GE Capital improves finances
In the third quarter, GE Capital credit losses continued to decline and earnings improved, despite ongoing problems with the General Electric Co. subsidiary”™s real estate loan portfolio.
GE has its headquarters in Fairfield, and GE Capital in Norwalk; combined, they have among the largest work forces in Fairfield County with more than 4,000 employees at last report.
In the third quarter, GE earned $2 billion on revenue of $35.9 billion, down 18 percent and 5 percent respectively from a year earlier. Excluding the financial impact of operations that GE is divesting or discontinuing, earnings were $3.2 billion, up 29 percent.
GE revenues were impacted both by reduced GE Capital assets and industrial equipment sales, with GE Capital recording an $871 million profit despite revenue dropping 3 percent from a year ago to $11.6 million.
GE Real Estate is the lone segment that continues to bedevil GE Capital, after losing $405 million in the third quarter and $2.5 billion in the past five quarters combined. During that same period, none of GE Capital”™s four other major units produced a quarterly loss, and several recorded improvements in the third quarter ”“ for instance, GE Capital”™s commercial lending and leasing unit dropped its allowance for loan losses in the Americas for the first time in a year, though measured as a percentage of total receivables they still are trending upward.
“We think GE Capital is going to create its own strength, and that”™s well under way,” said Jeff Immelt, CEO of GE, in a mid-October conference call with investment analysts. “I think GE Capital is in great shape.”
In October, GE announced multiple acquisitions, including Opal Software, a Canberra, Australia-based company that consults and sells systems on the control of utility infrastructure. GE also recently reached a $3 billion deal to acquire energy infrastructure company Dresser Inc., while GE Capital is buying $1.6 billion in retail sales finance portfolios from Citigroup Inc.
“We were able to add to a space where we”™ve got a real competitive advantage on distribution,” said Keith Sherin, chief financial officer of GE, speaking on the Citi deal. “I mean, we”™re basically a unique provider of capital to retail distribution in this country, and we have a tremendous franchise ”¦ (and) they are performing extremely well in the current cycle in terms of their asset quality measurements.”
Sherin said GE Capital will likely be subject to continued “pruning” of what has amounted to a dramatic restructuring of the unit since the onset of the financial crisis, but reiterated Immelt”™s vow to scout additional growth opportunities.
“We are ahead of our shrinkage targets, and we have room for some bulk origination, as well as the good underwriting and the origination that we are seeing from the commercial teams,” Sherin said. “Today, we”™re looking at some things in investment around the middle market on distribution, and in areas where we may be able to take advantage of some of the disruptions because of the capital requirements of the banks or other things where we provide a real competitive advantage.
“We ”˜get”™ local,” Sherin added. “We”™re totally connected to the mid-market customer. We”™re underwriting their assets. We”™re willing to take the residual risk, because we know the assets and we got a pretty good value proposition.”