General Electric today offered a deep dive into its financial services business in an attempt to reassure investors and persuade them, as GE CFO Keith Sherin told CNBC on March 5, that there is no “time bomb” in GE Capital.
Sherin, who is leading the meeting with a team of 15 GE Capital executives, including GE Capital CEO Mike Neal, started the meeting off by reiterating that GE expects its financial services unit to be profitable in the first quarter. He also said the company expects the unit to be profitable for all of 2009. Although some investors have been raising questions of whether GE should split off its finance unit, Sherin reiterated the company’s commitment to GE Capital. He also noted that liquidity was strong and restated that the company sees no need to raise external capital.
GE Capital CEO Mike Neal stressed that the company has been in its financial businesses for decades, that it holds senior, secured loans, and that it underwrites its loans to hold them. GE Capital, he noted, is a “main street” and “middle market” lender.
The six-hour, 176-slide presentation was a far cry from the brief earnings releases issued under Immelt’s predecessor, John F. Welch, and delves even deeper than did a lengthy December investor meeting devoted to GE Capital. Investors have long called the financial services side of GE’s business a black box, with far less disclosure than traditional banks. In an era of cheap money and housing bubbles, investors didn’t worry as much about the unit’s transparency. But as credit tightened amidst the financial crisis, shareholders became increasingly wary of what lurked on GE’s books. When it comes to financial stocks, says Scott Lawson, a portfolio manager with Westwood Holdings, “if in doubt, people sell.”
How much today’s disclosure will quell those doubts remains to be seen. Following Standard & Poor’s downgrade of GE’s vaunted AAA credit rating on March 12, a rating change by Moody’s may also happen before the end of April. While shares rallied on the S&P rating change, which was not as deep as some expected, any negative outlook from Moody’s will leave uncertainty surrounding the stock. GE’s stock closed down 1.8% to 10.13.
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