NEW YORK (Reuters) - General Electric Co expects GE Capital to be profitable this year, though if the economy deteriorates to the Federal Reserve’s adverse case, the finance unit could post break-even results, executives said.
Stress-testing based on the Fed’s base-case scenario for the economy shows profit could come to $2 billion to $2.5 billion, Michael Neal, the chief executive of GE Capital, said on Thursday.
“Even in the adverse case we’re probably break-even to slightly profitable,” he said,
In December, the U.S. conglomerate had forecast that the GE Capital unit would earn about $5 billion in 2009.
The company plans to use some of its $60 billion in capacity left under the U.S.-government backed Temporary Liquidity Guarantee Program to pre-fund debt due to mature in 2010, said Treasurer Kathy Cassidy.
The world’s largest maker of jet engines and electricity-producing turbines has run extensive stress tests on GE Capital’s portfolio and found that even in its worst-case scenario GE would not see itself needing to raise capital, Chief Financial Officer Keith Sherin said.
GE Capital, which has businesses ranging from investing in commercial real estate to financing sales of heavy equipment made by the U.S. conglomerate, last year recorded profit of about $8.6 billion, about 33 percent of the GE total.
Shares of the Fairfield, Connecticut-based company rose 62 cents, or 6 percent, to $10.94 on the New York Stock Exchange.
Concerns over how well GE Capital is reserved against an expected rise in defaults, as the slumping economy makes it harder for consumers and businesses to pay back loans, have hammered the company’s shares. GE’s stock is down about 71 percent over the past year, a steeper slide than the 38 percent fall of the Dow Jones industrial average.
GE last month cut its dividend by 68 percent in a move to conserve cash. As of March 10, it had raised $40 billion of the $45 billion it had planned to seek on debt markets in 2009.
Standard & Poor’s last week stripped GE of its “AAA” credit rating. Some investors took its one-notch cut as a sign that there were no major surprises lurking in GE Capital.
Reporting by Scott Malone, editing by Gerald E. McCormick, Dave Zimmerman