GE Is No Longer a Financial Company

General Electric (GE) has spent the past 18 months operating under the stigmatic label of "financial company". During the real estate boom such a label was entirely appropriate, as operating earnings from the Consumer/Commercial Finance segment routinely represented 40-50% of GE's consolidated net income. Now however, as evidenced by the revenue and profit breakdown charts, the Company has already begun to take the form of an Infrastructure conglomerate that happens to have a finance unit. Within the context of many investor's vision of the progression of the global economy, a Company described by the terms above would be exceedingly well positioned to capitalize on the future "building of the world". GE's capacity for future growth could be hindered by larger than expected losses at GE Capital. However, based upon our interpretation of the most recent detailed disclosures pertaining to that unit, there is reason to be optimistic.

On March 19,2009, GE released an 88 page presentation that detailed GE Capital's commercial real estate, mortgage and consumer exposure. The segment's $81B commercial real estate holdings - split fairly evenly amongst debt and equity - are well diversified across all property types. In the debt arena, GE holds a first position lien in the majority of instances. When the Company assumes an equity position in a property, it does so primarily as the owner/operator without the use of any 3rd party debt. This is an extremely advantageous position to be in, as GE has the flexibility to manage it's leases and cash flows without the burden of debt service. Yes, GE Capital will face further real estate related losses. However, the manner in which GE has typically financed it's holdings should give it an edge over other traditional financial institutions.

General Electric is perfectly positioned, we believe, to profit from two major trends that are unlikely to be derailed.

First, is the United State's movement towards the adoption of cleaner energy technologies. On this note, the Company has already developed an Integrated Gasification Combined Cycle (IGCC). This process converts coal into a fuel that when burned, emits 50% less sulfur and other particulates than if not treated. Additionally, GE already offers wind,solar and nuclear power products.

Second, is what we simply refer to as the "building of the world". Power grids, clean water, and the inexpensive transport of goods through rail systems are all components necessary for the support of growing middle classes in the developing world. GE happens to offer products and services in all of these areas.

Without a doubt, problems linger on at both GE Capital and in the financial system at large. This fact may though have blinded many to GE's unique positioning as a Company which provides essential services to a growing world. As the problems at GEC are worked away over time, the trend that has already begun will become increasingly apparent: GE is no longer a financial company.

*long GE

Ge Capital Mar19-09 Presentation Sphere: Related Content