The trashing of Jeff Peek’s reputation has already begun. CIT Group’s brush with death, its inability to convince the Obama administration to provide rescue funds, and its uncertain future are all being used as evidence that Peek may need to be replaced.
While we have no opinion about whether Peek should keep his office at CIT, we think that the blamethrowers might be too eager to torch the CEO. At CIT, Peek oversaw an ill-conceived expansion into subprime mortgages and student loans. But in going down this path, he was no different than many of his fellow chief executives on Wall Street. Indeed, back during the good times investors and analysts postiively demanded that executives expand into the new credit areas.
What really sets Peek apart from so many of his ilk is the government declined to provide additional rescue funds to CIT, which already had $2.33 billion in TARP funds. This seems to have caught Peek by surprise. He spent a good amount of time and effort lobbying Washington seeking a rescue on the justifiable gamble that his firm might be deemed too important to America’s small businesses. After all, why should his firm be the first on Wall Street to be allowed to fail?
Some will say that Peek would have been wiser to tap the global credit and capital markets, as did many of his banking rivals. But, as the onerous terms of the reported $3 billion deal with bondholders private rescue that saved CIT at the last moment indicate, it would have been all but impossible arrange financing or new capital from private investors. The only folks interested now were people who already had “skin in the game” and hope to do better in a work out than a bankruptcy.
It’s fair enough to compare Peek to both Stan O’Neal and John Mack. O’Neal famously beat out Peek in the contest to take over Merrill Lynch after David Komansky retired. Peek had the support of Komansky but O’Neal won over the board of directors and nabbed the top spot. Of course, this led to several years of increased risk-taking, over-reliance on mortgage based revenues, and ill-advised attempts to trade like Goldman Sachs. Merrill is now gone, gobbled up by a North Carolina bank called Bank of America. Whatever Peek did to CIT, it wasn’t as bad as what O’Neal did to Merrill.
And John Mack? He crossed paths with Peek at CSFB, where Peek went after he left Merrill. Mack overshadowed Peek there. Peek discovered that the Swiss bank was bent on shrinking that asset management unit he wanted to build up. Mack also left, to take the top job at Morgan Stanley. At Morgan, Mack also oversaw a headlong rush away from the “agency model” (that is, acting for clients) of Wall Street toward the proprietary model. Morgan Stanley survived 2008, but only after being pumped up on taxpayer funds and being declared too big to fail by regulators.
In this light, Peek’s performance looks positively heroic. He has kept CIT afloat despite the lack of post-TARP government backing. Not many on Wall Street can say the same. The final chapter, of course, has yet to be written. CIT may still find itself unable to handle its massive debt load. But as we close this chapter, Peek looks pretty good.
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