Setting the record straight on GE Capital in the UK

In today’s edition of The Wall Street Journal, the story entitled, “Soured Mortgages Weigh on GE Profit: Bad loans in UK threaten to hurt giant’s earnings,” presents a misleading impression of GE Capital’s UK Home Lending business — a business about which GE has been very transparent.

The article incorrectly states that GE “expects to lose as much as $2 billion between 2008 and 2010 on sub-prime UK mortgages.” That is not the Company’s expectation and an inaccurate representation of the numbers. In March, GE outlined potential credit losses in the most adverse case could be up to approximately $1.9 billion. These are not operating losses. The credit losses have and will be partially offset by income generated by the business, and result in much lower bottom line losses. For the fist half of 2009, the business posted $474 million of credit losses while recording $220 million of operating losses. While the business is going through a tough cycle and will have to manage through losses, it is performing better than our March projections as well as the adverse stress case, and continues to do an outstanding job on loss mitigation and managing the portfolio. This includes the orderly selling of properties above book value that come into the business’ possession, reducing our exposure and minimizing detriment to our customers.

The article also discounts or omits the very positive signs in the overall UK market. For example, home price indices in the UK have increased three consecutive months, pushing home prices positive for the year, and there has been a slowing in the growth of unemployment. By most accounts, the market is stabilizing and this has been reflected in our delinquencies, which have stabilized over the past three to four months.

The article throughout refers to the business as a “sub-prime” lender, equating it by inference with the sub-prime market and discredited underwriting practices in the United States. UK Home Lending participates in what is called the “Specialist” market that includes, for example, self-employed borrowers who have good credit histories but are excluded from traditional lending by virtue of their employment status.

Moreover, the article fails to make note of the very real and fundamental differences between the US (which GE exited in 2007) and UK business models and markets. In the UK, GE underwrites every property with GE personnel and we intend to hold the mortgages on our books. In addition, most loans originated at 80 percent LTV (loan-to-value) and above and were covered by insurance, providing a further layer of protection. Finally, mortgage brokers in the UK are regulated, which wasn’t the case in the United States. Click here to see the March 26 investor slide that provides this market comparison.

The UK Home Lending team continues to manage the business well through what is a challenging environment, while working hard to help borrowers experiencing difficulties. The business has been prudent through the challenging UK economy, originating only $26 million in the first half of 2009. Its disciplined approach has helped keep GE Capital safe and secure and on track for a profitable year.

Finally, the article states that, “GE’s industrial businesses, meanwhile…have kept the company earning money despite major losses at GE Capital….” GE Capital has continued to be profitable every quarter even during the recession.

* Read the Journal’s story (subscription required)
* Learn more about GE Capital on its website