Maintain stability and growth Ge electric de financialization editor's note: March 2009 is a month that makes Jeff Immelt feel pressure. GE's share price fell "roller coaster", from $38 A share at its peak a year ago to $5.87 in early March, and is still hovering at $10. On March 12 and March 23, Moody's and standard & Poor's, the two major international rating agencies, lowered the highest rating of General Electric respectively, which is the first time that General Electric has lost Moody's highest rating in 40 years. There are even rumors in the market that this century old store is facing the risk of bankruptcyLuo Bangmin, vice president and CEO of Ge Greater China on March 30, Luo Bangmin, vice president and CEO of Ge Greater China, said in an email interview with this newspaper, "the first task of Ge in 2009 is to maintain the stability and growth of the company by ensuring cash flow, increasing liquidity and reducing costs. At the same time, we are also restructuring the business of GE Capital."
however, unless it is sold completely, GE Capital will still be an indefinite bomb
risk exposure is too large
"success is nothing, failure is nothing"
ge capital's business covers a wide range of mortgage loans, personal credit cards, aircraft leasing and commercial real estate investment, accounting for half of the group's profits in the past few years. But GE Capital is still in trouble this time
while the global financial tsunami since 2008 destroyed many international financial giants, GE Capital was not spared. The market believes that GE Capital's commercial real estate, consumer credit and the profit strain curve of materials or packaging obtained from it in the UK, such as mortgage loans of felt textile fiber and coarse textile, are too exposed
in January, 2009, Ge issued performance guidelines for this. A core report was installed in front of the core seat. In consumer finance, GE Capital still has 56million accounts, of which $32billion is the balance of credit card loans and $22billion is the balance of other consumer loans. At present, consumer finance is deteriorating, and the default rate has risen to 8.25%
housing mortgage loans all over the world are the largest part of GE Capital. So far, there are still $72billion in assets. However, the default rate is also rising, which has reached 0.38 percentage points. In addition, in terms of real estate, GE Capital also holds 8600 properties in 2600 cities in 28 countries, mainly office buildings and family residences
Immelt admitted in his 2008 annual report released in February 2009, "if possible, today I really hope we can reduce our exposure to commercial real estate and UK mortgage loans."
ge capital, once a "sweet pastry", has now become a "powder keg" that is flammable at any time, which is difficult to approach. What is more serious is that the market's suspicion of GE Capital has evolved into the distrust of GE's parent company
in addition, General Electric has continuously lowered its performance expectations for the past year, failed to honor its dividend commitment, and the rating downgrade have seriously shaken the confidence of the market, and the share price has fallen all the way
what's more exaggerated is that this trust crisis turned into speculation on GE's credit default in March 2009. According to the statistics of advance data, a professional market data company, on March 5, the earnings volatility for GE Capital's one-year CDs has soared to 700 basis points, and the five-year CDs has also exceeded 1600 basis points. This means that the market's understanding of the possible "default risk" of GE Capital is rising significantly. This consensus is translated into the large-scale purchase demand for GE Capital Credit Insurance (CDS)
sell 90billion financial assets
obviously, for Immelt, GE Capital is the focus of all problems
in order to clarify the "default risk theory" of the market and restore market confidence, GE Capital held an "investor meeting" for investors and analysts on March 19, 2009
the core contents conveyed at this meeting include: GE Capital has no liquidity problems, and has raised 93% of the long-term funds required for the company's development in 2009; GE Capital has enough funds to deal with any situation that it may face; GE Capital will be profitable in the first quarter and the whole year of 2009; Ge will be solely responsible for the problems of GE Capital
in order to achieve the above goals, Immelt first started with cost reduction. On November 18, 2008, GE said that it would achieve the cost reduction goal of $2billion by GE Capital in 2009 through layoffs and business sales. According to the information learned, although the layoff plan has not been uniformly announced within GE Capital, it has been quietly implemented since January 1, 2009. According to Bloomberg news, the average annual salary of GE Capital employees is $175000. According to the cost reduction goal, GE Capital may cut 7500 to 11000 employees this year, that is, at least 10% of its total employees
reducing the scale of risk business is Immelt's second important measure. According to the plan on November 18 last year, Immelt merged commercial finance and consumer finance businesses, and added two new departments - retail finance group and restructuring group. The former mainly absorbs retail deposits through electronic banks, and the latter will hold $90billion in assets, including the company's residential and commercial mortgage loans in the United States and the United Kingdom, Immelt plans to divest the above $90billion of assets and sell them. Ge didn't disclose the details of these $90billion assets in detail, but said that the return rate of these assets was below 2%, lower than the average return of other funds of GE Capital
Mike O'Neill, vice chairman of Ge and chairman of GE Capital, used his brains to adjust the financing structure of GE Capital, hoping to improve the liquidity of the company. In December, 2008, it announced that the company's total existing assets of nearly $700billion would be reduced and its dependence on short-term debt would be reduced. GE Capital will gradually close its loan business, which accounts for 10% of its total assets, and reduce the total financing of commercial paper from $80billion at the end of this year to $50billion at the end of 2009, thereby increasing the proportion of long-term debt in the financing structure. At the same time, the company may also increase deposits by issuing certificates of deposit (CDS) or purchasing savings and loan banks
on February 10, 2009, Keith Schelling, chief financial officer of Ge, told the media that in order to reduce the leverage ratio of GE Capital, the parent company has transferred $9.5 billion to GE Capital to help the latter reduce the leverage ratio from 7 to 1 to 6 to 1
new positioning of GE Capital
What does the above series of restructuring measures mean for GE Capital? In the 2008 annual report released by general electric, Immelt wrote, "we are repositioning our financial services business to narrow its business scope and make operations more centralized."
from the perspective of the asset sale plan, GE Capital will significantly reduce the number of residential and commercial mortgage loans it holds in the United States and Britain. Although these assets once created huge profits for GE Capital, they have now become "toxic assets". According to the restructuring plan, Immelt hopes to focus GE Capital's future business on providing core loans to middle market customers, lending to global customers including GE's own banks and joint ventures, and lending in the real estate sector
according to the figures disclosed in GE's 2008 annual report, GE Capital purchased several large plastic bags for the fourth time in 2008. In the quarter, GE Capital provided $48billion in new loans to ge related customers, and plans to provide another $180billion in new loans in 2009 to support customers in Ge aviation, healthcare, transportation, energy and other fields
for the above restructuring measures, Luo Bangmin told this newspaper that the most unique advantage of GE Capital is the strong synergy with Ge infrastructure business, which is a strong competitive advantage that ordinary financial companies do not have. Therefore, the restructuring of GE Capital is also carried out around this center, while stripping other high-risk or non strategic businesses to make the business more concentrated
Luo Bangmin also revealed that GE Capital's business in China is also being restructured, and the focus in the future will be on two major businesses, "first, equipment leasing financing, infrastructure project financing and other businesses closely related to our infrastructure business. Second, equity investment with our non-financial business and procurement related companies."
after the business contraction of GE Capital, Immelt predicted that the profit contribution of GE Capital in Ge would be reduced from the current 47.5% to about 30%