Firms focusing on leveraged buyouts have had their way this year as they reached their highest levels ever, initiating over $700 billion as of mid-August. Last year alone, GE made almost half its profits from its financial divisions.
With the emerging credit crunch, it is forcing LBO companies to look outside of Wall Street for money and zero in on smaller deals. That reality is good news for General Electric Finance (GE) which focuses on those very types of deals.
As Alex Urquhart, president and chief executive of GE Energy Financial Services, told investors this week, they're already making deals.
"We've executed on a couple of deals in the last couple of weeks where other institutions have not fulfilled commitments that they've made and we've been able to step in and do that," said Urguhart.
With their diversification, which helps protect them from weaknesses in any one market, along with over $730 billion in assets as of the end of the second quarter, GE has no problem with keeping loans on their balance sheets, rather than syndicating them, although they also syndicate some as well if they choose.
Investment banks on the other hand must syndicate the loans quickly so they can free up their balance sheets in order to initiate more loans.
Another problem for investment banks is they have over $300 billion of leveraged buyout debt, which will limit their ability to offer new loans to private equity buyers. Again, it plays into GE Finance's strengths.
After years of lying flat, GE's stock is finally starting to rise, bypassing the $40 mark for the first time since 2002. With the new opportunities in loans, it bodes well for the company as they've looked for something to get investors excited about for some time.
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