General Electric Co
The largest U.S. conglomerate believes its GE Capital finance unit is on track to hit its 2009 profit target of $2 billion to $2.5 billion set in March, company officials told investors on Tuesday. That would be down from about $8.63 billion in 2008.
We see a 2010 that is similar to 2009 from an earnings perspective, GE Capital Chief Executive Mike Neal told investors. Earnings should grow in 2011 and beyond.
GE Capital has cut its costs by $3.4 billion this year -- a 25 percent decline, Neal said. He also noted that GE Capital has cut its exposure to the commercial paper market to $50 billion at the end of the third quarter, down from $72 billion at the end of last year.
Concerns about the heading of GE Capital -- which started as a way to finance consumer and corporate purchases of GE-made equipment and expanded over the years into commercial lending and investing in commercial real estate -- have weighed heavily on GE's shares over the past year.
The company aims to cut costs at GE Capital by another 5 percent next year.
For the past year, GE has been working to scale back its finance arm, pulling back from certain areas, such as underwriting home mortgages in the United Kingdom and investing in commercial real estate.
GE Capital estimates its unrealized losses on real estate investments at about $7 billion and expects commercial property values to decline by 13 percent next year, executives said.
We believe we're being conservative and realistic on valuations, Neal said.
GE Capital plans to close out 2009 with $475 million to $485 million invested, down from $525 million at the end of 2008. It aims to prune its portfolio to $445 million to $455 million next year.
Neal repeated GE's prior statements that the parent company expects to inject $2 billion in capital into the finance arm in 2011.
Fears about how vulnerable GE Capital would be during a downturn helped push GE shares to an 18-year low of $5.87 in early March.
The shares have since recovered from that low and were off 2.4 percent at $15.69 in afternoon trading on the New York Stock Exchange, on a day that U.S. stocks were broadly lower.
The Fairfield, Connecticut-based company last year stopped providing per-share forecasts of its financial performance, instead offering investors a framework of how it expects each division to do. GE is scheduled to spell out its full 2010 framework at a briefing next week.
This is the third GE Capital-specific briefing GE has held this year in response to complaints that investors did not have a clear enough picture of what was going on inside the hefty division.
(Reporting by Scott Malone; Editing by Dave Zimmerman, Phil Berlowitz)