Jeffrey M. Peek, the embattled chief executive of CIT Group Inc. (CIT), will step down at the end of the year in the clearest sign yet that the commercial lender is inching closer to bankruptcy.

His resignation, announced Tuesday, ends a four-year run in which Peek hoped to transform CIT into a major Wall Street player, even moving the company's headquarters to midtown Manhattan from Livingston, N.J. Peek's aspirations pushed the century-old small-business lender into the risky subprime mortgages and student loans that led to its undoing during the financial crisis.

Peek, 62, had been something of a lame duck since a group of bondholders pumped $3 billion of emergency funding into CIT in July. The investors, which include Centerbridge Partners LP and Oaktree Capital Management LP, have since been calling the shots on major decisions and negotiations aimed at CIT's future as a going concern.

The bondholder group made it clear to Peek that he would hang on as CEO only until a restructuring is completed, according to people familiar with the matter. His earlier than expected announcement could be a harbinger of more bad news to come, and emphasizes how small a role CIT's executives have in their company's fate.

CIT is having trouble persuading bondholders to back a sweeping plan to restructure about $31 billion of bond debt or pursue a prepackaged bankruptcy that would quickly recapitalize the company. Failure of the proposal could see CIT broken up in a protracted bankruptcy process.

Peek's departure "highlights the insignificance of the company's role in its restructuring negotiations," said James Lee, a fixed-income analyst at Calvert Asset Management. "The exchange offers for the existing bondholders have met with a great big thud."

The broader market seemed to agree. Shares of the company, which traded at $6.62 a year ago, recently fell 12.7% to 91 cents. CIT's bonds plunged in trading on Tuesday, and the insurance to protect against a default continued to rise, according to Phoenix Partners Group.

It cost investors $4.2 million upfront plus a $500,000 annual fee to insure $10 million of CIT's bonds against a default. That indicates an acute level of distress and is up from just under $4 million upfront late last week.

CIT, a 101-year-old company that is one of the largest lenders to thousands of small and midsize businesses, is forming a search committee that will begin the recruitment process for a replacement. Peek joins a long list of CEOs and other top executives who have left their jobs amid the financial crisis; Bank of America Corp. (BAC) CEO Kenneth D. Lewis said Sept. 30 that he would leave by the end of the year.

Peek informed the board of directors and regulators over the weekend of his decision to leave the company, according to a person familiar with the matter.

A CIT spokesman declined to comment beyond Peek's announcement.

Jeffrey Werbalowsky, chief executive of adviser to the bondholder steering committee Houlihan Lokey, said Peek “was constructive and supportive through the whole process. It was his decision and not ours" to leave.

Peek joined CIT in 2003 after being denied the CEO job at Merrill Lynch & Co. His ambitions at CIT were marred as the financial crisis hit Wall Street, and caused CIT to lose $5 billion during the last nine quarters. It received $2.3 billion in bailout money last year, and also converted into a bank holding company.

Last month, CIT extended Peek's contract until September 2010 while also cutting some of his perks, including use of the corporate jet. He received compensation valued at $4.2 million in 2008, down almost 62% from his pay a year earlier.

His attempts to expand CIT into a major force on Wall Street included promoting its status in New York's social and philanthropic circles. CIT became a sponsor of the New York City Opera. It was a donor to the Metropolitan Museum of Art and Peek became a museum trustee in 2008.

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 Peek and his wife.

He began feeling the pressure, according to "Confessions of a TARP Wife," an anonymous article published April in Conde Nast Portfolio magazine that, according to a person familiar with the matter, was written by his wife, Elizabeth T. Peek. "I've watched the skin under my husband's eyes take on a yellowish hue, and his hair turn from gray to grayer," the article's author wrote. Elizabeth Peek has never confirmed that she was the author of the article.

Jeffrey Peek didn't return a telephone call seeking comment.

-By Joe Bel Bruno and Kate Haywood, Dow Jones Newswires; 212-416-2469; joe.belbruno@dowjones.com