General Electric used to be a bellwether for the global economy. It may now be a proxy for worldwide stimulus packages. The industrial conglomerate's first quarter beat expectations. Even the financial side made money. But that briefly sexy business now looks like a drag, and its once-boring businesses seem set to benefit from an eventual economic upturn - and, shorter-term, fromworldwide government spending.
GE's old-fashioned industrial business units did well in the quarter. Energy infrastructure earnings grew by 19% from the first quarter of 2008, while technology infrastructure earnings rose 6%. Even the GE Capital finance business didn't do badly, earning nearly as much as Citigroup in the quarter. It posted $1.1bn in profits and is on track to stay profitable for the rest of the year.
Of course, not everything is rosy. Infrastructure orders were down 10% and the equipment and service order books were roughly flat. Meanwhile, GE Capital took $5.7bn in credit provisions, which could put future profits and potentially its capital position under pressure if they turn into losses.
In short, the steadier industrial businesses are outshining GE Capital. The company expects these units to benefit further from global stimulus outlays. The company is targeting a big chunk of $100bn in potential business as a result of the $2 trillion it estimates governments are spending, particularly in wind energy and infrastructure in China.
At first sight, all this appears to justify GE's industrial-financial mix. After all, a few years ago finance was the big growth area. But a longer-term perspective suggests GE has little reason to hang onto to the finance business.
The boom in global lending that occured is now recognised as a rare and damaging bubble. In the wake of its bursting, lending growth is likely to lag GDP for some time. In fact the stress caused by the credit crunch has cost GE dear, making the whole venture into finance questionable. The answer might be to cut GE Capital loose, and go back to GE's roots. With the kick-start of government stimulus and an eventual ecnomic upturn, the industrial businesses could be set to hum nicely for years.
