Industrial powerhouse General Electric cut its earnings forecast for the year Thursday, blaming volatile financial markets that have damaged the profitability of its loan and lease business, which accounts for almost half its income.
The economic bellwether warned that its GE Capital unit would face “difficult conditions in the financial services markets that are not likely to improve in the near future.”
The current economic turmoil has hurt GE Capital, the company's financial business that provides consumer financing for car loans, mortgages outside the U.S., and credit cards. Its commercial side finances real estate, corporate lending and leases jets.
The unit has been caught in the financial services downdraft. Since mid-September, when the markets were rocked by the news of Lehman and AIG, GE's share price has fallen about 23 percent.
GE Chairman and CEO Jeff Immelt was not encouraging about GE Capital's short-term prospects.
“We expect to see higher losses and loss provisions and lower gains,” he told analysts in a conference call Thursday.
The parent company now expects profit for the year to fall about 10 percent, to between $19.5 billion and $21 billion, or $1.95 to $2.10 per share, from its prior forecast of $22 billion to $23 billion, or $2.20 to $2.30 per share.
GE expects financial services earnings to total about $2 billion in the third quarter. In the second quarter, combined profit for the GE Money and Commercial Finance segments was $2.45 billion.
The company does not plan to exit the business, which analysts say has been hurt by write-downs in England's weakening mortgage market and delinquencies at its credit card business.
Shares of GE, a Dow Jones industrial component, closed Thursday up 4.4 percent, or $1.09, to $25.68 amid a broad rally on Wall Street. They have traded between $22.16 and $42.15 in the past 52 weeks.
Analysts applauded GE's moves.
“In a tough environment we like what they have to say,” said analyst Mike McGarr of Becker Capital Management in Portland, Ore.
McGarr also noted that GE Capital will turn a profit for its parent. “It's going to make $2 billion this quarter in a lousy environment.”