GE chief remains upbeat amid 'tough commercial cycle'

UPBEAT MESSAGE: GE's CEO Jeff Immelt has said investors should not be worried about expected write-offs. (Getty Images)

General Electric (GE) CEO Jeff Immelt said on Monday the conglomerate’s financial arm, GE Capital, was adequately reserved against possible outstanding loan defaults and would turn a profit this year.

While he admitted that write-offs of debts owed to GE would be "very high" in 2009, he said investors should not worry.

Immelt, in an interview with CEO Middle East magazine in Qatar, also said he had no intention of resigning despite the company share price falling more than 80 percent since he took on the job as CEO.

Asked how much of the $523bn in debt owed to General Electric at the end of 2008 he expected the company would have to write off, Immelt said: “Look, I think our assets are shrinking, and I would say the write offs will be very high this year. We are in a very tough commercial cycle.”

However, he added: “Look, we earned $9bn last year. We were conservative underwriters...we had a much more conservative underwriting policy than banks. So people needn’t be as worried as they are.

"I know what I am worried about because I have always been part of the underwriting business and I have seen it happen. The biggest job we have right now is convincing investors that there is no black box, that there are no substantial issues, that we can withstand the Federal Reserve adverse stress case just fine. And those are the things that we are going to do.”

Immelt replied “yes” when asked separately if GE Capital had adequate reserves to cover possible defaults, and if it would turn a profit in 2009.

Asked if GE Capital’s target operating profit would imminently be slashed from $5bn as some market analysts predict, he added: “I don’t know. We don’t give guidance anymore. It is hard to slash a target when you don’t give financial guidance.”

He said the subject would be discussed at a meeting with investors scheduled for this Thursday.

Speaking about General Electric’s recent downgrade by ratings agency S&P from AAA rated to AA+, Immelt said: “I would say that AA+ is still a very high rating. The debt in GE Capital hasn’t traded like a AAA in the last five years, maybe longer. So the cost of funds really aren’t going to go up because of this.

"Our commercial paper has come down substantially from $100bn to $50bn, by the end of this quarter. So we will compete in places that banks really don’t compete. When I look at what we are underwriting today, it is very profitable.”

He added the prospect of GE’s manufacturing and financial arms separating to form distinct companies was “unthinkable” to him.

Immelt, who has seen the share price of General Electric drop by more than 80 percent since taking over as CEO from Jack Welch on September 7, 2001, and who this year presided over the first cut to the dividend paid to shareholders since 1938, said he was not contemplating resigning.

He said: “Look, I work without a contract. I think it is purely up to the board. What I would say is that earnings growth since I have been CEO has been as high or higher than my predecessor, or at any other time in GE’s history.

"We have generated a lot of cash and turned it back to investors. The S&P 500 is below where it was in 1997, it has been a bear market, and GE, particularly because of our financial exposure, has been a part of that. But we’ll earn $170bn this decade.

"Even last year, only four companies in the world earned more than GE did, all oil companies. So in the end, if you are going to judge someone by financial performance, I think GE stands up pretty well against anyone else.”

He added that the decision to cut the dividend, after going on record to say he wouldn’t, had been “horrible".

“Look, we have a big retail investor base, we had enough cash to pay the dividend, we had plenty of cash. We haven’t been the only company to slash the dividend.

"In the end, would investors want a consistent dummy, someone who said ‘I am not going to change my mind no matter what happens in the world,’ or someone that is in the game, willing to make decisions based on new information, and willing to drive change?” he said.

Asked if the GE group would turn a profit in 2009, Immelt said: “We will turn a huge profit in 2009. Massive.” Pushed on whether it would be over $10bn, he replied “probably.”

The rest of the interview will be carried in April’s CEO Middle East magazine.

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