How the toaster-maker burned its balance sheet

The mighty US manufacturer General Electric thought it was smart to move into finance. Now its shareholders are paying a painful price, and it needs to get back to making things

General Electric has a slogan: ‘Why predict the future when you can create it?’ Well, perhaps because the future can jump up and bite you, hard, in a tender spot, just when you are least expecting it. A year ago, chief executive Jeffrey Immelt and his smiley happy people at the top of one of the world’s biggest companies were feeling pretty good about themselves. Yup, there were problems with the world’s economy, but nothing that such a diversified, vast collection of businesses couldn’t handle. After all, GE had been paying dividends through good times and bad since before it invented the electric refrigerator in 1911.

GE was the exception that tested the rule that the age of the conglomerate was over. It would take most of this article to list all its multifarious activities. It’s one of only three serious aero-engine makers in the world. It owns Amersham International, the British medical diagnostics group. It makes most of America’s dishwashers. It supplies clever kit to big oil. It owns NBC, the leading network broadcaster, and Universal Studios. It operates in over 100 countries and employs more than 300,000 people.

In short, it looks like as fine an example of American manufacturing, innovation and corporate reach as it’s possible to find. Under its previous chief executive, ‘Neutron’ Jack Welch – so called because of his reputation for nuking the workforce of the companies he bought, while leaving the businesses unscathed – it provoked fear and awe in equal measure among its many competitors.

But many of the sectors where GE dominated were growing too slowly for Welch’s ambitions. Fortunately, he didn’t have to predict the future when he could create it, and he created GE Capital. It was, to all intents and purposes, a bank by another name. As the boom in financial services got under way, GE Capital became the main source of GE’s growth.

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