A Lender Gets Caught In The Currents

WALKING across his sun-drenched office overlooking Fifth Avenue and the New York Public Library, Jeffrey M. Peek points to a picture on his desk. It is a perfect family portrait, filled with smiling, happy faces on a mountain summit. Perfect, except for one detail: there’s a problem with the guy in the far left corner.

Jeffrey M. Peek, of CIT, at its new Manhattan headquarters. The company’s stock has plunged with the credit collapse.

“An ex-boyfriend of my daughter,” he explains, laughing. “I’m trying to figure out a way to cut him out of the picture.”

These days, Mr. Peek, the chief executive of the CIT Group, is trying to erase lots of things from the past: namely, an ill-timed expansion by CIT into subprime-mortgage lending and the costly acquisition of a student loan firm — twin moves carried out near the top of frothy markets that quickly collapsed, leaving CIT on the financial precipice.

In its 100-year history, CIT has traditionally engaged in the meat-and-potatoes business of providing loans and leases for heavy machinery, tech equipment and other staples of the manufacturing economy.

But under Mr. Peek, CIT spread its wings, offering a tour of the perils awaiting any firm that jumps into seemingly lucrative new arenas at the expense of focusing on markets that it knows and understands best.

Mr. Peek, a 61-year-old Wall Street veteran who lost out several years ago in a race to run Merrill Lynch, led CIT down that path and is now scrambling to keep his company afloat.

Despite the obvious strains under which CIT now labors — a plummeting stock price, mounting losses, funding woes and a loss of faith among some analysts — Mr. Peek says he wouldn’t have done anything differently.

Although he endured elective heart surgery last year, Mr. Peek appears to be in the brightest of health. Asked if he’s been under stress during the last few weeks as analysts question whether CIT will remain solvent or be sold off, he offers a brief, reluctant nod. But when asked if he has any regrets, he thoughtfully shakes his head. No.

“If I was going to look back, maybe I would have gotten out of mortgages a couple of quarters earlier, but we were making good money,” he says, matter-of-factly. As for the student loan firm, that was a success, he says, because its asset base grew sharply — even though CIT has had to take big write-downs on the business.

Since taking the helm at CIT three years ago, Mr. Peek, who with his wife, the New York Sun business columnist Liz Peek, is a fixture on Manhattan’s social circuit, turned CIT into a reliable patron of the arts and relocated the company from an office park in Livingston, N.J., to a flashy modern tower on Fifth Avenue in Midtown Manhattan.

By most accounts, Mr. Peek, who owns homes in Westchester County and Nantucket and often has lavish parties at his Upper East Side apartment near the home of Mayor Michael R. Bloomberg, is something of an anomaly in the kill-or-be-killed world of high finance: He’s a nice guy.

He also tried to set a course to diversify CIT’s business lines and bolster returns at this sleepy, risk-averse firm, which competitors joked was filled with “pocket protectors.” Along the way, he recruited highly paid investment bankers and later bought an investment banking boutique to generate more Wall Street-like fees from CIT’s small-to-midsize clients.

Mr. Peek’s supporters say that all of this amounted to a very sound and savvy strategy — when it was first conceived.

“The effort by the company to build on its core competencies and diversify the business in advance of this credit cycle, looking at it on a blank sheet of paper, was a sensible one,” said Greg Fleming, president and chief operating officer of Merrill Lynch, who worked with Mr. Peek during his time there. “I don’t think the diversification was so dramatic that it took the company so far away from its core.”

Au contraire, CIT’s critics say.

“They should have stuck to their knitting,” says Richard Hofmann, an analyst at CreditSights, an independent research firm. “I think that they would have been better off if they hadn’t moved more into subprime and student lending, because they didn’t have any discernable competitive advantage against the big banks in mortgages and Sallie Mae and the big banks in student lending.”

Now, CIT’s future is likely to hinge on how it weathers the credit crisis and the possibility of a severe recession.

“The big question here is, is this a viable company and is there a feasible strategy for it, short of selling everything it can and then selling what’s left to someone else?” asks Kathleen Shanley, an analyst at Gimme Credit, an independent research firm.

WHILE CIT has held its own, more or less, for a century, the company also tended to be crushed whenever it tried to take advantage of the latest, hottest market trends.

In the mid-1990s, under Albert R. Gamper Jr., then its chief executive, CIT moved more of its business into consumer lending and was battered when loans soured in manufactured housing, boats and recreational vehicles.

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