GE Capital outlook improving, losses to continue

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Associated Press

Posted on December 8, 2009 at 6:05 PM

WASHINGTON (AP) — General Electric Co. says profits at its lending arm will start improving by 2011, but first it will have to slog through another year of big losses on loans gone bad in areas like commercial real estate.

The conglomerate told analysts Tuesday that profit is expected to be flat next year, ranging between $2 billion to $2.5 billion, and then rise in 2011. GE is ahead of schedule with plans to shrink the size of GE Capital, which once provided nearly half of the company's overall profits. And GE says credit markets are improving, making it easier and cheaper to borrow money.

But some big problems that have beset GE Capital during the financial crisis and recession, like big losses, are expected to continue to dog the lender next year. Chief among them is commercial real estate, where losses have soared as the broader market crumbles. GE Capital owns properties such as office buildings and makes loans for other commercial projects.

Overall losses are expected to peak in 2010 at $13.6 billion. GE said that while some other previously troubled lending areas have stabilized, such as consumer credit cards and mortgages in the United Kingdom, losses in commercial real estate could reach $2.9 billion next year. That would be up from a $2.1 billion for 2009.

The company also says commercial real estate values are expected to fall another 13 percent next year. Values have tumbled in recent months as vacancies rise and loans are harder to come by.

"The economic climate continues to be difficult," said Ron Pressman, CEO of GE Capital's real estate division.

The GE Capital update was the third this year by the company in efforts to allay investor fears over the financing unit. Fairfield, Conn.-based GE lost its top credit rating, slashed its dividend by 68 percent and saw its stock fall 90 percent from its peak earlier this year due to GE Capital's problems.

GE is relying on its big industrial units that make everything from refrigerators to power plant turbines to pull itself out of the recession. Last week, it announced plans to eventually sell its NBC entertainment unit to Comcast Corp. And it plans to rely much less on GE Capital profits.

The company said it has made progress stabilizing what will eventually be a smaller GE Capital. It has cut its reliance on riskier debt and raised billions of dollars under a government program designed to ease credit in efforts to stabilize GE Capital's cash flow.

GE said last week that the NBC deal will give it an expected $8 billion — money that will help it end 2010 with between $23 billion to $26 billion. GE plans to use the money to fund its industrial businesses and will likely add $2 billion to GE Capital in 2011.

Shares of GE fell 36 cents, or 2.2 percent, to close at $15.72 Tuesday.

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