Friday, September 26, 2008

MFP "Leasing News"

I picked this up on the RFG P4PHotel Site. I really had no perception that GE's porfolio was so huge and that they may have some serious issues.

This is perhaps one of the most important stories to come across, sent in by a reader.

Unfortunately, Leasing News has been unable to "confirm or deny" its accuracy. None of our sources want to respond "on" or "off the record."

From a reader:

“GE appears to have stopped accepting credits and will not fund future deals for an indefinite period....have you heard anything?“Team, My senior contact at GE finally got back to me. A few reasons why GE is exiting many finance sectors/customers:“1. The GE Capital Services / GECC $600 Billion portfolio represents 63% of GE's operating profit. They are directed to trim that portfolio by 10% over the next 3 years.........that's $60 billion of business!“2. GE issues 8% of the world's commercial paper....$100 billion currently outstanding on 30, 60, 90 day maturities.......that is rolled / extended routinely. The past 2 weeks the normal buyers turned into "redeemers" wanting cash instead of the investment. Hence, vastly reduced liquidity for GE and a significant rise in cost of funds.“3. Every GECC division has been told no more new deals....-0-.....nata........ for at least several weeks if not months. Will fund existing commitments.”

According to an article in the New York Times, "GE Capital Services, as the financial arm is called, holds the rest of the group’s top-notch businesses hostage...If there’s any lesson that Jeffrey R. Immelt, G.E.’s chief executive, might take away from the credit crisis, it’s that GE Capital’s financing needs could put the whole company at risk.

“Not that G.E. is in trouble. Though the stock was hammered last week, GE Capital easily managed to finance itself in the commercial paper market. It would, however, have been irresponsible for G.E.’s board not to ask: “What if GE Capital ran into a funding crunch?”
“At midyear, GE Capital had $695 billion of assets. A third of that was financed through short-term borrowing, including $100 billion in commercial paper. If that source shut down, G.E. would need to look elsewhere. In a real pinch, it might have to sell off assets — even industrial ones — at fire-sale prices…

“One solution would be to spin off GE Capital to shareholders, perhaps even as a bank holding company — the corporate structure Goldman Sachs and Morgan Stanley are now embracing. This would be complicated, and an independent GE Capital might need more capital than it has now to maintain its credit rating. But it could gain access to new sources of financing, and G.E.’s other businesses would be positioned to thrive without taint from the financial sector.”

New York Times Article

1 comment:

Greg Walters said...

Good Catch!

I had a client ask me some questions regarding Xerox and GE just yesterday...