General Electric reorganizes struggling GE Capital

WASHINGTON -- General Electric Co. said Tuesday that it is reorganizing its GE Capital unit to save $2 billion next year, a move the company said will lead to job cuts as it restructures and shrinks the size of the lending arm battered by the credit crisis.

In a video posted on the company's blog, GE Capital Chief Operating Officer Bill Cary said GE Capital, which provides commercial and consumer loans, has "evolved to the point where we think we are going to be smaller in 2009."

A special group will focus on reducing the company's holdings in areas that "don't meet our return hurdles," he said, but did not provide details on particular lines of business.

GE Capital will also reduce its work force, currently around 75,000 employees, by an unspecified number of jobs, Cary said.

"We clearly believe we are going to need less resources," he said.

The changes, which include establishing centers for GE Capital in Asia, the Americas and Europe, will take effect on Jan. 1. It will also have a unit focusing on banking and another on restructuring.

GE first announced changes to GE Capital during a company wide reorganization in July. The industrial powerhouse runs businesses touching on a wide-range of sectors in the U.S. economy, including health care, energy, aviation and entertainment through the NBC Universal division. As the economy has faltered, Fairfield, Connecticut-based GE has quit some riskier financial ventures, such as subprime mortgages and insurance.

GE Capital, which makes loans for everything from consumer car purchases to commercial energy projects, is expected to make around $9 billion this year. The company projects the financing division will provide around 40 percent of its overall earnings by the end of 2009.

But the ongoing turmoil in the banking and credit markets has been a blow to GE Capital. In October, the company said GE Capital posted a 33 percent profit decline in the third quarter, helping to drag down GE's overall quarterly results by 22 percent.

At the time, GE said it expected to earn more than $9 billion from GE Capital and between $19.5 billion and $21 billion overall for 2008.

The Federal Deposit Insurance Corp. has approved GE Capital to participate in a Temporary Liquidity Guarantee Program, which would give it backing for as much as $139 billion in short- and long-term debt. GE has also said it will tap a Federal Reserve short-term funding facility meant to prop up struggling lenders.

However, GE has chosen not to convert GE Capital into a bank holding company as other ailing financial institutions have done, saying its Triple-A credit raring makes such a move unnecessary.

GE CEO Jeff Immelt is expected to provide more detail on the changes Dec. 16, said GE spokesman Russell Wilkerson.

Shares of GE rose 7 cents in after hour electronic trading Tuesday after closing down 5 cents to $16.06.