GE Capital

Document Sample
GE Capital Powered By Docstoc
					GE Capital
Mike Neal


June 4, 2010
This document contains “forward-looking statements”- that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future
business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” or “will.” Forward-looking statements
by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our
forward-looking statements include: the severity and duration of current economic and financial conditions, including volatility in interest and exchange rates, commodity and equity prices and
the value of financial assets; the impact of U.S. and foreign government programs to restore liquidity and stimulate national and global economies; the impact of conditions in the financial and
credit markets on the availability and cost of General Electric Capital Corporation’s (GECC) funding and on our ability to reduce GECC’s asset levels as planned; the impact of conditions in the
housing market and unemployment rates on the level of commercial and consumer credit defaults; our ability to maintain our current credit rating and the impact on our funding costs and
competitive position if we do not do so; the soundness of other financial institutions with which GECC does business; the adequacy of our cash flow and earnings and other conditions which
may affect our ability to maintain our quarterly dividend at the current level; the level of demand and financial performance of the major industries we serve, including, without limitation, air
and rail transportation, energy generation, network television, real estate and healthcare; the impact of regulation and regulatory, investigative and legal proceedings and legal compliance
risks, including the impact of proposed financial services regulation; strategic actions, including acquisitions and dispositions and our success in integrating acquired businesses; and numerous
other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may cause our actual future results to be
materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.”

“In this document, “GE” refers to the Industrial businesses of the Company including GECS on an equity basis. “GE (ex. GECS)” and/or “Industrial” refer to GE excluding Financial Services.”




GE Capital summary
                   GE Capital has a strong and advantaged business model

                   Have strengthened our liquidity position

                   Strong risk practices … underwrite to hold on our balance sheet

                   Portfolio margins improve in 2010

                   Losses have peaked and Real Estate risk is manageable

                   Supportive of regulatory reform, preparing for more oversight

                   Profitable


                                                         Solid, long-term value creation


                                                                                                                                                              CFPA1537 Bernstein _ June, 2010            2
Risk: GE Capital retrospective
           Core competencies                                      What we don’t do
   + Underwrite to hold/senior secured           • Did not originate CDOs, SIVs, etc.
   + Domain expertise/asset operator             • Did not sell credit default insurance
   + Broad spread of risk                        • Do not trade securities… minimal MTM
   + Not a trader… avoided exotics               • Do not originate mezzanine
   + Match funded                                • Do not originate high yield debt/bonds
   + Strong brand… high rating


            Successes in crisis                                        Learnings
      Raised FICO cut-offs early (in 2007)         Overall size too big/CRE
      High collateral recoveries                   Liquidity back-up… system failure
      Residual realization at ~120% vs. ’08        Markets want more disclosure
      Early to exit LBO, CMBS, U.S. mortgages
      Portfolio insulated from rate swings


                                    Safer and lower risk

                                                                                 CFPA1537 Bernstein _ June, 2010   3




GE Capital business model
                  Advantage                          Pre-crisis                  Today
                                                  • Largest direct         • Still largest direct
 1• Substantial origination capability              origination team         origination team

 2• Deep domain expertise                         • Advantaged in key      • Growing advantage
     – Healthcare, Energy, Media, Aircraft          verticals


 3• Experts at collateral/asset management        • Strong residual        • Strong collateral and
                                                    realization              residual realization

 4• Experienced, disciplined risk management
    and capital allocation                   • On balance sheet            • Core to business model
     – Spread of risk, secured                 underwriting


 5• GE operational headset & tools                • Scale focus            • >25% lower costs


 6• Match funded                                  • Core value             • Important differentiator



                                   Well positioned to compete


                                                                                 CFPA1537 Bernstein _ June, 2010   4
GE Capital franchise… CLL Americas
($ in millions)
                       Net Income                            World class offering
                                                                          Healthcare
                                                        Sponsor                    Equipment
              $1,194                                                               Finance



                          $659                                                                              Corp
                                               Inventory Finance
                                                                   Leading provider of                   Finance
                                                                      senior secured
                                                                   financing to middle
                                    $249                           market companies
                                                                                         Fleet
                                                           Bank Loan                     Services
                                                             Group
                                                                       Franchise

               TY'08      TY'09     1Q'10
   ENI ($B)     $125      $108       $115

              • Leasing and lending against hard, foreclosable assets
              • Organized by product & industry
              • Spread of risk through over 400K customers and dealers

                         Disciplined underwrite to hold approach


                                                                                       CFPA1537 Bernstein _ June, 2010   5




GE Capital franchise… GECAS
($ in millions)
                  Net income                                Current environment

              $1,140                         • Airline traffic recovering: emerging
                                               markets/short haul faster than
                         $1,016                developing markets/long haul

                                             • Market remains competitive –
                                               traditional players in flux … Asian
                                               players active
                                    $317
                                             • Maintained strong skyline … 3 AOG;
                                               new order placement 100% 2010, 68%
                                               2011
               TY'08      TY'09     1Q'10    • Portfolio holding … non-earnings down
   ENI ($B)     $39       $40        $40       50% to $77MM, delinquencies at 0.7%


                       Excellent management through a tough cycle


                                                                                       CFPA1537 Bernstein _ June, 2010   6
 GE Capital franchise… Retail Finance
                  ROA – Industry vs. Retail                                                Key differences vs. industry
                              (Post-Tax ROA; ’04-’13)                                                1Q’10, Percent, pretax ROA                    GE +3.5%
                                                                                               2.8%              ROA–a)                             ROA vs.
                                                                                                                                                  competition
     4.0%
                                                                                                            (3.8%)        (2.8%)         (0.8%)

                                                                                                                                          Big
                                                                                                                                        Bank #3
     3.0%                                                                                                                   Big
                                                                                                            Big           Bank #2
                                                                                                          Bank #1
                                                                                                                                                  GE +14% vs.
     2.0%                                                              GP Cards 1                                    CV                           competition
                                                                                              16.6%
                                                                                                                          14.3%          15.4%
                                                                                                            11.4%
     1.0%


                                                                                                            Big             Big           Big
     0.0%                                                                                                 Bank #1         Bank #2       Bank #3

               '04 '05 '06 '07 '08 '09 '10 '11 '12 '13                                                      Charge Off %                          Competition
                                                                                                                                                  NCO +17%
    -1.0%                                                                                                                 13.5%
                                                                                                            11.6%                        11.8%
      1
       McKinsey Payments Practice forecast – Base case , historical; Federal                   9.8%
      Reserve Credit Card Industry Statistics; company annual reports


                                                                                                            Big             Big           Big
     -a) Excluding reserves                                                                               Bank #1         Bank #2       Bank #3

                                                     GE continues to outperform


                                                                                                                                   CFPA1537 Bernstein _ June, 2010   7




 Safe & secure
($ in billions)
Long-term debt funding                                 GECS commercial paper                                              Leverage–c)
    $84–a)                          Target                                                                   7.7:1
                     $70–b)       $20-25B ’11                 $72                                    GECS
                                  pre-funding                                                                                5.5:1           5.8:1
                                                                               $47       $46
                                                                                                     GECC    7.1:1                                         4.9:1
                                                                                                                             5.2:1           5.5:1      ex-FAS 167
                                      $8

      '08              '09            '10                    4Q'08             4Q'09    1Q'10                4Q'08           4Q'09           1Q'10
  (a- Includes $13B ’09 pre-funding                                                                         (c- Net of cash & equivalents with hybrid
  (b- Includes $38B ’10 pre-funding                     Cash & backup bank lines ~2.5X CP                   debt as equity, ex-non-controlling interests

           Tier 1 common ratio                             7.8%                        GECC ending net investment                                    ~$25B
                                                        ex-FAS 167                                                                                   per year
                              7.6%          7.8%                                            $538              $(22)                $516
            5.7%                                                               $472          66–f)                                                 ~$440
GECC                                                                                                          FX ($6)
                               6.6            6.8
GECS          4.7
                                                                           4Q’09–e)         1/1/10          Business               1Q’10            2012E
GECS     4Q'08                4Q'09         1Q'10                                                           reduction
equity–d) $53                   $71           $69                      (e- Capital Finance at 4Q’08 FX
(d- Before non-controlling interest                                    (f- Recast for FAS 167 $37, 4Q’09 FX $21 & 1Q’10 HQ ENI $8, excluding cash


                                            Strong liquidity and capital positions
                                                                                                                                   CFPA1537 Bernstein _ June, 2010   8
 Volume and margins
 ($ in billions)
                                                         2009
Global volume (includes flow)                      Commercial margin-b)
                                                                              4.6%

                                                         2.9%
         $313B                                                                                             Portfolio
Int’l.    167                                                                                            margin trend-b)
                                                                                                  5.7%                       1Q
                                                       Run-off           New volume                       5.4%             margins
                       U.S. small                                                                                          ~5.0%
                                                                                                                                   ~5.0%
                      and medium                           2009                                                   4.8%
                      businesses-a)                  Consumer margin-b)
                                                                             12.2%                                        4.6%
 U.S.     146
                         $41B                            8.9%
                                                                                                  2006   2007    2008     2009 2010F




                 2009A                                 Run-off           New volume
 a) - Businesses with annual revenues <$50MM    b) - CV ex-gains; ex-Restructuring operations


                                        Portfolio margins expand in 2010

                                                                                                            CFPA1537 Bernstein _ June, 2010   9




 Losses and impairments
 ($ in billions)
                                ~$19.0                                                            Dynamics

                                                                                      Strong work out, collections and
                                                                                      collateral capabilities
          ~$13.6
                                                        ~$12.0                       Better              • U.S. Consumer
                                                                                                         • U.K. Mortgage

                                                                                     ~Base case          • Commercial loans
                                                                                                           and leases
                                                                                                         • Global Banking

                                                                                     Still challenging • Commercial
           2010                2010                    1Q                            but improving       Real Estate
            Fed                 Fed                   2010
         base case          adverse case            annualized


                                               Expect lower losses in 2010


                                                                                                           CFPA1537 Bernstein _ June, 2010    10
GE Capital portfolio quality
($ in billions)
                   30+ delinquencies                                                        Drivers

                  8.77%      8.82%         8.85%    8.72% Consumer              Equipment delinquencies better…
  8.25%
                                                                                down two consecutive quarters
  2.84%                       3.01%
                                                         Equipment
                  2.78%                     2.81%    2.71%
                                                                                Consumer delinquencies better…
  1Q'09           2Q'09       3Q'09         4Q'09    1Q'10                      strong improvement in North
                                                                                America Retail and U.K. home
                          Non-earnings                                          lending

               4.75%       4.81%         4.94%      4.75%
  4.24%                                                     Consumer            Real Estate delinquencies up…
                                                          Equipment             pace of valuation declines
                              2.86%         2.98%    2.86%
  2.27%           2.45%                                                         moderating
  1Q'09           2Q'09       3Q'09         4Q'09    1Q'10




              Coming through a tough environment … signs of stabilization


                                                                                                CFPA1537 Bernstein _ June, 2010   11




Commercial Real Estate
 Levers ($MM)                 1Q’10        Status vs. ’09              Unrealized equity loss (Est.) ($B)
  NOI                         $1,488
   (pretax, annualized)


  Debt margin                  $219
   (pretax)
                                                                                    ~$(1)    ~$1-1.5
                                                                        ~$(7)                          ~$(6.5)-(7.0)
  Gains                            $38
   (net)                                                                 2009       Value    Losses/     2Q’10
                                                                       estimate    decline depreciation estimate
  Depreciation/               $1,075
  losses
   (pretax)                                                               • Value declines moderating
                                                                            over last 6 months
  Occupancy                    79%
                                                                          • Loss run rate at Fed adverse
  Leasing                          7.2                                    • Property level execution focus
   (MM sq. ft.)



                    Realistic about valuations…managing through cycle


                                                                                                CFPA1537 Bernstein _ June, 2010   12
Europe
($ in billions)
            GECC exposure (assets)
                                                                    ~75% secured lending
           $13.4                                                    – Equipment
Consumer           0.1
                                                                    – Mortgage
                                                                    – Auto
Commercial 13.3
                                                                    No major concentration risk
                         $7.4
                                                                    Minimal direct sovereign exposure
                          3.8

                                                                    Italy: primarily Interbanca commercial
                                  $2.8                              assets
                                   1.0
                          3.6             $1.2                      April delinquencies down ~10 bps.
                                   1.8           0.3   $0.6 0.3
                                           0.9              0.3     vs. 1Q’10
           Italy         Spain   Ireland Portugal Greece


                                 Limited exposure … manageable risk


                                                                                           CFPA1537 Bernstein _ June, 2010   13




Regulatory reform
            Key areas of legislation                                         GE position
       1     Fed as consolidated supervisor                • Regulated today… preparing for increased
                                                             oversight

       2     Resolution authority                          • Improves system; Priority of lenders should be
                                                             respected… predictability

       3     Derivatives                                   • More transparency a good thing
                                                           • We use derivatives to hedge risk… should not
                                                             be penalized

       4     Consumer protection agency                    • A good thing; Working closely with our
                                                             partners
                                                           • Pre-emption important

       5     Volcker Rule                                  • Not a proprietary trader … expect impact to be
                                                             manageable

                          GE Capital supportive of systemic regulation
                                … preparing for more oversight

                                                                                           CFPA1537 Bernstein _ June, 2010   14
2010 outlook
            Outlook
            vs. plan              Dynamics                                          ’10 vs. ’09
Revenue       =/-      • Ahead on ENI reduction plan
                                                            Commercial                    ++
                                                            Lending & Leasing
Margins       +/=      • ROIs holding ~3%
                       • Volume up ~20% vs. ’09             U.S. consumer                 ++
Losses         +       • Better… RE as expected
                       • Lower delinquency rates            Global banking                 +

Expenses       +       • Continued execution                U.K. mortgage                  +


Pre-tax        +       • Better                             Verticals                      +

                                                            CRE                          –/=
Earnings       +       • Better


                                  Trends improving


                                                                            CFPA1537 Bernstein _ June, 2010   15




Focused & profitable GE Capital
            2010 dynamics                                   Strong franchise

   Funding on plan



   High-margin origination



   Delinquencies have stabilized
                                                   + Direct origination … domain based

                                                   + Industrial skills … ACFC
   Reserve coverage near all-time highs
                                                   + Risk & asset management

                                                   + Attractive markets
   Capital ratios improving
                                                   + Less competition


                                                                            CFPA1537 Bernstein _ June, 2010   16

				
DOCUMENT INFO