As expected, General Electric (GE) took the opportunity to warn on earnings at GE Capital. It said fourth quarter are heading toward the lower-end of its prior range, and forecasts earnings at $0.50 to $0.52 per share. It also announced plans to shrink its balance sheet and bring down leverage, and earnings, in 2009. The takeaway: nothing horrendous looming for GE.
This year GE Capital expects to earn $8 billion in 2008, compared to $18 billion for GE overall. Next year, GE Cap’s earnings are expected to shrink to $5 billion. But it expects to grow this revenue to more than double in 2010.
Keith Sherin, GE’s chief financial officer, reaffirmed his company’s commitment to both its dividend and its Triple A rating. Moody’s almost immediatedly affirmed GE Capital’s AAA rating and said the outlook is stable. That was probably a pre-arranged, coordinated move.
GE Capital said it isn’t planning on participating in the TARP, meaning it isn’t going to take a capital injection from the government. This is important because it means shareholders won’t have to worry about getting swamped by government preferred equity and allows GE Capital to continue to pay its dividend. Instead, GE Capital is relying on the government’s support of the debt market. It is participating in the Federal Reserve’s commercial paper backstop and the TLGP, which allows GE Capital to issue medium term debt backed by the US government. As GE Capital explained on the call, this means it has access to cheap money from people who used to buy “agency paper” (aka, debt issued by Fannie Mae and Freddie Mac).
This might be the first time we’ve seen a major financial company say it doesn’t need any TARP money and won’t take it.