NEW YORK — Jeffrey M. Peek plans to step down as CIT Group Inc.'s chairman and chief executive at the end of the year, underlining the uncertainty facing the beleaguered commercial lender as it struggles to avert bankruptcy.
The resignation doesn't come as a major surprise since a group of bondholders began asserting more power at the nearly century-old commercial lender. Those investors, which include Silver Point Capital LP and Oaktree Capital Management LP, pumped $3 billion into CIT in July and immediately seized influence over the company's board.
When CIT announced a sweeping restructuring plan at the beginning of October, one person familiar with the situation said Peek would stay to complete the restructuring, but his future remained unclear after that. On Tuesday, a second person said key bondholders expected CIT's fate to be resolved by the end of this year.
Peek, 62, joined CIT in 2003 after being denied the CEO job at Merrill Lynch & Co. His tenure at the top of CIT has not been smooth, especially since expanding the commercial lender into volatile subprime mortgages and student loans. The New York-based company has lost $5 billion during the last nine quarters as the financial crisis hurt its ability to make loans and wiped out its balance sheet.
He said that "now is the appropriate time to focus on a transition of leadership" in a statement, but there has been speculation Peek would lose his job since bondholers launched a plan to restructure about $31 billion in debt. As of Tuesday, that restructuring plan seemed destined to fail and the company now teeters on the edge of seeking bankruptcy protection.
"It's not a shock," said Scott Peltz, managing director of restructuring at consultancy RSM McGladery. "It feels like everyone is ready for someone else to take the lead."
CIT shares plunged in early trading Tuesday. The stock, which once traded at $6.62 in the past year, plunged 19% to 85 cents.
Bonds were mixed in early trading while the cost of ensuring the firm’s debt against a default rose, suggesting that bondholders are increasingly convinced that the company will be forced to file for bankruptcy. It cost investors $4.15 million up front plus a $500,000 annual fee to insure $10 million of CIT's bonds against a default, according to CMA DataVision. That indicates an acute level of distress and is up from just under $4 million upfront late last week.
The departure of Peek was expected given CIT’s travails, according to Egan-Jones Ratings Co. Analysts have been warning investors that the debt exchange has very little hope of success, arguing that bondholders would perhaps get more if the company is broken up.
Repeating calls for investors to shun the exchange offer, Egan Jones said in a note Tuesday that any bondholder offered less than 90% should reject.
"The $5.7 billion (target) debt reduction is not enough to obtain competitive funding and therefore might necessitate another exchange," according to the ratings agency.
CIT, a century-old company that is one of the largest lenders to thousands of small and medium-sized businesses, is forming a search committee that will begin the recruitment process for a replacement.
Peek joins a long list of CEOs who have been ousted from their jobs amid the worst financial crisis since the Great Depression. Bank of America Corp. CEO Kenneth D. Lewis said Sept. 30 that he would leave at the end of the year. Others have included Stanley O'Neal at Merrill Lynch, Charles Prince at Citigroup Inc., and a host of other top executives.
