GE’s financial arm leads to earnings slide

GE’s financial arm leads to earnings slide
By Simone Baribeau in New York
Copyright The Financial Times Limited 2009
Published: April 17 2009 12:54 | Last updated: April 17 2009 16:42
http://www.ft.com/cms/s/0/a8a64b44-2b43-11de-b806-00144feabdc0.html


Profits at General Electric fell 36 per cent in the first quarter, beating analysts’ expectations of an even steeper decline, as the industrial bellwether’s financial arm’s credit portfolio continued to deteriorate.

Commerical deliquencies more than doubled to 2.84 per cent and consumer deliquencies hit 11.80 per cent compared with 7.75 per cent a year ago, leaving GE Capital Finance with a 58 per cent year-on-year earnings decline.

But the company said the finance unit, which earned $1.1bn in the first quarter, remains on track for a profitable year, even as delinquencies rise.

“We have taken prudent actions to address these challenges, including tightening risk requirements, improving liquidity and reducing leverage,” said Jeff Immelt, chief executive.

NBC Universal also saw a sharp year-on-year decline in earnings, falling 45 per cent to $391m. The company said that the drop would have been far less steep, in the range of 15 to 25 per cent, without the effects of the writers strike, costs associated with the Super Bowl, film timings and various impairments.

The earnings falls were partially offset by a 19 per cent gain in the company’s energy infrastructure division.

GE’s revenues fell 9 per cent to $38.4bn and net earnings attributable to common shareowners fell 36 per cent, or $0.26 per share.

The results come after a difficult few months for the group. Credit agencies Moody’s and Standard & Poor’s stripped General Electric of its AAA rating, and GE cut its dividend for the first time since 1938.

GE Capital has been an ongoing cause for investor concern, hitting the company’s stock price and sending the cost of insuring the finance arm’s debt against default to record highs.

The company said first-quarter results do not include the impact from the Financial Accounting Standards Board’s changes in mark-to-market accounting rules, which allow companies to value assets using their own internal models rather than market prices.

GE, which earlier this year announced plans to cut 11,000 jobs at GE Capital or 15 per cent of the company’s workforce, said it would continue to slash costs amid a difficult economy.

“We are aggressively managing our cost structure to respond to challenging global economic conditions,” Mr Immelt said. “For 2009, we will reduce our costs by more than $5bn. We’ve reduced headcount and are managing company operations more efficiently, leading to improved operating leverage in our infrastructure businesses.”

Shares in GE fell 0.9% to 12.16 in mid-morning trade in New York.