Has GE Capital Stopped Lending Entirely?

by: Judy Weil

GE Capital (NYSE:GE) is both highly levered, and highly correlated to the consumer. It provides credit services and issues credit cards for major U.S. retailers like Wal-Mart (NYSE:WMT) and Lowe’s (NYSE:LOW) and other global retailers, consumers, and large lenders. The company plans to reorganize and cut significantly from its 75,000-strong work force.

GE Capital is participating in the FDIC's temporary liquidity program, which will back $139 billion in GE's short- and long-term debt. GE is also using the Fed's short-term funding facility. The company did not, however, become a bank holding company as others have done because it still has a AAA rating.

While it is widely understood that GE Capital is struggling, I was unable to find any official indication that GE Capital has stopped lending entirely to certain corporate clients.

But that may indeed be the case, and, interestingly, regional banks appear to be filling the vacuum. From Jack in the Box Inc.’s FQ408 conference call:

We have seen a significant pullback from GE Capital (GE) particularly. Many of our franchisees used them in the past but quite honestly it was fairly easy… Everybody is aware GE Capital is not actively lending until at least the end of the calendar year.

What that’s caused though is that many of our franchisees have gone and sought and actually secured financing from some regional banks. So I think what this is going to end up doing in the longer term is to provide a greater pool of available financing options for our franchisees even when GE Capital comes back in, and so as an example we’re anticipating three deals in Q1 which we all have letters of intent from lending institutions and one in fact has a letter of commitment already. All three are from new lenders.