Yesterday we saw the annual report out of General Electric Co. (NYSE: GE), along with the letter from CEO Jeff Immelt. While we noted many issues that were broken down by segment with recent growth initiatives, there was one area noting the malaise in the current credit markets. Immelt noted that GE has no exposure to losses to CDO’s and SIV’s.
But here is where it gets interesting. Immelt noted, "We have retained a Triple-A rated balance sheet and generate substantial cash flow, so we can invest while others pull back." This was listed in the same area as the financial aspects of the business, so it would be interesting to know if GE wants to pick diamonds out of all the dirt that has been out. Additionally, Immelt noted that GE’s pension plans have $67 Billion of assets, with a surplus of $15 Billion.
If the company wants to use its surpluses, it could create an entity that could act as a serious vulture fund if it wanted to. Obviously it can’t go plunk down all of its surpluses and capital, but it could create an entity that could invest "very selectively" in distressed assets that may have a significant payoff down the road. Having one entity that it owns or even that it partners with wouldn’t jeopardize its Triple-A rating as long as it isn’t too aggressive and isn’t too large. With roughly a $340 Billion market cap, the question would ultimately boil down to how large an entity like that would have to be for it to be worth the time and effort.
Some people don’t like the vulture term, but it just so happens that we happen to like vultures despite any connotations. The company has its retail webcast today and we’ll be trying to get a question in around this.
Jon C. Ogg
March 13, 2008