General Electric, GE Capital and the Financial Crisis of 2008: The Best of the Worst in the Financial Sector?

Abstract

The financial services industry was, by definition, volatile, and GE Capital was particularly hard hit by the economic recession of 2008. With the credit markets illiquid and financial markets falling, GE Capital found itself overexposed to commercial real estate and foreign residential mortgages. At this point, GE’s parent corporation stepped in, began reorganizing GE Capital, and significantly downsized the unit. GE Capital sold most of its insurance lines, completely left the US mortgage market, and substantially tightened its consumer underwriting guidelines. However, the company still was on the lookout for underpriced assets and purchased several lending lines from even more troubled Citigroup and a large commercial real estate portfolio from Merrill Lynch financing. By 2012, GE Capital was smaller, leaner, and more focused on specialty financing, especially mid-market lending and leasing. However, like its parent company, GE Capital hoped to see continued sustainable growth earnings with growing margins and lower portfolio risk, as well as to return money to investors and resume paying dividends to its parent company.