Inside GE Capital

by Jerry Parrotto

Jerry Parrotto is the president of Xander Media Group and publisher of the Monitor, monitordaily, ABF Journal and abfjournal online.

Monitor and monitordaily publisher Jerry Parrotto offers insight into GE Capital’s Q3/14 earnings, which showed a marked decline in all but one segment.

Recently, monitordaily reported GE Capital segment results showed overall net earnings for Q3/14 were $1.492 billion, down 22% from $1.903 a year earlier. All financial segments – Consumer, Real Estate, GECAS and Energy Financial – were off, with the exception of GE’s Lending and Leasing (CLL) segment, which reported Q3/14 net earnings of $617 million, up 29%, or $138 million, from $479 million last year. Assets attributable to CLL were shown to be $170.5 billion – essentially the same as last year – and represented 33.7% of GE Capital’s total segment assets of $506.9 billion, which were down 3%, or $13.8 billion, from $520.7 billion in Q3/13. GE said its ending net investment (net of cash and equivalents) of $364.8 billion was down $19.0 billion from $383.8 billion at quarter-end Q3/13. Earnings In a separate presentation, GE showed that its GE Capital segment revenue and profit of $10.45 billion and $1.49 billion, respectively, in Q3/14 were off 1% and 22%. More significantly, and in line with recent news reports, GE Capital’s earnings ($1.492 billion) represented 25.6% of GE’s reported Q3/14 profit of $5.823 billion. Industrial vs. “Diversified Financial” Recently, in an interview regarding the IPO of GE’s North American Retail Finance business, Synchrony Financial, GE CEO Jeff Immelt was quoted as saying, “The IPO furthers our goal to position GE Capital as a smaller, safer specialty finance leader and achieve 75% of our earnings from our Industrial business by 2016.” Based on the forgoing recently released Q3/14 earnings release, GE seems to be well on its way to achieving this objective. And, as an interesting aside, Fortune magazine continues to refer to General Electric as a “Diversified Financial” in its Fortune 500 report – ranked no. 9 overall, GE is ranked no. 1 ahead of no. 2 Fannie Mae and no. 3 Freddie Mac. Net Interest Margin GE also noted that GE Capital’s net interest margin was 5.0%, which compares favorably with many of the larger banks. In recently released Q3 earnings reports, almost all of the major banks are reporting year/year net interest margins have slipped into the low 3.0% range. A few representative examples include the following: Wells Fargo @ 3.06%, down from 3.39% Y/Y; SunTrust @ 3.03%, down from 3.19% Y/Y; People’s United @ 3.05%, down from 3.30% Y/Y; Fifth Third @ 3.10%, down from 3.31% Y/Y; PNC Financial @ 2.98%, down from 3.47% Y/Y; and KeyCorp @ 2.96%, down from 3.11% Y/Y. Credit Quality Regarding asset quality, GE notes that overall nonaccrual assets of $6.2 billion at Q3/14 represented 2.56% of finance receivables compared to $10.9 billion or 4.23% quarter end 2013. Net charge-offs of $871 million represented 1.42% of total finance receivables and were down from $912 million a year earlier. CLL segment net charge-offs were $116 million in Q3/14 and represented 0.42% of finance receivables compared to $95 million or.33% of finance receivables at Q3/13. Stay tuned to monitordaily as more Q3/14 results from the industry’s biggest names are analyzed and reported.

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