General Electric Co. said Thursday it expects its struggling finance unit to be profitable in the first quarter of 2009 and for the full year.
GE is opening the unit’s books at a conference in an effort to convince investors GE Capital is sound despite a worsening economy that has squelched borrowing and pushed up delinquencies on credit cards and mortgages.
The Fairfield, Conn.-based conglomerate said it’s committed to GE Capital, and that it has enough capital to weather the economic downturn.
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GE Capital could earn up to $5 billion this year. But the company said that under a worse-case scenario for the broader economy, GE Capital may end up just breaking even.
“Recognizing the uncertainty of the current climate, we have stress tested GE Capital Finance using assumptions consistent with the Federal Reserve’s base case and a more severe adverse case,” GE Capital CEO Mike Neal said in a statement.
That severe case includes U.S. unemployment peaking at 10 percent and GDP declining 3 percent this year.
Worries over GE Capital have contributed to a plunge in GE’s share prices over the past year. Investors fear big losses may be looming in GE Capital’s units, which own commercial real estate, issue mortgages and provide lending for credit cards.
“Even in this difficult environment of credit pressure and declining asset values, we expect GE Capital Finance to be profitable in the first quarter and full year 2009,” GE Chief Financial Officer Keith Sherin said in a statement. “Our funding position is strong, having already completed 93 percent of (the) 2009 funding goal.”
The company said its liquidity position was “extremely strong,” but that the market remained difficult with macro-economic indicators deteriorating.
GE had previously forecast $5 billion in earnings this year for GE Capital. In 2008, GE Capital made up about half of GE’s overall earnings, but GE is restructuring the unit an expects GE Capital will eventually account for only about 30 percent of the total GE profit.