GE (GE) has guts. And, that may be what it takes to keep the company’s revenue and earnings growing. It is preparing to lend money to more and more customers who want to buy its goods and services.
According to the FT, "General Electric is willing to extend more financing to customers of its industrial businesses next year to help assure key energy, transportation and water projects proceed even if credit markets remain frozen."
GE could originate as much as $150 billion in loans in 2009. It is a high-stakes game, but the conglomerate may have to play it to get Wall St. into its stock. The firm’s shares have dropped from over $38 to $14.45 in just a year.
The irony in the GE plan is that the market’s greatest concern about the company is the credit and liability exposure in its financial services arm. GE is prepared to increase that risk to accelerate earnings. Its large infrastructure units are doing well, but several other divisions including its industrial and medical devices arms are doing poorly. In a poor credit environment, GE needs to do something to help those operations grow.
Buying earnings with capital risk would seem to be a deal with the devil, but GE has put its reputation on its ability to keep growing. It has to back that up, even if it uses it own balance sheet to do it.
Douglas A. McIntyre