GE, the Old-Fashioned Lender

Do you remember when commercial banking was all about knowing your client and

your clients’ industry and having strong relationships and parking billions

of dollars in loans in some dusty old part of the balance sheet which never

got marked to market or even really looked at? Neither do I, frankly. But today

I had a fascinating meeting with Tom Quindlen, the president and CEO of GE

Corporate Lending, who almost took me back to those halcyon days.

GE, it turns out, has a corporate lending department which is on track to lend

a lot of money this year – $20 billion – and even more

next year. It’s buried three levels down in the corporate hierarchy (it’s part

of Corporate Financial Services, which is part of GE Commercial Finance) and

it’s full of people who know their industry (steel, retail, timber, you name

it), and it’s been a major player in some very large syndicated loans, such

as the $1.9 billion debtor-in-possession facility for Delta Airlines and a $1.5

billion loan for Saudi chemicals company Sabic.

GE has a very old-fashioned attitude towards risk management: basically, it

involves GE lenders doing a lot of legwork before committing any capital, and

then trusting their own judgment. If GE underwrites a loan with the intention

of syndicating it out, then it will obviously keep an eye on the market value

of that debt – but if it’s going to keep the loan itself, it doesn’t mark

to market. GE also is very conservative: it deals only with senior secured loans,

which are the least likely to default.

There seems to be very little attempt to look at the bigger picture within

the GE Corporate Lending department. Talking to Quindlen, it sounds as though

his group is very strong on the bottom-up analysis of its portfolio companies,

but doesn’t spend much time on top-down analysis of where the US or global economy

might be headed, or even where the credit markets are going. Quindlen’s department’s

lending goals didn’t change at all during or after the credit crunch of July

and August, and they’re going to increase in 2008 no matter what happens to

the US economy. If spreads gap out, so much the better for him: it just means

more profits on the loans, especially since GE’s funding costs, given that it’s

a AAA-rated company, are extremely low. The fact that he might lose money on

his current portfolio if he had to liquidate it is irrelevant, since that will

never happen, and he holds loans to maturity (or to bankruptcy, in which case

GE can help with restructuring).

GE, then, is a very old-fashioned lending shop, with no prop desk and no real

way to hedge positions or to make a bet on spreads widening. But it’s solid,

and profitable, and creditworthy. And those are things in short supply these


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