• 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.

• GE Capital remains a invaluable part of GE’s portfolio, and we are fully committed to financial services.
• We have made great progress in the last few months repositioning the business for long-term, double-digit growth – making our funding model safer and more diverse, reducing costs and exiting higher-risk businesses.
• We have established a framework at GE Capital to earn approximately $5 billion in 2009. Positioned to return to double-digit earnings growth in 2010.
• Total company fourth quarter 2008 earnings trending toward low end of guidance of $0.50 to $0.52 , excluding potential charges.
• We also reaffirmed our commitment to paying a dividend of $1.24 in 2009, and we are committed to being a Triple-A company.

 
Reuters: Moody’s reaffirms GE’s Triple A

View a brief video recap with Bill Cary, chief operating officer, GE Capital.

Read the complete press release.

Watch the webcast replay.

The Webcast and related materials will be available online.

Is it true that GE cash flow from operations minus asset sales has been negative for years?

No. GE’s industrial cash flow has been strong, growing 15% in 2007 and increasing 5% year through third quarter and our cash from operating activities was $23.5 billion in 2007.

Have you begun forecasting the dividend potential post-2009?

Not at this point in time. This will be a decision for GE’s Board of Directors. Please refer to our recent story re-affirming the GE dividend for 2008.

What will be the future strategy of GE Capital after merging almost all financial units of GE under its umbrella?

Please visit our recent posting on GE Capital for more information and to hear from Bill Cary, chief operating officer of GE Capital. We will also be hosting an analyst meeting on December 2nd specifically on GE Capital.

Read the complete list of Q&As here.

Read the meeting advisory note from Trevor Schauenberg, VP of Investor Communications at GE.

Check out the full article, “Time to re-embrace globalisation.”

Today we announced a new GE Capital organization structure designed to execute on those objectives, and accelerate the evolution of the business into a more focused set of higher returning businesses. The new structure consists of operational poles in Europe, Asia and the Americas. We also have created two new platforms to take advantage of new opportunities and leverage our expertise: one for consumer-focused international banks and JVs, and another focused on optimizing returns on non-strategic assets. The new structure is effective January 1, 2009, and builds upon the company’s recent actions to strengthen our liquidity profile.

Michael A Neal, chairman of GE Capital, said, “Over the last two months, we have acted decisively to improve our funding position. We reduced our leverage, successfully raised capital, and accessed government programs that level the competitive playing field for us in financial services. Through these actions, we have strongly improved our 2009 funding outlook, and continue to reposition GE Capital for long-term performance and to play offense as conditions permit. This new organization aligns our operations with our strategic and funding plans.”

Led by a world-class team of GE Capital global professionals, this new organization will help us lower costs, operate efficiently and capture profitable, high-margin originations across key platforms and geographies today and as the global economic situation stabilizes and begins to recover.

With this more efficient organization, we are projecting approximately $2 billion in savings at GE Capital in 2009. These savings and the continued focus on optimizing the portfolio increase flexibility and vantage of opportunities created in the current market and drive value for our shareholders.

* View the new org chart.

Watch the video interview with Bill Cary, Chief Operating Officer of GE Capital. Communications Director, Marissa Moretti, asks the questions.

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.

We manage our liquidity to help ensure access to sufficient funding at acceptable costs to meet our business needs and financial obligations throughout business cycles. We rely on cash generated through our operating activities as well as unsecured and secured funding sources, including commercial paper, term debt, bank deposits, bank borrowings, securitization and other retail funding products.

The global credit markets have recently experienced unprecedented volatility, which has affected both the availability and cost of our funding sources. In this current volatile credit environment, we have taken a number of initiatives to strengthen our liquidity, maintain our dividend, and maintain the highest credit ratings. Specifically, we have:

* Reduced the GECS dividend to GE from 40% to 10% of GECS earnings and suspended our stock;
* Raised $15 billion in cash through common and preferred stock offerings in October 2008;
* Reduced our commercial paper borrowings at GECS to $88 billion at September 30, 2008;
* Targeted to further reduce GECS commercial paper borrowings to $80 billion by the end of 2008 and to 10-15% of total GECS borrowings going forward;
* Begun resizing GE to deliver a 60%/40% industrial-financial services earnings split by the end of 2009;
* Grown our deposit funding to $33.5 billion at September 30, 2008; and
* Registered to use the Federal Reserve’s Commercial Paper Funding Facility for up to $98 billion, which is available through April 30, 2009.

Throughout this period of volatility, we have been able to continue to meet our funding needs at acceptable costs. We continue to access the commercial paper markets without interruption, although we have been doing so at shorter average maturities than historically. During the first nine months of 2008, GECS and its affiliates have issued $69.2 billion of senior, unsecured long-term debt. This debt was both fixed and floating rate and was issued to institutional and retail investors in the U.S. and 17 other global markets. Maturities for these issuances ranged from one to 40 years. We are not currently planning to issue long-term debt for the remainder of 2008, but will consider it if we have opportunities to issue debt on favorable terms as a result of more stable markets or other developments. We maintain securitization capability in most of the asset classes we have traditionally securitized. However, these capabilities have been, and continue to be, more limited than in 2007. Securitization proceeds were $0.7 billion and $4.9 billion during the three months and nine months ended September 30, 2008, respectively. Comparable amounts for 2007 were $5.2 billion and $16.9 billion, for three months and nine months, respectively.

We have successfully grown our deposits by $22.0 billion since January 1, 2008, to $33.5 billion at September 30, 2008. We have deposit-taking capability at nine banks outside of the U.S. and two banks in the U.S., GE Money Bank Inc., a Federal Savings Bank (FSB), and GE Capital Financial Inc., an Industrial Loan Corporation (ILC). The FSB and ILC currently issue certificates of deposits (CDs) distributed by brokers in maturity terms from three months to five years. Total outstanding CDs at these two banks at September 30, 2008 were $17.2 billion. We expect deposits to continue to grow and constitute a greater percentage of our total funding in the future.

In the event we cannot sufficiently access our normal sources of funding, we have a number of alternative sources of liquidity available, including cash balances and collections, marketable securities, credit lines and liquidity facilities provided by governments.

We anticipate that we will continue to generate cash from operating activities in the future, which is available to help meet our liquidity needs. We also generate substantial cash from the principal collections of loans and financing leases, which historically has been invested in asset growth. We plan to slow new asset originations and investment to the extent necessary to generate cash from collections in excess of originations to help support liquidity needs.

Committed, unused credit lines totaling $62.1 billion had been extended to us by 66 financial institutions at September 30, 2008. These lines include $37.3 billion of revolving credit agreements under which we can borrow funds for periods exceeding one year. The remaining $24.8 billion are 364-day lines that contain a term-out feature that allows us to extend borrowings for one year from the date of expiration of the lending agreement. Investment securities with a fair value of $10.0 billion at September 30, 2008 supporting obligations to holders of guaranteed investment contracts are also available as a source of liquidity by entering into a repurchase agreement with a counterparty. The cash proceeds available from a repurchase agreement transaction could be significantly less than fair value depending on existing market conditions at the time.

We are currently evaluating the effect on our operations and funding strategies of recently announced actions by the governments of the United States and other nations. The U.S. Government has enacted legislation and created several programs to help stabilize credit markets and financial institutions and restore liquidity, including the Emergency Economic Stabilization Act of 2008, the Federal Reserve’s Commercial Paper Funding Facility (CPFF) and Money Market Investor Funding Facility (MMIFF) and the Federal Deposit Insurance Corporation’s (FDIC) Temporary Liquidity Guarantee Program. Additionally, the governments of many nations have announced similar measures for institutions in their respective countries.

We believe that the Federal Reserve’s recently announced CPFF and MMIFF add an important liquidity backstop for U.S. issuers of commercial paper and money market commercial paper investors and will help restore confidence in the prime commercial paper market. On October 20, 2008, we submitted our registration and received notification of our eligibility for the Federal Reserve Bank of New York CPFF, which began purchases of qualifying commercial paper on October 27, 2008. We plan to use the facility primarily to support our commercial paper investors who need liquidity and to manage our maturity profile.