Has GE Capital Stopped Lending Entirely?

GE Capital (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 (WMT) and Lowe’s (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.

 

Comments

[Jimmy Lathrop:]

This is a problem with the 48 hour time lag of Seeking Alpha because last night Jeff Immelt reiterated that GE will continue lending to certain key industries.

2008 Nov 20 07:05 AM

[Skip Olinger:]

One GECC insider I know told me last month GECC was not entering into any new loans for the rest of the year. They were just honoring existing commitments. Suffice it to say, they have pulled back on lending significantly

2008 Nov 20 09:36 AM

[billddrummer:]

Hi Judy,

Thanks for this topic.

It may be a godsend for regional and local banks who have been unable to compete with GECC on terms, rates and structure. GECC typically took the best credits available from the pool of potential borrowers, largely because of its pricing power. GECC could fund credits with run rates 150 basis points less than a typical regional bank, in some cases. Meanwhile, this left regionals with lower-quality borrowers, who in many cases, were weaker credit risks that required more underwriting and monitoring skill for credit management. As a result, interest margins compressed, while back-end costs (monitoring, documentation, and the like) rose.

if this is true, and GECC is not aggressively getting back in the game until next year, it may spell a window of opportunity to pick up good credits at reasonable costs.

2008 Nov 20 11:14 AM

[SA Editor J...:]

Hi Bill,
I thought it was interesting that the regional banks are stepping in. Just a few weeks ago everyone was predicting their doom.
Thanks for your insight.
Judy

2008 Nov 20 01:13 PM

[Chris B:]

I bet USB is cleaning them out.

2008 Nov 20 03:53 PM