Here are some important facts that were left out of today’s Wall Street Journal article that provide context in understanding the strength and diversity of our funding model:
GE is an infrastructure, finance and media company, which funds its growth using diverse sources of relatively low-cost funding. GE’s long-term debt is ~60% of overall funding; its short-term debt is ~34%; and retail deposits make up ~6%. This funding model has successfully fueled the company’s long-term average earnings growth of 10%, and the company has taken significant actions to preserve its liquidity during this the current credit crisis.
GE is managing its long-term debt needs, in part, by slowing down origination of new loans. The company has been able to issue short-term debt, called commercial paper (CP), even during the recent financial crisis — without disruption — at favorable costs. With cash on hand, $62 billion in back-up bank lines and the recent $15 billion of raised equity, GE has the liquidity to more than cover its commercial paper exposure if needed. The company is also participating in the U.S. Government’s Commercial Paper Funding Facility, providing further liquidity options. GE is focused on growing its retail deposits. GE currently has deposits of over $33 billion, increasing the balance by $20 billion this year, primarily from certificates of deposits issued through its two US banks.
GE’s strategy for many years has been to match-fund our assets and liabilities in terms of duration, currency and rate, which means that we price our assets based on our funding costs. We expect to manage any change in our funding cost resulting from shifting our funding mix away from CP to term debt, deposits and other alternative funding sources through commensurate pricing changes. GE provides support to GE Capital, its financial subsidiary that issues the majority of the company’s debt. This support is in the form of a fixed charge coverage agreement under which GE is required to maintain GE Capital’s earnings at a specified level.
GE has a conservative financial services business originating mostly secured or asset-backed loans. That has resulted in lower loss rates and loan-loss reserve ratios than those of the largest U.S. banks. The company has made net income of $7 billion in financial services year to date, making it one of the most profitable financial services companies in the world. GE will continue to develop and strengthen its diverse source of funding, and pursue those options that support a strong competitive position.
Here is a link to a detailed liquidity discussion in GE’s third quarter 2008 10Q filing with the U.S. Securities and Exchange Commission.
