GE Committed to Keeping Finance Division Intact, Sherin

July 17 (Bloomberg) -- General Electric Co. is committed to keeping its finance arm and expects to be able to fund the unit once a U.S. government bond-insurance program expires, Chief Financial Officer Keith Sherin said in an interview.

GE Capital, which is shrinking its balance sheet, has issued about $9 billion in bonds so far outside the Federal Deposit Insurance Corp. program, the most of any company, he said. Known as the Treasury Liquidity Guarantee Program, it expires in October.

“That’s more than any other issuer for long-term debt,” Sherin said in an interview. “We’ve made so much progress strengthening GE Capital.”

GE said today that profit at the finance arm declined 80 percent in the second quarter as the first global recession since World War II slashed consumer spending and real estate markets collapsed. GE remains an important source of lending to small and medium-sized businesses in the U.S., Sherin said on a call today with investors. The unit lent $69 billion in the first half of 2009.

It’s too early to tell whether the company will gain any business if New York-based CIT Group Inc. files bankruptcy, he said. CIT, a 101-year-old commercial finance company whose customers including Dunkin’ Brands Inc., said yesterday it’s “continuing to evaluate alternatives” after failing to receive federal guarantees for its bonds.

Unlike CIT, GE doesn’t provide factoring financing, or cash used by vendors to produce goods that retailers typically pay for later, usually within 90 days. GE does compete with CIT in offering loans to smaller companies and leasing planes.

‘Some Opportunities’

“There are some opportunities where we do have overlap,” Sherin said on the investors call. “We’ll have to wait and see how that plays out.”

The company, which isn’t a bank holding company and didn’t take money from the Federal Reserve’s Troubled Asset Relief Program, can take advantage of two government programs. In addition to using the FDIC bond-insurance, GE can sell into the Commercial Paper Funding Facility set up by the Fed, which it tapped once.

GE has already issued about $12 billion in notes, or about a third of the $35 billion to $40 billion it plans to refinance in 2010. The company has “prefunded” all of the $45 billion it planned to refinance this year.

The company remains “extremely committed” to keeping GE Capital, Chief Executive Officer Jeffrey Immelt said on the call with investors today, even as proposals that may force the separation of the parent and finance unit begin to work their way through Congress.

GE Capital Partner

In the interview, Sherin said he isn’t working on a scenario that would include giving ownership of the majority of GE Capital to a joint venture outside the parent company. Nicholas Heymann, a New York-based analyst with Sterne Agee & Leach Inc., expects GE to seek a partner for all of GE Capital in the second half of next year, he said in an interview with Bloomberg Radio.

GE doesn’t think it’s being targeted by President Barack Obama’s proposed law strengthening financial regulations. The company is fighting for so-called grandfathering that would allow the parent company to keep its finance arm even if the final version of the law is written in a way that would apply to GE, General Counsel Brackett Denniston said on the call. GE favors the proposed law’s broad themes on systemic regulation, Denniston said.

“GE has benefited from government assistance in the form of liquidity provisions” under the FDIC insurance program, said Gary Jenkins, a credit strategist at Evolution Securities in London. “In order to restore themselves to independent good health, they require no further economic shocks that would negatively impact their business.”

Commercial Paper Balances

GE has reduced its commercial paper balances to $50 billion from about $74 billion at the beginning of the year, ahead of schedule, the company said today.

Profit from GE’s continuing operations declined to $2.87 billion, or 26 cents a share, from $5.39 billion, or 54 cents, a year earlier, the company reported today. Analysts’ average estimate was 24 cents a share.

GE fell 75 cents, or 6 percent, to $11.65 at 4:01 p.m. in New York Stock Exchange composite trading, the most since April 9. The shares have gained 8.1 percent this week and are up from $5.73 on March 4, the lowest intraday price since December 1991.

Souce: bloomberg.com