Cash Management

GE Holds Cash for Dear Life

No dividend hike for first time in 32 years; share-buyback program suspended.
Stephen TaubOctober 10, 2008

Desperate times may call for cash conservation, and General Electric, for one, is signaling that this is perhaps its biggest priority at the moment.

The conglomerate, which Friday reported earnings in line with its earlier pre-announcement, said it is keeping its quarterly dividend at $0.31 through the end of 2009, ending 32 years of annual increases.

It also suspended its buyback program and pledged to curb long- and short-term borrowing by its finance unit, The Wall Street Journal reported.

GE is putting on hold plans to sell $10 billion in long-term debt in the fourth quarter, and will reduce sales of short-term commercial paper to less than 15 percent of the finance unit’s debt, according to the Journal, which pointed out that GE has been the largest issuer of commercial paper, with about $90 billion in the market.

“GE has taken proactive steps to reduce leverage and improve liquidity, consistent with being one of six Triple-A-rated industrial companies in the U.S.,” said GE chairman and CEO Jeff Immelt. “We have raised $15 billion of committed capital that makes the company more secure in the short term, but could be used to play offense in the long term.”

Immelt also noted that its financial services business generated $2 billion of earnings, consistent with its revised expectations, making it one of the soundest financial firms in the country. “While GE Capital is not immune from the current environment, we continued to outperform our financial services peers,” Immelt stated. “We are improving our margins and focusing these businesses on the right products and markets.”

Indeed, Immelt said GE Capital is on track to earn over $9 billion for the year.

Earlier this month, GE sold $12 billion of its common shares. In addition, it sold Warren Buffett’s Berkshire Hathaway $3 billion of perpetual preferred stock and warrants to buy $3 billion of common stock with a strike price of $22.25 per share. The preferred shares carry a whopping 10 percent coupon.