GE Capital earnings this year may climb to about $3 billion, more than managers projected, as delinquencies slow and the unit gains market share in key businesses such as mid-market lending, the unit’s chief said.
Profit should rise next year and in 2012 after this year’s increase, which includes tax gains, said Michael Neal, chief executive officer of General Electric Co.’s finance division. GE Capital’s profit last year was $1.7 billion, down from $8.6 billion in 2008, amid the height of the financial crisis.
GE Chief Executive Officer Jeffrey Immelt is shrinking the percentage that the finance business contributes to the Fairfield, Connecticut-based parent company’s profit and sales. GE Capital is focusing on areas it dominates, such as lending to small and mid-sized companies and aircraft-industry leasing.
“We’ll be smaller and more focused but more profitable,” Neal, who is also a vice chairman of the parent company, said during a presentation for investors broadcast on the Internet.
Consumer businesses should make up 15 percent to 20 percent of the portfolio going forward, he told investors. Real estate assets will shrink to 10 percent to 15 percent from 16 percent this year and so-called middle-market leasing and lending may reach 50 percent, up from about one-third in 2010.
GE Capital’s ability to build businesses in markets such as commercial lending and leasing after the financial crisis gives it an edge, especially as the company’s prospects improve, Neal said. Losses absorbed by the division this year should be about $10.6 billion, down from $12.6 billion in 2009.
GE rose 33 cents, or 2 percent, to $17.03 at 4:15 p.m. in New York Stock Exchange Composite trading. The shares have gained 13 percent this year.
GE Capital’s $2 billion of 2.25 percent notes due in November 2015 fell 0.64 cent to 96.32 cents on the dollar at 5:15 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The finance division is shedding smaller units in far-flung areas of the globe and exiting joint-venture stakes where it doesn’t make sense to stay. An agreement to sell an 18.6 percent stake in Turkiye Garanti Bankasi AS to Banco Bilbao Vizcaya Argentaria for $3.78 billion last month may yield a gain of $300 to $400 million and slice about $2.7 billion in assets, GE Chief Operating Officer Bill Cary said in November.
Cary said about $17 billion in assets will be sold in 2011. The division sold about $14 billion in assets this year.
GE aims to reduce its ending net investment in finance assets, a measure used by analysts to gauge the division’s size, to $440 billion by the end of 2012 from about $489 billion at the end of the third quarter, Neal said.
GE Capital expects an ending cash balance of about $60 billion this year, $60 billion to $70 billion in 2011 and $50 billion to $60 billion in 2012 as it pays off maturing debt issued under the Federal Deposit Insurance Corp.’s Temporary Liquidity Guarantee Program. After that year, cash balances should be about $40 billion to $45 billion annually, the company said.
The division still plans to resume in 2012 an internal dividend payment to the parent company suspended in the midst of the financial crisis, Neal said, calling the plan “prudent” as maturities are paid off and regulations are firmed up.
In real estate, unrealized losses should be $5 billion to $5.5 billion, down from last year’s peak of about $7 billion, the company said. The company plans to make the real estate segment’s mix of businesses more conservative as it shrinks its assets.
GE Capital shouldn’t need a $2 billion capital injection next year that GE previously expected to provide, Neal repeated today.
The company, which will be regulated by the Federal Reserve under the new Dodd-Frank finance laws, has planned for possible requirements such as maintaining a tangible common equity ratio of 7 percent to 9 percent, Neal said.
The measure gauges financial strength based on capital and retained earnings, excluding intangible assets such as goodwill. The company should receive more details during the next two years, he said.