GE still roiled by real estate losses
General Electric Co. continued to record real estate losses in its GE Capital subsidiary, which on paper had the worst quarter of GE”™s five divisions as revenue fell 10 percent and profits, 41 percent.
Much of the decline in GE Capital revenue was the result of the company”™s sale last year of its shares of Penske Automotive Group.
GE is based in Fairfield and GE Capital has its headquarters in Norwalk. The company is among the largest employers in Fairfield County with more than 4,000 employees.
In the first quarter, GE had a $2.3 billion profit, down 18 percent from a year ago, on revenue of $36.6 billion, down 5 percent, which it attributed to an acceleration in downsizing at GE Capital driven by the divestment of Bloomfield Hills, Mich.-based Penske. GE Capital had a $603 million operating profit on $12.3 billion in revenue, including $403 million in losses at GE Real Estate, which is also based in Norwalk.
CEO Jeff Immelt said the company continues to see signs of stabilization, with losses and loan delinquencies declining during the quarter. He added that GE Capital losses seem to have peaked, though commercial real estate continues to be challenging.
Immelt added the company continues to evaluate restructuring initiatives, without specifying what form that might take. The company spent some $60 million in restructuring activities at GE Capital during the quarter.
“We might do more restructuring and financial asset sales to position for the future,” Immelt said, in a conference call with analysts. “Restructuring benefits continued to pay off: We saw about $500 million (benefit) based on a lot of work we”™ve been doing in the last few years, and that will continue into the future. We”™re investing more in research and development. We grew (research and development) by 16 percent in the quarter. We”™re launching offshore wind, new health care products (and) energy efficient products in transportation and appliances.”
GE Capital”™s results are also being adversely affected by its former consumer lending arm in Japan, which GE sold in 2008 to Shinsei Bank for more than $6 billion, but under which it still bears exposure under an indemnity clause in the agreement.
Four years ago, Japan”™s Supreme Court ruled as invalid interest rates on consumer loans of between 20 percent and 29 percent. Borrowers there are now seeking repayment for loans that fall in what is known as that interest rate “grey zone,” and GE booked a $380 million increase in the quarter on its grey zone liability.
“The economy in Japan has been very tough,” said Keith Sherin, chief financial officer of GE. “There”™s recent and upcoming legislative and regulatory changes that are affecting grey zone claims in Japan, and we saw increases in our overall claims over the last several months.”
On the commercial lending and leasing front, GE Capital saw improvement in its portfolio, with losses due to bad loans down from a year ago, and loan origination volume up.
GE announced its results as the U.S. Senate continues to grapple with the ultimate form of new regulations on the financial industry.
“I think that when you look at the consumer protection it doesn”™t really affect us that much,” Sherin said. “We”™re prepared for a different regulator. We think we”™re systemically important and we”™re prepared for the Fed to be our regulator, if that”™s the case.”