That legacy left our major industrial giants with massive finance arms: not just the automakers, but places like GE, which was regarded as an interesting, even an innovative, place to get a finance job when I was in business school. GE never reached the same dependence on financing than GM did, which was often aptly described over the last decade as "a bank with a sideline in cars". But its profits were swollen by finance earnings . . . and now, like the other industrial giants, all that financial business is turning into a wee bit of a problem:
The conglomerate, which has industrial, financial and media operations, posted fourth-quarter net income of $3.72 billion, or 35 cents a share, down from $6.7 billion, or 66 cents a share, a year earlier. The latest results include $1.5 billion of restructuring and other charges, mainly related to GE Capital, but also a sizable tax credit.
Earnings from continuing operations were 36 cents a share, down from 68 cents the prior year. Last month, the company backed its downbeat view of 36 cents to 42 cents. Revenue fell 4.8% to $46.21 billion. Analysts polled by Thomson Reuters most recently expected earnings of 37 cents on revenue of $50.49 billion.
GE Capital turned in $383 million in profits, down 88%. Its revenue fell 18%. The unit said earlier this month that it would cut 7,000 jobs, or about 10% of its work force, according to a report on CNBC. GE hasn't confirmed the number of layoffs, which it had signaled in November in saying it would save about $2 billion this year as it shrinks the unit.
Of course, that's nt the only problem area:
The consumer and industrial business saw earnings plunge 86% as revenue fell 17%. Last month, the company called off a sale or spinoff of the unit, which includes light bulbs and appliances. The company affirmed a December projection that its industrial units would see sales growth of zero to 5% this year.
Many of GE's other products are dependent on consumer access to credit, even if GE isn't providing it. And the problems, especially at GE capital, are threatening GE's own AAA credit rating, which is a major strategic asset.
Even considering the gloom we should remember they still made money. A lot of money.
Most of their rivals didn't.
But the tide does matter. A collapsing global economy can eventually get them too.
More importantly, most assets can't be accurately appraised now, so we can't be too confident when reading income statements or balance sheets.
The horror of not knowing has been a big factor in paralyzing economic activity. Why lend when you can't know what the collateral is worth? Why extend credit when you have no faith in credit ratings?
At the micro level. Why purchase when you have no idea what your job will be worth tomorrow.
On the plus side, they just sold several billion dollars' worth of generators to Iraq.
Back in the day they (GE Capital) made a fortune in the "credit crunch" of the early 1990s. They agrressively bought distressed financial assets. Their current business is cookie cutter consumer credit (supporting department store credit cards, etc)
They need to get aggressive and sharp again. There's a fortune to be made out there.
Am I the only one that hears "GE - We bring good things to life", and think of an endorsement from Dr. Frankenstein?