July 14 (Bloomberg) -- CIT Group Inc. Chief Executive Officer Jeffrey Peek moved from a New Jersey office complex to a 28-story glass tower on Manhattan’s 42nd Street featuring a lobby bathed in blue, green and red. Three years later, he’s fighting to keep the lights on at the century-old finance firm.

Peek, 62, who joined CIT in 2003 after failing to land the top job at Merrill Lynch & Co., pushed the lender into subprime mortgages and student loans to pump up growth. Now, as investors flee the 101-year-old company’s bonds and shares on concern it may become the year’s biggest financial industry failure, Peek is trying to gain additional government support after receiving more than $2 billion last year.

“You could make a cogent argument that senior management didn’t have a good grasp of the financial storm that was on the horizon,” said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania. “CIT has been through a number of near-death experiences. This time they cut it too close.”

Curt Ritter, a CIT spokesman, said Peek wasn’t available for comment.

On Peek’s watch, the shares soared to a record $61.59 in February 2007 before plunging 98 percent as the company reported eight straight money-losing quarters. CIT’s debt rating was cut by Standard & Poor’s yesterday to seven levels below investment grade, as the ratings firm cited company requests to draw down on credit lines.

Moody’s also slashed its rating yesterday, to B3 from Ba2, or six levels below investment grade, because of “inadequate progress” toward improving liquidity. CIT, which lends to 950,000 businesses, warned that a collapse would put manufacturing and retail clients at risk.

CIT shares climbed to $1.66 in early trading at 8:10 a.m. in New York after closing at $1.35 yesterday.

Taxpayer Risk

The Federal Deposit Insurance Corp. is concerned that standing behind CIT’s debt would put taxpayer money at risk because the company’s credit quality is worsening, people familiar with the regulator’s thinking said last week. One of those people said yesterday the FDIC’s view hasn’t changed.

While Federal Reserve policy makers aren’t inclined to give CIT emergency financing, they are considering the company’s request to let it transfer funds from the parent firm into its banking unit, according to an official familiar with the matter. Fed spokeswoman Michelle Smith and FDIC spokesman Andrew Gray declined to comment.

Treasury Secretary Timothy Geithner said yesterday that the government has “the authority and the ability” to address CIT.

Merrill Exit

Peek quit as head of Merrill Lynch’s money-management unit in September 2001 after losing out to Stanley O’Neal for the presidency of the New York-based brokerage. O’Neal was ousted as CEO in 2007 after an $8.4 billion writedown, and Merrill was sold to Bank of America Corp. in January for about $33 billion.

A Princeton University graduate who also received a master’s degree in business administration from the Harvard Business School, Peek had overseen the asset manager since 1997, running a business that supervised $530 billion and produced 9 percent of the company’s 2000 net revenue.

Two months after leaving Merrill, Peek moved to Zurich- based Credit Suisse Group to become vice chairman and head of the bank’s asset-management business. He jumped to CIT in 2003, joining as president, chief operating officer and eventual successor to CEO Albert Gamper, who retired at the end of 2004.

Raised Profile

Peek raised CIT’s profile in New York by moving the global headquarters to a 300,000 square-foot tower overlooking the New York Public Library on Fifth Avenue. He left behind an office campus near a shopping mall in Livingston, New Jersey, 27 miles (43 kilometers) west of Manhattan, which the company still occupies.

“We have a lot more business these days with the private equity, financial sponsors and the lending side of the hedge- fund community,” Peek said in a 2005 interview.

Peek also pledged $10 million over four years to support the city’s civic and cultural institutions, including the American Museum of Natural History, New York City Ballet and the public library, according to a CIT statement.

Along with promoting the cultural institutions, he pledged $190,000 and his family foundation added $50,000 to help restore about 50 portraits hanging in New York City Hall, some more than two centuries old. The paintings included ones of former Treasury Secretary Alexander Hamilton and President Zachary Taylor, according to a statement from CIT and the city.

Focus on Growth

At his corporate job, Peek’s focus was on growth. Assets at CIT jumped 77 percent from 2004 to the end of 2007 as it acquired companies that focused on vendor finance, education lending and medical, construction and industrial equipment loans. Peek also expanded into subprime mortgages, the types of loans that later sparked the global financial crisis. Net income surpassed $1 billion in 2006, a 39 percent increase over two years.

“He wanted to really ramp up new originations and really grow the balance sheet and grow the company overall,” said David Chiaverini, an analyst at BMO Capital Markets in New York.

In the past eight quarters, CIT reported more than $3 billion in losses as customers fell behind on loan payments. After running short of cash last year, CIT won federal approval in December to convert to a bank holding company and was granted $2.33 billion as part of the Treasury’s industry rescue program.

Even with government aid, CIT’s prospects have dimmed on concern the FDIC won’t allow the lender into its bond-guarantee program that was created last year to unfreeze debt markets. Struggling lenders including Citigroup Inc. and GMAC Inc. have accessed the plan.

Talks With Regulators

CIT executives spoke with regulators through the weekend, according to a person familiar with the talks after the bonds and shares tumbled last week. Fitch Ratings said CIT may default as soon as April, when a $2.1 billion credit line matures.

The company’s $1 billion of floating-rate notes maturing in August tumbled 15.375 cents to 79 cents on the dollar late yesterday in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The shares rose to $1.64 in German trading today from their $1.35 close in New York trading yesterday.

During Peek’s Merrill tenure, “I don’t know that he faced a true crisis,” said Winthrop H. Smith, former chairman of Merrill Lynch International, who said he hasn’t followed Peek’s role at CIT. “He was viewed as an able leader and a good forward thinker, a good strategic thinker.”

New Strategy

Peek’s new strategy -- trying to convince the government of the company’s importance to the U.S. economy -- was backed yesterday by customers and lawmakers.

CIT is an “important part of the market,” according to Ricoh Co.’s U.S. CEO, Martin Brodigan. The Tokyo-based office- equipment maker has a long-term relationship with CIT and its departure would reduce competition in the market and force Ricoh to increase volumes elsewhere, he said.

CIT said its collapse would put 760 manufacturing clients at risk of failure and “precipitate a crisis” for as many as 300,000 retailers, according to internal documents obtained by Bloomberg News.

“CIT has been an especially important source of funding for small businesses, which we know is the engine of job growth in our economy,” said Representative Carolyn Maloney, a New York Democrat and congressional Joint Economic Committee chairwoman, in an e-mailed statement. “If they could no longer lend, it would cause disruption across the country to countless small businesses.”

To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net; Linda Shen in New York at lshen21@bloomberg.net

Last Updated: July 14, 2009 08:15 EDT