Financial, Real Estate, Stock Markets Trends and Current Affairs

GE
derives majority of revenues from Infrastructure segment and the commercial
finance and GE money segment

GE having a diversified business generates
majority of its revenues from the Infrastructure segment along with the Commercial
Finance and GE Money segments. Infrastructure segment contributes 36% of the
revenues, while commercial finance and GE Money contribute 21% and 15% to the
revenues. In this tough credit market conditions, the consumer and commercial
finance business continue to remain under a lot of strain as witnessed in the
last two quarters. In the last few quarters, the growth in infrastructure
business is holding the flag high for GE. In 1Q 08, apart from infrastructure
and NBC Universal, all the segments reported decline in profitability.

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GE has a very well diversified geographic
revenues stream, deriving 50% of its revenues from the US and 23% and 13% from Europe
and the Pacific basin, respectively. The Americas and Middle East &
Africa contribute 7% and 5%, respectively.

GE Capital
Services

GE
Capital services (GECS) includes the financial services business of GE comprising
Commercial Finance, GE Money and the Aviation Financial Services, Energy
Financial Services and Transportation Finance included in the GE Infrastructure
segment. GECS contributed 42% to the company’s top-line and 46% of the bottom-line
of GE.

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GECS
contribution to net earnings has increased from US$7.9 billion in FY 2003 to
US$10.3 billion in FY 2007. Commercial Finance
and GE Money contributed 34% of net income in 1Q 08, while the Infrastructure
segment contributed 42% of the bottom-line.

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Infrastructure
segment the lonely performer for GE in 1Q 08

In 1Q 08, Commercial Finance and GE Money
profits declined 20% and 19% respectively dragging the overall performance of
the company. In addition, the Industrial and Healthcare segment recorded
decline in profits. Industrial and healthcare segment recorded a decline of 16%
and 17%, respectively resulting lower than anticipated EPS in 1Q 08. The
infrastructure segment which reported strong profit growth of 17% and the NBC
Universal which recorded profit growth of 3% were the only saving grace for GE
in the first quarter of 2008.

GE’s
international revenues grew 22% primarily driven by emerging markets, while
revenues from the US
declined by 5-6%. The industrial organic growth of 5% (including 2% due to
currency) was partially offset by a decline in growth at financial services.
Infrastructure segment led the way reporting organic growth of 14% in 1Q 07. In
the light of the abysmal performance by GE in 1Q 08, the management lowered the
full year 2008 EPS guidance to US$2.20 to $2.30 as compared to US$2.42 in FY
2007, and 2Q08 EPS guidance of $0.53–0.55.

Loss
provisions to rise in coming quarters as more pain in financial services business

The current loss provisioning stands at 1.3%
(1Q 08 annualized) of the total financing assets of GECS increasing from 1.0%
in 2006. Considering, we are in the very early stages of the consumer finance
delinquency cycle; we anticipate the provisions for losses to continue its
upward trend. If we consider the historical high the provision in a
recessionary market as we currently are in, the loss provisions could touch 2%
of financing assets as witnessed during the 1990’s recession. The GECS financing
assets has grown significantly in the last four years at a CAGR of 11.7% to
US$385 billion. The financing assets have further increased to US$418 billion.

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At the December 2007, total financing assets
comprised US$390 billion, with Commercial Finance segment and GE Money segment
accounting for 48% and 45%, respectively. The Commercial Finance financing
assets consisted of Equipment and leasing assets (US$89 billion), Commercial
and Industrial (US$59 billion), and real
estate assets (US$40 billion). The GE
Money financing assets consist of Non US residential mortgage (US$74 billion), Non
US Installment and revolving credit (US$34 billion) , US installment and
revolving credit (US$29 billion) and Non US auto finance (US$27 billion).
Considering the huge financial asset base and exposure in the US markets and
the real estate assets, it is highly likely that the provisioning for losses
could further increase in the coming quarters.

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Debt
to equity and leverage ratio of GECS continue to rise

GECS debt to equity ratio has been rising in
the last few quarters as profitability comes under pressure. The debt to equity
ratio has increased from 6.5x in 2004 to 9.3x in 1Q 08. The total borrowings
have grown at a CAGR of 12.2% in the last four years. The total borrowings has increased to US$536 billion in 1Q 08 from
US$321 billion in FY 2003, with short term borrowings accounting for US$198
billion in 1Q 08. The significant rise in borrowings has seen the GECS debt
to equity ratio expand to 9.3 times in 1Q 08. In addition, GECS leverage ratio
is also beginning to rise from 10.6 times in 2005 to 11.8 times in 1Q 08.

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Increasing defaults
in Commercial Finance and GE money segments

The
rising default rates in the consumer finance business in the US will continue to challenge the credit
expansion activities in the US.
The delinquency rate in the GE money segment increased to 5.64% in March 2008
as compared to 5.22% in March 2007. The rise was driven primarily in the GE
Money’ US
business where the rate increased to 5.75% from 4.72% in March 2007. In the
commercial finance segment, the delinquency rates have increased to 1.36% in
March 2008 from 1.26% in March 2007. Considering the worsening macroeconomic
conditions, the rising unemployment levels and surging inflation, the default
scenario in the US
is more likely to get worse then better. GE deriving almost 50% of its revenues
from financing business is likely to face tough times in the near future.

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Exposure
to subprime credit

The
company had an exposure of US$1.6 billion to sub prime credit. These
investments are collateralized primarily by pools of individual direct mortgage
loans.
The default rate on the latter can be quite high considering the current credit
crunch situation. Approximately one third of the US managed portfolio including
credit card, installment and revolving loans were receivable from sub prime
borrowers. This sounds very disturbing as these loans will be under severe
stress in the coming times as the defaults from these subprime borrower
increases. In mid 2007, due to the US
subprime crisis, GE money sold its US mortgage business - WMC.

Significant
real estate exposure in the commercial financing segment

GE has US$87 billion of real estate assets a
mix of equity which is physical real estate and debt which is financing to
third party real estate investors. GE is in the process of transitioning the
mix of real estate earnings from lumpy gains as its trades the equity
portfolio, towards a more predictable stream of income from third party
financing. The recent troubles in the real estate market which is under severe
pressure with tight credit conditions and lack of potential buyers is putting
downward pressure on prices.

GE’s real estate assets at March 31, 2008,
increased US$7.3 billion, or 9%, from December 31, 2007, of which US$1.1
billion was real estate investments, which increased 3%. During 1Q 08, GE sold real estate assets with
a book value totaling $1.7 billion which resulted in net earnings of US$0.5
billion. GE’s real estate net earnings declined US$0.1 billion compared to 1Q
07, primarily as a result of a US$0.1 billion decrease in net earnings from
sale of real estate investments. This decline was mainly due to the increasingly
difficult market conditions experienced in the 1Q 08.

Non
earning receivables also continues to expand

GECS non earning receivables defined as
those financing receivables which are 90 days or more past due. The non earning
receivables for commercial finance segment have increased from US$1.6 billion
(1% of financing receivables) in 2006 to $1.7 billion (0.9% of financing
receivables) in 2007. In 1Q 08, the nonearning receivables has increased to
US$1.99 billion which is 0.92% of the financing receivables from 1.05% in 1Q
07.

For the GE Money segment, non earning
receivables have increased to US$3.7 billion in 2007 from US$3.2 billion in
2006. It has further increased to US$4.17 billion in 1Q 08. The total non
earning receivables in the GECS has increased to US$6.2 billion in 1Q 08 from
US$4.9 billion in 1Q 07, representing 1.47% of financing assets in 1Q 08 as
compared to 1.48% in 1Q 07.

Off
balance sheet securitization entities of US$ 54 billion

GE
also has significant off balance sheet securitization entities of US$54 billion.
which is 94% of the shareholder’s equity of GECS. Most of its
exposure in the securitization entities is receivables is secured by credit
card receivables of US$23 billion, followed by commercial real estate which is
US$9 billion and equipment of US$6.6 billion.

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GE
Capital Corp CDS performance

GE Capital Corp’s CDS spread has widened
considerably in the ongoing credit turmoil touching an high of 192 basis points
in March 2008. The widened CDS spread denotes the increased stress in the US
credit markets in the month of March 2008. In the month of April the 5 year CDS
spread again spiked in the wake of poor 1Q 08 quarterly results missing the
guidance and the market expectations. Currently, the GE capital corps CDS spread is
around 102 basis points.

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GE is divesting itself of its appliance business and the Australian mortgage business

GE announced last month that it plans to sell
or spin off its Appliance business. The appliance division has revenue of US$7
billion in 2008 and employs about 13,000 people worldwide. This is inline with
GE’s strategy of exiting the slow and no growth businesses. GE is also looking
to sell its Wizard mortgage unit in Australia as part of its broader
plan to pull back its consumer finance business. This denotes GE’s intention of
reducing its exposure in the mortgage business as the troubles in US
mortgage business spreads across the globe.

GE
raises US$8.5 billion in biggest bond sale since 2002

GE in less than a week after it reported a
12% decline in profits in 1Q 08, have sold US$8.5 billion of bonds, the largest
U.S.
corporate offering in six years. GE paid
the highest yields since early 2002 due to tough credit market conditions. The yields
were in the range of 4.8% to 5.875% depending on different maturities. On 22
May 2008, GE Capital Corporation sold US$1.5 billion of samurai bonds in four
tranches yielding in the range of 1.95% to 2.885%.