CEO Who Oversaw Loss of Billions At CIT Given New Contract

Posted by: Stacy Perman on September 06, 2009

Last July, to the astonishment of many, the CIT Group, a New York commercial lender that provides funding to some 1 million small and medium-sized businesses announced that it had failed in its bid to cit.jpgreceive a federal bailout in order to avoid bankruptcy. This was the 101-year-old CIT’s second go-around with the Obama Administration as the firm was already the recipient of $2.33 billion in TARP money from the Treasury Department’s Troubled Asset Relief Program. However, after a round of negotiations, the Administration turned down the struggling lender leading to speculation that a disastrous domino effect would hit numerous small firms – particularly those in the retail sector that relied heavily on CIT.

At the time an Administration official told BusinessWeek that regulators from Treasury and the Federal Reserve had “explored various options for stabilizing CIT.” However, “CIT executives weren’t able to convince regulators that they could revamp the lender’s business plan or balance sheet enough to remain viable.”

Fast forward to today. The company just announced that it has extended the employment contract of its Chief Executive Officer Jeffrey Peek until September 2, 2010. Over the past nine quarters CIT has lost more than $5 billion and last month the company posted a second-quarter loss of $1.62 billion. According to Bloomberg the new contract “removes parts of Peek’s employment contract, including a reference to the use of CIT’s corporate aircraft and a tax reimbursement.” But the AP reports that CIT will pay some $85,000 of Peek’s legal and other fees associated with the renewal of his contract. Last year, Peek received $4.2 million in compensation – according to the AP that registered a 61.5% drop from 2007.

So it is Peek, the man that saw billions of losses under his watch, who will stay in the corner office as CIT works to stave off bankruptcy while working with regulators and creditors.

As the economy continues to struggle to surface out of this recession, this particular situation appears emblematic of Wall Street and Big Business of late: the captains of industry who helped to drive the economy into a ditch, remain in place and in some cases are rewarded with bonuses, while the companies they run suffer financial losses and lay-offs. It is a situation that leaves many with the impression that failure is being rewarded or that real financial reform has yet to be implemented.

Then again there seem to be two perspectives surrounding this particular corporate (and public relations) dilemma. On the one hand there are many who want to see the old guard removed while others think that it is better to keep the executives in place to work through the messes – who better, they claim know those entities intimately, giving them the best chance of success? It is a debate without a simple answer and unfortunately one that is likely to continue to unfold for many months if not years to come.

photo credit: Getty Images

Reader Comments

J. Knowlton

September 6, 2009 03:50 PM

New title for this report: Death of a Nation; One more example of where our nation is headed, and why the stock holders are at fault not the CEO of CIT!

downhill

September 7, 2009 01:49 AM

It is the game of hostage taking. To keep the hostage alive, pay the hostage taker money and speak to him politely. It is unreasonable, certainly undeserving. But, remember Tehran hostage taking 30 years ago? The folks on Wall Street picked this up from the Islamic fundamentalists and used it many times more effectively, on the whole of America. And, Mr O, with all the hot air he blew in the past 24 months, what is he gonna do about it? So they thumb their nose, like those Tehranians did to Carter. The good talker, that's his forte--do not expect an iota more like you would from a doer.

Domenick Celentano

September 7, 2009 08:55 AM

Shareholders and the Board of Directors take responsibility for actions such as these.

The Board is directly responsible for the actions of the CEO. However the Boards in general do not know enough about the businesses to be in a position to find a more qualified competent candidate and get rid of the exiting CEO who brought the company to where it is today.

The excuse that these people will go elsewhere without "adequate" compensation, which includes other payments is ignorance. It is incomprehensible that there are no better leaders in the business community to run this or other companies that need turnaround expertises.

Until the shareholders create some form of representative group, this will go on and on....

john Catao

September 7, 2009 10:55 PM

1. Any sensible person who has worked in a big company knows how much incompetence is their. Big companies hire 15 people to do the job of one person.

2. The board of directors is made up of same kind of people as the CEO from other companies. They never screw each other no matter what happens to the company.

Mikey

September 8, 2009 09:47 AM

"Does bad things to good companies" Man, I wish I could get paid for ripping up my business. If that were the case, I'd be up there in the billionaire status.
New idea for consultants...teach CEO's how to be bad to their companies and in return they get paid millions and you might too. Bad is good. And we all love the bad guy, right?

Thomas Paine

September 8, 2009 11:27 AM

It is indeed a dire time our nation is in. It is nice to see people beginning to open their eyes to the larger problem. This is a well spoken article, and I for one am selling my shares right now. I refuse to support the people who are running this nation into the ground. Just because government and corporate CEO's make bad decisions does not mean we have to support them, even if it means taking a personal financial loss.

Jack C.

September 8, 2009 10:52 PM

I sold my CIT shares already.

The problem with the system is that there is nothing in place to protect shareholders and with the govt in bed with corporations I'm looking to EU markets, specifically France and Spain which have greater regulation of their "free" market.

If the US Govt would really allow a free market it would be a different story. No more subsidies, no more bailouts, just like you and me, make it or break it.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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