Bloomberg News

GE Capital Decreases Reliance on Debt With Online Deposits

December 07, 2011

(Updates with executive’s comment in fourth paragraph.)

Dec. 6 (Bloomberg) -- General Electric Co.’s finance unit said it plans to begin taking direct online deposits in the U.S. next year, lessening its dependence on long-term bond markets.

The money will be accepted through websites affiliated with GE Capital’s two banks in Utah and backed by the Federal Deposit Insurance Corp., executives told investors at a meeting today in Norwalk, Connecticut. The initiative will begin in the first six months of 2012.

Taking online deposits further strengthens the unit’s liquidity after the financial crisis of 2008 left some investors wary of banks and financial stocks. GE Capital relies on debt for the bulk of its funding rather than deposits or trading as conventional banks do.

“When we think about alternative funding, it’s about deposits, it’s about securitization,” GE Treasurer Kathy Cassidy told investors.

Such funding increased to $95 billion last quarter, or about 21 percent of the total, from $62 billion in 2008, as GE Chief Executive Officer Jeffrey Immelt reined in risk at GE Capital and expanded manufacturing, which investors tend to value more highly.

The online initiative will increase a U.S. deposit base that has grown from about $1 billion in 2007 to about $23 billion through the third quarter, according to a presentation on the company’s website. GE Capital’s long-term goal is funding its Commercial Lending & Leasing Americas with deposits.

About 70 percent of GE Capital’s funding last quarter was long-term bonds, down from 74 percent in 2008, Cassidy said.

‘Pretty Strong’

In the past three years, the finance unit has wound down or sold real estate assets and reined in some kinds of lending, while focusing on businesses where it has identified a competitive advantage, such as loans to midsize companies with $10 million to $1 billion in revenue.

“Our business is really pretty strong,” GE Capital Chief Executive Officer Mike Neal told investors today. “We’re in a more competitive position than we’ve ever been.”

Profit at GE Capital Corp. should rise to $6.3 billion to $6.5 billion this year, GE said.

While executives plan to resume a once-annual payment of a portion of earnings to the parent company next year, they can’t do so until the Federal Reserve approves.

The agency took over regulation of GE Capital in July from the now-defunct Office of Thrift Supervision and is assessing its lending model. How much executives disclose about the process is limited by law.

Annual Payment

“It’s incredibly sensitive,” Neal said. “All I can tell you is, we started with the Fed in July of this year. There’s a lot of work that has to be done. We’re different than the average bank. They’re getting to know us and we’re working through a process.”

Investors have been eager to find out when GE Capital’s payment, as much as 40 percent of its earnings prior to the financial crisis, will resume. Some consider it an indicator of renewed health and safety at the unit.

Executives plan to return to an annual disbursement rather than a one-time payment, said Jeff Bornstein, GE Capital’s chief financial officer.

--Editors: James Langford, Elizabeth Wollman

To contact the reporter on this story: Rachel Layne in Boston at rlayne@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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