FDIC Debt Guarantee Program and GE Capital

1. Why are you participating in the FDIC Temporary Loan Guarantee Program?

GE Capital provides critical financing for U.S. infrastructure projects, municipalities and industries including airlines, hospitals, utilities, and many middle market sectors. Our funding model has always been strong. Our participation in this program helps level the playing field with other financial services companies who are currently eligible. It is beneficial to us and to the marketplace as it ensures a stronger lending market.

2. Some have described GE’s participation as a “bailout,” why is this not true? Isn’t this a bailout?

This program is not a bailout. Our participation simply puts GE Capital on a level playing field with other financial services companies who are eligible. We pay a market-based fee to participate in this program. It serves as an insurance program. We are not receiving a preferred equity investment in GE from the US Government.

3. Why does a Triple-A rated company need this program?

With the FDIC guaranteeing large amounts of debt issued by a wide variety of financial institutions, issuers not covered by that guarantee are placed at a competitive disadvantage, regardless of their financial strength or ratings. Our participation in this program puts us on an even playing field and it supports our Triple-A credit rating.

We are committed to the Triple-A. This guarantee program will further strengthen our already strong balance sheet and support our rating. The agencies fully support our participation in this program.

4. Won’t your participation in this program cap or limit your dividend payout?

No, our participation in this program will not in any way affect our dividend policy. There have been some Fed programs that restrict increasing dividend amounts, but we are not participating in those programs.

5. How much debt are you eligible for and won’t this increase your lending costs?

For GE Capital, this will cover debt up to approximately $139B, which includes Long Term debt, Commercial Paper, and other debt programs such as our GE Interest Plus, etc. This does not mean that GE intends to issue this amount of debt but that this is the maximum amount of debt, which the guarantee will cover. Our participation should not significantly increase costs. The program will help put us on a level playing field. We will be required to pay a fee, but the guarantee should help make our lending costs competitive with other participants and reflective of our Triple-A credit rating.

6. Are you planning to become a bank holding company?

We have no current plans to become a bank holding company but we continually evaluate the company’s strategy to ensure its best positioned to compete and perform successfully in the near and long term.

7. Is your funding model sustainable? If so, how?

The debt capital markets are significantly challenged at the current time and may never return to pre-crisis levels. However, we believe the markets will recover and demand for high quality debt, such as ours, will be sustainable over the long term. We are a profitable, well run business with a portfolio of high quality assets and hold the highest long and short-term credit ratings from S&P and Moody’s. Notwithstanding this, we continue to diversify our funding sources including growing deposits, reduce our reliance on commercial paper and strengthen liquidity and capital adequacy to improve our access to funding.

* Read our recent post on GE’s participation in the FDIC’s Temporary Liquidity Guarantee Program.