CIT extends CEO Peek's contract for one year

Jeff Peek, CEO of CIT Group, speaks during the Reuters banking summit in New York in this March 15, 2006 file photo.

NEW YORK (Reuters) - CIT Group Inc (CIT.N) said it has extended the contract of Chief Executive Jeffrey Peek for one year, even though his decisions to expand into risky businesses helped to push the lender to the brink of bankruptcy.

Peek's contract as chairman and CEO of the lender to nearly 1 million small and medium-sized businesses will expire on September 2, 2010, the company said in a regulatory filing on Friday.

Founded more than a century ago, CIT's problems emerged in recent years following Peek's idea to tap into potentially profitable but risky businesses such as subprime mortgages and student loans.

The company, which had been based in Livingston, New Jersey, moved to a brand new, 28-story, glass-encased tower on Manhattan's Fifth Avenue in New York in April 2006.

But the financial meltdown triggered a sharp rise in CIT's loan losses and credit costs, leaving the company on the verge of collapse. The lender to businesses from retailers to sport teams has lost close to $5 billion since the end of 2007.

Last month, the company completed a tender offer for $1 billion in debt, buying time to restructure its finances. Earlier this week, it deferred an interest payment on some notes.

CIT received an order in August from the Federal Reserve to submit a plan for raising capital and meeting debt obligations.

"Keeping him (Peek) on board would minimize any distractions as the company tries to complete its restructuring," said Sameer Gokhale, an analyst at KBW.

"Getting a new CEO at this point in time wouldn't really accomplish anything because the company is dealing with funding, liquidity and capital challenges, and that is not something a new CEO can fix easily," Gokhale said.

Concerns over CIT's health have grown since the lender, which became a Fed-supervised bank holding company in December and has received $2.3 billion from the U.S. government, failed to receive further government assistance under the FDIC's Temporary Liquidity Guarantee Program.

CIT expects to begin executing a restructuring plan before October 1, and has said it needs to postpone some debts and possibly raise cash from asset sales. However, the company has acknowledged it may still be forced to seek bankruptcy relief if the restructuring plan fails.

CIT officials declined to comment beyond the Securities and Exchange Commission filing.

Shares of CIT were unchanged at $1.50 in late morning trade on the New York Stock Exchange.

(Reporting by Juan Lagorio; Editing by Lisa Von Ahn and Tim Dobbyn)