THE headlines focused on the fact that GE, a big industrial conglomerate, is beginning to sell off its $500 billion finance arm in small chunks. This week it put a $40 billion portfolio of corporate loans up for sale. But not all of GE Capital will end up on the block: GE is keeping the $90 billion division that finances purchases of medical equipment, power-generation gear and aeroplanes, or leases them to users. In part, that is because those fields are critical to GE: it makes all or part of the products being financed or leased. But it is also because the financing of old-fashioned capital goods is a booming business.
The gear GE sells is expensive; would-be buyers often lack the capital to buy it outright. For GE, therefore, the financial engineering that underpins the use of its wares is as important as the mechanical engineering that created them. Many hospitals, for instance, do not buy expensive scanners from GE, but lease them instead. When it develops improved versions, it helps the hospitals swap the new generation for the old, by passing the outmoded gear to another, thriftier institution, and so on down a long chain. By the...Continue reading
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