An article in Saturday’s WSJ account CIT’s desperate efforts to secure a federal bailout in the months before its collapse. The New-York based lender — presently on the brink of a bankruptcy filing that may come as early as Monday — during all that time spent tens of thousands of dollars lobbying Washington. It even brought onto its board of directors former Congressman Christopher Shays, a Connecticut Republican, to improve the company’s connections in Washington and help it secure emergency financing. While these maneuverings were taking place, CIT’s brass kept arguing that a collapse of the co.’s operations would put 760 manufacturers at risk and accelerate a crisis for 300,000 retailers. Federal regulators pored over the lender’s books trying to determine which of its assets remained strong enough to qualify it for federal financial assistance. Apparently they weren’t impressed by what they found. But let’s face it, that’s not the real reason why CIT Group (NYSE:CIT) didn’t get billions of dollars in government assistance funds. Unlike Citigroup Inc. (NYSE:C) and Bank of America Corp. (NYSE:BAC), whose failures would have severely affected the banking system and created financial chaos, CIT does not pose such broad risks. They are too small to be systemically vital. While it’s certainly ironic to see the government’s willingness funnel billions of dollars to foreign institutions while ignoring a relatively major U.S. lender (CIT lending supports less than 1% of all U.S. retail and manufacturing businesses), the too-big-to-fail argument still doesn’t justify nor deny the fact CIT was badly mismanaged.
On an April conference call, Jeffrey Peek [CIT CEO] spoke optimistically about a plan to improve the company’s liquidity, which would have relied in part on a government debt-guarantee program. CIT was impressed, he said, “about how constructive the regulators both at the Fed and the FDIC have been.”
He calls the government’s assistance, a plan?!! What about the co.’s long-term viability.
[F]ederal regulators had long harbored concerns that CIT wasn’t taking the dramatic steps that other banks took, such as raising additional capital and revamping business models. “Their Plan A was: Seek assistance from the government,” a senior Obama administration official said. “And their Plan B was: Ask again.
The Journal also talks about CIT CEO Jeff Peek and his failing business strategy, as well as his ambitions. Peek, under whose leadership the lender’s stock has plunged 98%, according to the paper – seemed very keen in raising his profile among Washington’s movers and shakers.
Back in 2004, when he was named CEO of CIT, he appeared to revel in taking a higher profile after holding senior positions at Merrill Lynch and Credit Suisse First Boston.
He installed CIT’s top brass in a glitzy office building on Manhattan’s Fifth Avenue, eschewing the company’s historical base near a big shopping mall in Livingston, N.J., and brought CIT into his high-society orbit as well. CIT became a sponsor of the New York City Opera. Its role as a donor to the Metropolitan Museum of Art may have helped Mr. Peek win a prestigious spot as a museum trustee in 2008.
Mr. Peek threw parties both at the office and in his home. At an Edwardian-themed fete at his home on Valentine’s Day 2008, male guests donned top hats provided by the Peeks.
Mr. Peek is a “personable, likable guy” who showed incredible recall for names and personal details, said one former top CIT executive. When he arrived, Mr. Peek criticized CIT’s culture, which he deemed too cautious, says the former executive. He hired a psychological-evaluation firm to “understand us,” the executive recalled, and used the results to hire hundreds of new sales people who didn’t fit the old CIT mold.
CIT posted in April a bigger-than-expected first-quarter loss. The company has $7.4 billion in debt coming due in Q1′ 2010, plus other obligations. By deviating beyond his zone of expertise, a zone which had provided CIT a solid business foundation in the past, Peek literally delivered the 101 year old company at death’s door, exposing in the process his and his boards’ absolute incompetence.