US Outlook: If there is a corporate metaphor for our intoxication with finance over the credit boom years, than General Electric is it. What started out as a small financial services division offering credit to homeowners who wanted to buy its appliances swelled and swelled until it was generating more than half the company's profits in 2007.
Obviously, it plunged to huge losses last year, on sub-prime mortgage lending, but results yesterday reveal that it is further from a return to health than many had hoped.
Jeff Immelt, GE chief executive, said he was shrinking the business quickly back down to size, but there should be more urgency, if not for GE's shareholders then for the financial system as a whole. GE Capital is just the sort of "too big to fail" institution that shouldn't be allowed to exist outside of a heavily regulated bank, yet GE's efforts at the moment are concentrated on (successfully) lobbying to fend off quick implementation of the new financial sector reforms, which could have forced it to immediately recapitalise and probably divest the division.
GE Capital was again the weak spot of quarterly earnings yesterday, and the company admitted that its commercial real estate investments were tacking close to the most adverse scenario imagined under the US government's "stress test". Its insistence that the business does not need to be recapitalised – with big dilution to GE shareholders – looked even more hollow last night than it did before. It certainly will need to be when the financial reforms are enacted and newly empowered regulators sweep through, and it is endangering the financial system while it remains so shaky and so reliant on wholesale funding markets. GE should face up to its responsibilities sooner rather than later.