DealZone

GE’s Immelt’s subtle defense

June 26, 2009

General Electric Co Chief Executive Jeff Immelt went to Michigan, the bleeding heart of the U.S. industrial heartland, on Friday to call for a resurgence in American manufacturing.Jeffrey R. Immelt, Chairman and CEO of General Electric, speaks after being honored by the national non-profit group "A Better Chance" in New York
But even as he warned against relying too heavily on the financial industry to drive economic growth, he subtly set up a defense of the largest U.S. conglomerate’s hefty finance arm.

Analysts and investors are worried that the Obama administration’s proposed overhaul of U.S. financial regulations could force GE to spin off GE Capital, which has businesses ranging from leasing jet planes to investing in commercial real estate.

“We also need a financial system that is built around helping industrial companies to succeed,” Immelt told the Detroit Economic Club. “GE is an important part of this financial services approach. We plan to focus GE Capital on financing small- and medium-sized customers in industries that we know the best.”

He said that after first contending that the U.S. had come to rely too much on Wall Street wizardry and consumers who spend more than they earn to drive prosperity. Disparities in pay reflect that imbalance, he said.

“You know something is wrong when a mortgage broker is pulling down $5 million a year while a Ph.D. chemist is earning $100,000,” Immelt said.

Immelt did not directly address the proposal on Thursday. But earlier this week, he told GE employees that the largest U.S. conglomerate would fight any effort to force it to separate GE Capital from its industrial core.

Several analysts this week warned that the administration’s current proposal, which would prevent large financial institutions from having nonfinancial operations, would likely require such a separation. However, they pointed out that even the current proposal — which would be subject to negotiation in Congress — allows a five-year grace period.

“The government is unlikely to do anything to cause major disruptions to a huge company like GE until the market recovers significantly, especially since GE has not been blamed for any problems in the financial system,” wrote BernsteinResearch analyst Steven Winoker, in a note to clients.

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