the leasing arm of General Electric, is planning to close
its important Bristol office, Jason T Hesse examines the future of
the financing giant.
GE Capital Solutions, the
European equipment leasing and financial services arm of General
Electric, will close down its Bristol office, according to industry
sources, as part of the company’s cost saving measures.
While refusing to confirm this, a
spokesperson did tell Leasing Life that GE Capital
Solutions will merge in 2009 with GE Commercial Financial Services
and GE Healthcare Financial Services.
Go deeper with GlobalData
Currently they form separate arms of
the Europe, Middle East and Africa division of GE Capital, General
Electric’s worldwide financing arm.
In December, Richard Laxer was
appointed head of this merged business. Laxer is due to announce
his new management team later this month.
The GE Capital Solutions business
includes the equipment financing division, as well as the inventory
finance, franchise finance and fleet services divisions. In the UK,
GE Capital Solutions employs around 350 employees between its
Bristol and Manchester offices. It is not known how many employees
would be affected by the expected closure.
Changes to UK
organisation
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By GlobalDataA strategic review of the
company’s European operations was started in the summer, with
around 200 employees being laid off in Switzerland. At the time, a
spokesperson for the company confirmed that a strategic review was
being carried out throughout Europe, and that “it would mean
changes to the UK organisation”.
A lack of availability of funds in the
market has hit the company hard this year and, as a result, GE
Capital is undergoing a radical restructuring exercise in which it
hopes to save $2 billion (€1.4 billion).
GE Capital is downsizing its workforce
as part of these measures, but refused to confirm how many
employees would be affected. It is speculated that worldwide, the
redundancies would be “in the thousands”.
The GE Capital Solutions business line
saw higher new business margins in 2008, up to 3.8 percent from 3.3
percent in 2007. This year, the company expects new business
margins to reach 4.5 percent, with a 21.8 percent return on
equity.
Leasing industry leaders are sceptical
about GE’s commitment to the leasing industry, however. According
to the CEO of one of GE competitors, GE Capital has essentially
pulled out of the European market, and his company is now in talks
with one of GE Capital’s major vendors.
“Even though they do not have a
problem with their leasing portfolio, they have just pulled the
plug across the board,” he said.
“GE being GE, they have adopted a
shut-down mentality, so we are definitely looking at some of their
portfolios right now.”
Towards the end of last year,
Leasing Life was also contacted by concerned brokers who
had received letters from GE telling them that the lessor would no
longer be accepting business from them.
Reorganisational
changes
While acknowledging that letters had
been sent out in the late summer, a spokesperson for the company
denied new letters had been issued.
“We are focusing on pan-European and
large local accounts,” the spokesperson said.
“The effect of the new strategy has
been some reorganisational changes throughout Europe – we are
looking into improving the efficiency of our business lines.”
The AAA-rated company has averaged a
15 percent earnings growth over the past 20 years, and aims to earn
$5 billion this year – well below the $9 billion it expects to have
generated in 2008, and the $10.3 billion in 2007.
In the 2009 Budget Outlook, GE
Capital’s global CEO, Mike Neal, explained that the business needs
to be repositioned as “a well-funded, but smaller financial
services company”.
While conceding that it was “the most
difficult market he had seen in his career”, Neal explained that
the company had a plan for the business to outperform in the market
this year.
Commenting on the announcements,
Richard Hofmann, an analyst at Credit Sights, said: “Referring to
GE Capital’s capital position as adequate, given its various risk
exposures, seems more in line with GE’s catchphrase ‘Imagination at
Work’ than grounded in credit crisis reality.”
The turmoil has led GE Capital to a
reassessment of its business model. Pre-credit crunch, the lessor
could use GE’s AAA credit rating to borrow at low cost and lend at
significantly higher rates. The financial crisis has tightened
credit markets, thus squeezing this lucrative process.
“That ability has fallen off and now
they are coming to the realisation that a fair amount of their book
no longer makes sense,” Hofmann continued.
GE Capital Solutions has long relied
on commercial paper to fund its business. The credit crunch has
dried up the commercial paper markets, effectively leaving GE with
a hole. The company is therefore shrinking its business and taking
steps to lower outstanding commercial paper to $50 billion, down
from $101 billion in 2007.
