General Electric (NSE: GS) says that profits from its lending arm, GE Capital, will improve by 2011.
Before GE Capital returns to a state of profitability, it has many hurdles that it needs to clear, including the unit’s exposure to commercial real estate loans that are likely to generate losses. The lending arm has a significant portfolio of bad loans in commercial real estate, including office buildings. The recession has lead to significant amounts of vacancies of large commercial buildings like the ones that GE Capital is lending to.
GE Capital’s commercial real estate losses for 2010 will likely rise to $2.9 billion, up from just $2.1 billion in 2009. The bank believes that commercial real estate values will likely fall another 13% next year, but says that GE Capital will have profits between $2 billion and $2.5 billion next year, however those should rise by 2011 as the company continues to shrink the size and scope of the bank at a pace that’s ahead of the company’s schedule.
GE Capital once made up almost half of General Electric’s overall profits, but the company is now trying to rely less on profit from GE Capital because of its exposure to toxic commercial real estate loans.
General Electric says that it has raised billions of dollars through a program that the government has created to stabilize GE Capital’s cash flow. General Electric adds that credit marks are improving, making it cheaper and easier for the unit to borrow.
