Barely a month ago embattled CIT Group, a New York commercial lender that provides funding to some 1 million small and medium-sized businesses astonished many when it announced that it had extended the contract of its CEO Jeffrey Peek until September 2, 2010. On Tuesday, the company made another startling announcement: Peek plans to resign at the end of the year.
This new twist comes just two weeks after the company announced a restructuring plan that is said to involve either a pre-packaged bankruptcy or a massive debt swap. In recent months, the 101-year-old firm has fought to stave off bankruptcy. However, in July, the company failed to obtain a second round of federal funding; CIT was already the recipient of $2.33 billion in TARP money from the Troubled Relief Assets Program. In a statement, Peek said “Now is the appropriate time to focus on a transition of leadership, and I look forward to working closely with our Board during that process.”
Over the past nine quarters CIT lost more than $5 billion. And the bad news continued to pile up as CIT posted a second-quarter loss of $1.62 billion.
Certainly the company has been battered by the economic meltdown that put credit markets in turmoil. However, it was Peek’s performance as CEO that was seen by many as taking it straight to the proverbial cliff.
Installed as CEO in 2004, under Peek CIT moved away from its traditional, conservative lending practices and expanded into profitable but high risk subprime mortgages and student loans. Hoping to remake CIT’s stodgy image, the company became a Metropolitan Museum of Art donor and a sponsor of the New York City Opera. Three years ago CIT relocated from its longtime headquarters near a shopping mall in Livingston, New Jersey to a gleaming 28-story glass office tower on Manhattan’s Fifth Avenue. During his tenure, Peek was known to throw lavish parties including an Edwardian themed Valentine’s Day bash at his Upper East Side penthouse last year.
In September, following the announcement of Peek’s contract extension, Sameer Gokhale, an analyst at Keefe, Bruyette & Woods, who covers the company, talked about the rationale behind CIT’s keeping Peek on as its CEO. “CIT’s issues are very specific,” he told me. “The company’s larger issues have less to do with the company deciding to enter a new geographical market and more about let’s rescue the balance sheet and fix near term liquidity and once we get beyond that we can think about moving strategically into a new direction.”
According to Gokhale, as CIT worked to negotiate with its creditors and regulators, leaving Peek in place “makes a lot more sense and minimizes destruction.”
However, banking industry consultant Bert Ely took a decidedly different view about the company’s future. “Barring a miracle,” he said, “CIT will end up in bankruptcy no matter who is CEO.”