Earlier this week, we shared a long-term strategy to position GE Capital for growth by diversifying its funding and focusing on higher-returning business. BusinessWeek’s article this week on Capital and this plan merits clarification:
- The magazine writes that since 2001, “…GE Capital became increasingly reliant on commercial paper…” Actually, GE has reduced its reliance on this short-term source of funding from 49% of total debt in 2001 to 17% today and will further reduce it in 2009.
- It writes that GE has “allowed” its financial businesses to go from roughly 40% of operating earnings to 50% today (financial earnings are valued less by investors than industrial earnings). GE’s financial business represented 45% of net income, excluding pensions, in both 2000 and 2007. With a more focused Capital and our growing industrial businesses, the mix should be about 70-30 going forward.
- The article doesn’t clearly address how GE can and is using its growing bank deposits to fund financial services assets.
GE Capital remains one of the most profitable financial services companies in the world, earning more than $10 billion in the last reported 12 months. No doubt, it faces a tough environment. But as a Triple A-rated financial services company with a conservative model, it will be in good competitive position once the economy recovers.
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I think that it is very misleading to note the last 12 months of earnings ($10B) at GE Capital rather than next year’s just given forecast of $5B.
I applaud the GE Reports communications in general – great idea – but please use it to lead (not mislead investors).
I agree with David Cook’s comment. Why mislead everyone? GE Capital earned $10B…why is Capital planning massive lay offs in January 09? Senior Executives should eliminate ALL the luxuries and non necessary expenses. We should worry about today, tomorrow and the next six months not 2010 or 2011. We can’t wait to see GE Stock $$ after the massive lay offs in January 09. It’s no longer a BIG secret…what happened to integrity?
The bottom line with GE is the dividend. If it remains where it is for 2009 (as has been stated), I’ll stay invested. If it gets cut in 2009, 2010 etc, I’m out. I expect many will do the same.
Now is a great time to go long on dozens of stocks. You could almost throw a dart on many well run companies and see a increased share price in 3-5 yrs. What stands out is the dividend, and making money on green technology. Did I mention the dividend?
Something GE should be aware of. This man or woman (who I believe is a GE short) been writing fact twisted articles when ever he starts shorting any stocks such as C, AXP, etc including GE. Obviously he or she is only serving himself or herself for the short position. Here is the link to one of many his/her short position helping GE article. It is sad that SEC allows such self-serving shorts to be able to write fact twisted article just to help themselves.
http://seekingalpha.com/article/109478-ge-at-a-crossroads-business-model-becoming-obsolete?source=yahoo
A (BusinessWeek) journalist isn’t necessarily somebody with a business, economics or finance degree, and hence shouldn’t always be taken to seriously when he/she is analyzing the current financial/economical crisis.
GE is a long term hold, ignore short term traders like Tacgnol who are only interested in scaring investors out of valuable GE shares so they can pocket them at cut rate prices.
I am long a huge amount of GE stock. This company is possibly the greatest of all U.S. companies. The new Govt. will have to come to GE for much of it’s new energy & healthcare ideas and solutions. My father worked for GE out of high school before WW2. They are a huge US/World employer. Everyone is taking a hit in this economy. They’ve been through it before and have since grown bigger and better. I’m a believer in GE!