The health of GE's capital arm impacts overall business
General Electric Co. stockholders were bullish on the company's plans to rein in GE Capital's investments in such businesses as real estate and commercial mortgages. The Fairfield, CT-based company announced its intentions at a briefing for investors on Tuesday.
As a result of this news, the stock climbed $2.11 or 13.6 percent, to close at $17.61 on the New York Stock Exchange Tuesday, December 2. GE shares have plunged about 52 percent this year, due to GE Capital's exposure to the stumbling credit markets. The stock jumped on Tuesday despite GE's announcement that it expects fourth-quarter earnings to be at the low end of its prior forecast.
GE said it was lowering its earnings forecast for the fourth quarter to 50 cents, from 52 cents a share, down from a September forecast of 50 cents to 65 cents a share. GE Capital was responsible for the company's 12 percent earnings slide this year, analysts say.
"Obviously, the macro environment remains very challenging," Keith Sherin, GE's chief financial officer, told investors. "We know that we have to reduce our cost structure in this environment."
While pondering a $5 billion capital infusion into the financial operation, Sherin also told investors that GE would lay off an unspecified number of employees and consolidate facilities in its finance unit, as well as in the company's industrial operations. Industrial products range from refrigerators to airplane engines.
GE's Sherin also told investors that he would keep his pledge to parcel out a 2009 dividend of $1.24 per share next year and also to maintain the company's triple-A credit rating.
GE is closely watched by the financial sector due to its reputation for soundness.