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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 receive 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