CIT Group Inc Chief Executive Jeffrey Peek, whose plans to turn the sleepy commercial lender into a Wall Street player were laid low by the credit crisis and management missteps, is retiring in the latest sign the company is closer to filing for bankruptcy.
CIT said last month that it extended Peek's contract for a year, and the rapid change of heart seems to imply that bigger change is afoot for the company, experts said.
There are only so many a lives a company at this stage has left, and it's more and more and difficult for a CEO to stay in charge as the company runs out of lives, said Richard Lipstein, a managing director at recruiting firm Boyden Global Executive Search in New York.
A person familiar with the matter said Peek decided to leave CIT sometime last week, and told regulators and the board of directors of his plans over the weekend. He now plans to retire at the end of the year.
The company said its board of directors is forming a committee to search for a successor.
Why would you keep a guy that had no backup plan before this last ditch effort?, said Shawn Abboud, executive director of credit sales and trading, APS Financial Corp in Austin, Texas. His departure probably means they're moving closer to bankruptcy.
A CIT spokesman declined to comment on whether Peek's departure signaled the company was moving closer to bankruptcy.
CIT shares fell 12 percent to close at 92 cents on the New York Stock Exchange.
The company is hoping to exchange much of its current debt for new debt and equity, in an effort to reduce its overall borrowings and strengthen its balance sheet. But the exchange is not going well, sources have told Reuters, and CIT is increasingly likely to file for bankruptcy protection.
CIT said in a quarterly filing with regulators earlier this year that it plans to restructure outside of bankruptcy court, but that it may need to seek bankruptcy relief if its restructuring is unsuccessful.
CIT listed about $71 billion of assets on its balance sheet as of the end of June.
Peek, 62, has led CIT since 2003. He was a long-time executive at Merrill Lynch before losing out on the CEO spot to Stanley O'Neal. After a brief stint at Credit Suisse, he landed at CIT, a comparatively obscure company whose bread and butter was businesses like factoring and equipment leasing. CIT focuses on small and mid-sized companies.
The century-old company was a unit of Tyco until it regained independence in 2002 through an IPO.
Peek began transforming CIT into a smaller version of Merrill Lynch. He expanded investment banking and merger advisory, and pushed into student and subprime mortgage finance. He moved CIT's headquarters from an office park in suburban New Jersey to a stylish new glass-enclosed tower in midtown Manhattan. CIT became an active and public supporter of New York arts and culture.
But in 2007, the credit crunch began shutting down the bond markets that were CIT's lifeblood. As CIT's borrowing costs surged, its profits turned into losses.
The slowing economy hurt the performance of its subprime mortgage loans, small business loans, and other assets. Around the same time, CIT's student lending business came under fire from New York Attorney General Andrew Cuomo.
In December 2008, the company secured $2.3 billion of financing from the government's Troubled Asset Relief Program, but by the middle of 2009, CIT needed more help. Peek pressed for U.S. support for the company's debt, but the government refused. The company instead got a $3 billion credit facility from bondholders and exchanged some debt.
CIT is hoping to restructure its debt and fund itself with deposits in the future. But many investors believe the company's best hope for restructuring is bankruptcy. CIT said earlier this month that it was looking for investors to agree to erase at least $5.7 billion of the company's debt, or alternatively agree to a prepackaged bankruptcy plan.