I'd like to now turn the call over to John Thain.

John Thain

Thank you, Ken. Good morning, everyone, and thank you all for being on our second quarter earnings call. I'm going to provide some opening comments and then turn it over to Scott. And as you heard, we will then take questions.

In our second quarter, we made good progress on our 2011 objectives. New business volume, in particular, was very attractive. We grew in all 4 of our core businesses. Our funded volume was up 30% to $1.7 billion in the quarter. Our credit metrics improved, charge-offs, nonaccruals and our inflow into nonaccruals all were lower in the quarter. We made continued progress in restructuring our debt. As you all know, we redeem $2.5 billion of our Series A debt, which unfortunately negatively impacted the reporting on the quarter's results. We also announced repaying $500 million of our first lien term loan that will get done this month. We also successfully completed our consent solicitation and exchange offer, and we now have a clear road map to addressing the remaining high-cost debt and the restrictive covenants that are in that debt.

We continued to grow our originations in CIT Bank, and we also were successful in moving our U.S. vendor platform into the bank. So we'll now be originating our U.S. vendor assets in the bank. And if you look at the full year for the first 6 months of the year, about 2/3 of all of our U.S. volume was funded in the bank. We maintained very strong capital ratios. Our total capital is about 20%, our Tier 1 capital is 19%, and we continued to maintain very high levels of liquidity.

We continue to focus on expenses. Our expenses, as you saw, are a little bit higher in this quarter. And Scott will make some comments about that. And we continue to focus on and make progress on the written agreement and satisfying as many of the written agreements as possible.

We're just going to make a couple of comments about the different businesses. In Corporate Finance, we originated over $1 billion in terms of committed volume in the quarter, most of that was originated in CIT Bank. On the trade side, domestic factoring volume was up about 4% versus the prior year's quarter. In terms of our aircraft business, our airplanes are 100% leased. And if you look forward of the 16 new airplanes that we expect to be delivered in the next 12 months, all of those are placed. I'm sure you saw, we ordered 50 new Airbus A320neos, new engine options. Those are planes that get delivered in 2016 through 2019. And that follows our order for 38 new Boeing 737s, which we announced earlier in the year. We also closed our first Ex-Im financing, Export-Import Bank financing for some of the Boeing aircraft that were delivered this year.

On the Rail side, our utilization of rail cars, if you exclude center beams, which are associated with housing, our utilization is almost 100%. If you include the center beams, it's about 96% overall. We see lease rates improving. We had previously announced that we bought 3,500 new rail cars. All of those new rail cars have been placed. And if you were watching the press this morning, we announced an additional 5,000 rail car order. So we're seeing improvement in that business.

On the vendor side, as I said, we moved the U.S. origination platform into the bank. Vendor originated about $600 million of new volume in the quarter. And vendor is an international business, and so we're focusing on growth outside the United States and funding that growth. And in that regard, we successfully put in place a RMB 1.8 billion facility to Fund our China business. We put in place GBP 100 million U.K. conduit. And we're continuing to fund our Brazilian business out of our Brazilian bank using deposits in Brazil.

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