GE sees profitable finance unit in 1st qtr, '09

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WHAS11.com

Posted on August 15, 2009 at 6:42 PM

Updated Tuesday, Oct 13 at 4:17 PM

WASHINGTON (AP) -- General Electric Co. on Thursday forecast a profitable first quarter and full year for its struggling finance unit, aiming to soothe investor fears that factors like falling real estate values and unpaid credit cards could further damage GE Capital.

At an investors conference in New York, the company backed an earlier forecast that GE Capital could earn up to $5 billion this year, despite a U.S. recession and global slowdown. The unit, which provides loans for consumer credit cards, energy projects like power plants, and overseas home sales, has been battered by cautious spending and losses in areas such as mortgages and commercial real estate.

Worries over GE Capital have contributed to a 70-percent plunge in GE's share price in the past year, although the stock gained 4 percent in early trading on Thursday. Investors have feared big losses may be looming in GE Capital's units, especially its investments in the soft commercial real estate market, its lending in the falling United Kingdom housing sector, and the consumer credit card segment that is under pressure as more borrowers lose jobs.

Those worries prompted the Fairfield, Conn.-based conglomerate to open GE Capital's books to show there are no hidden "time bombs" on its balance sheet. Thursday's exhaustive review was to last five hours, covering areas that included everything from details on its commercial properties to forecasts for economic growth in business regions like Eastern Europe.

GE cautioned that its finance unit may end up breaking even under a worst-case scenario where the U.S. economy continues to deteriorate. That scenario included unemployment of 10 percent and a decline in gross domestic product of around 3 percent.

The company said that it would not have to plug more cash into GE Capital even if that grim forecast came true. GE said it also remains committed to holding on to GE Capital, which last year accounted for about half of the industrial conglomerate's earnings.

"We are running GE Capital to be safe and secure," Keith Sherin, GE's chief financial officer, told investors.

Since GE missed its first-quarter earnings forecast last April, the share price has fallen from the high $30s to a low of $5.72 earlier this month. GE has cut its dividend for the first time since 1938, and last week it lost its coveted 'AAA' credit rating from Standard & Poor's.

GE plans to restructure and shrink GE Capital, cutting it down to about 30 percent of overall company earnings. It is reducing its use of riskier debt like commercial paper and slashing an unspecified number of jobs as well.

GE said Thursday that it has also raised $45 billion of long-term funding for 2009, about 93 percent of its goal for the year. Much of that was through a program that offers federal government backing of corporate debt.

"We have sufficient capital and alternatives to weather the tough environment," said Mike Neal, head of GE Capital.

Sherin said earlier this month that GE was prepared for $35 billion in losses and impairments between 2008 and 2010. He said GE Capital GE will have $16 billion in cash in 2009, enough to meet its funding needs.

Shares of GE rose 40 cents, or 3.9 percent, to $10.72 in late morning trading Thursday.

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AP Business Writer Daniel Lovering in Pittsburgh contributed to this report

(Copyright 2009 by The Associated Press. All Rights Reserved.)

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