General Electric Co. (GE) CEO Jeffrey Immelt resigned from the Federal Reserve Bank of New York’s board of directors, citing “increased demands” on his time.
Immelt, 55, stepped down effective March 9, the New York Fed said in a statement Thursday (April 28). He noted in his resignation letter to New York Fed President William C. Dudley that his other commitments include the President’s Council on Jobs and Competitiveness, which he has led since January. Immelt had served as a regional bank director since January 2006, Bloomberg reported.
“I was very surprised that he even accepted the job on Obama’s council because being CEO of a diversified conglomerate like GE is more than a full time job,” said Sung Won Sohn, an economics professor at California State University-Channel Islands and former chief economist at Wells Fargo & Co. “He is probably stretched too thin.”
Immelt’s decision is unrelated to plans by the Fed later this year to begin supervising GE Capital, the Fairfield, Conn.-based company’s finance unit, GE spokesman Gary Sheffer said.
“Jeff enjoyed his five years on the board of the New York Fed and learned a great deal,” GE said in a statement. “He decided to step down to allow the opportunity for others to serve and to free up time to focus on other responsibilities.”
‘Too Big to Fail’
The Fed is poised to gain responsibility for non-bank financial firms deemed “too big to fail,” including GE Capital. The Dodd-Frank Act, signed into law by President Barack Obama in July, gave the central bank expanded authority over systemically important financial firms.
Immelt was a Class B director at the New York Fed, representing “the public,” and selected by member banks, according to the New York Fed statement. Class A directors at the Reserve Bank represent the member banks.
“Clearly now the Fed is going to be regulating a financial services company like GE Capital and I don’t think he should be sitting on the New York Fed board” as a Class B director, said Sohn, who is also vice chairman of retailer Forever 21 Inc. “If GE Capital were to get into any kind of trouble, it would be the New York Fed that would have to deal with it so I don’t think it’s appropriate for him.”
The New York Fed in December revised rules for its board of directors to avert conflicts of interest. Under Dodd-Frank, the three Class A directors are prohibited from appointing the president and first vice presidents of regional banks.
The New York Fed also restricted banker board members from “playing any role in bank supervision matters,” or naming the “senior leadership” for the bank supervision group, leaving those matters to board members representing the public, according to a Dec. 22 statement.
The New York Fed has since renamed its bank oversight division the Financial Institution Supervision Group, in a nod to its expanded authority.
GE CEO Jeffrey Immelt said the company has paid lower taxes over the past few years than what a company would typically pay mainly because of $32 billion in losses suffered by its GE Capital unit after the U.S. financial crisis of 2008.
He said GE’s taxes are expected to increase in 2011 as the company continues to recover and rebuild its profits, Market Watch reported.
The nation’s sixth-largest company has drawn sharp criticism after a New York Times article on how GE manages to reduce taxes — in 2010, it received a $3.2 billion benefit — often by lobbying Congress for special tax breaks.
The company has disputed many of the claims in the article and said it’s fully in compliance with U.S. law.
“Like any American, we do like our taxes low,” Immelt said.
Immelt offered a defense of his company during a speech at the Economic Club of Washington to outline how the U.S. can improve its economy and raise job growth. Earlier this year Barack Obama appointed Immelt to head the president’s Council on Jobs and Competitiveness, a somewhat controversial decision given the company’s extensive business with the federal government.
One way to achieve higher job growth, Immelt said, is to reform the domestic tax system like many other nations around the world are doing. He said the U.S. code increasingly discourages the creation of new businesses and investment.
“Our system is old, complex and uncompetitive,” said Immelt, reflecting the view of most American CEOs. He said he was willing as a chief executive to support reforms that would lower the corporate tax rate while eliminating unspecified loopholes or business tax breaks.
Immelt also said the federal government has to do a better job of getting rid of old and outdated regulations and not just pile new rules onto an already-creaky system of oversight.
Another goal of the jobs council, Immelt said, is to find ways to help small businesses grow. He said the creation of new small businesses after the 2007-2009 downturn is 23% lower than is typically the case following a recession.
Most of the ideas the council comes up with are unlikely to require any congressional legislation, he stressed. The one exception is trade. Immelt said lawmakers should act quickly to pass three pending free-trade deals with Panama, Colombia and South Korea.
“The rest of the world is signing free-trade agreements today as we speak,” he said.
In somewhat of a surprise, Immelt also declared companies are less likely to focus on countries with the lowest wages when deciding where to put a business.
Advances in technology and other factors have made it easier for companies to reduce costs wherever they go. As one example, Immelt said it only costs GE 10% more to operate a call center in the U.S. compared to India, where wages are much lower.
The company is also moving more manufacturing jobs in its appliance business back to the U.S. and plans to create 16,000 jobs at home over the next few years.
“I think the era of globalization around cheap labor is over,” he said.
What’s likely to become an even bigger factor in the future is the educational level of a nation’s workers. Like many business leaders, Immelt said the U.S. has to improve its education system, especially for math and science.
“We have more degrees in sports therapy than electric engineering,” Immelt said.
Navistar International Inc. is one of nine vehicle manufacturers who will take part in an electric vehicle experience tour in seven U.S. cities, sponsored by General Electric, that will bring GE experts together with local businesses, industry leaders, and public sector stakeholders for educational workshops, test drives, and dialogue on the business case for EV ecosystems.
GE has already committed to purchase 25,000 EVs by 2015 for its own fleet and for fleet customers. It owns one of the world’s largest vehicle fleets, operates a leading global fleet management business, and offers a portfolio of product solutions including charging stations, circuit protection equipment and transformers that touch every part of electric vehicle infrastructure development. The company is hosting the EV Experience Tour to help other businesses and key stakeholders understand technical and business approaches for deploying pure electric and plug-in hybrid electric vehicles.
Navistar’s role in the tour was not immediately revealed.
The company builds the eStar electric truck at a former Monaco Coach Corp. RV plant in Wakarusa, Ind. The eStar, now used by Fed Ex, is a possible candidate to take part in the tour, but that detail could not be confirmed.
Each day-long stop in cities along the tour will include presentations by GE and community leaders, workshops to help stakeholders with EV planning, deployment, and integration strategies and test drives.
Scheduled Tour dates are:
- San Francisco, March 10.
- Seattle, March 15.
- Los Angeles, March 17.
- San Diego, March 22.
Additional EV Experience Tour dates will be announced in Austin, New York City and Washington, D.C. for Spring 2011.
“GE is playing a leadership role in the transformation to smarter transportation solutions and a smarter electrical grid,” said Luis Ramirez, CEO, GE Energy Industrial Solutions. “Our EV Experience Tour is an important way for us to engage communities across the United States in the discussion about the economic and environmental advantages of EV deployment.”
GE is also working with GE are GM, Ford, Toyota, Smith Electric Vehicles, Mitsubishi, Coda, Smart, THINK and other organizations on the tour.
“We’re committed to helping our customers learn what electric vehicles can do for their organizations,” said Clarence Nunn, President and CEO of GE Capital Fleet Services. “Each of our tour stops will give participants first-hand exposure to the technical and business considerations for EV deployment and put them on a path toward adoption.”
GE’s EV Experience Tour and electric vehicle program are part of its ecomagination business strategy to accelerate the development and deployment of clean energy technology though innovation and R&D investment. In support of the tour, an electric vehicle readiness toolkit is available on ecomagination.com to help municipalities, customers, and individuals prepare for wide-scale electric vehicle deployment.
General Electric (GE) announced today that second-quarter 2009 earnings fell a smaller than expected 47%, as earnings from energy equipment somewhat offset declines in finance, health care and NBC Universal arms.
Profit from continuing operations was $2.9 billion. Revenue from continuing operations was down 17% to $39.1 billion. The results beat analyst earnings estimates, but were below the top line estimate of $42.16 billion, according to AOL Daily Finance.
“In a global economic environment that continues to remain challenging, GE delivered solid second-quarter business results,” GE Chairman and CEO Jeff Immelt said. But what Immelt calls solid and what the results show may not satisfy investors as the declines were widespread across many segments, and the good news kept being “offset” — a word that starred in the report — by less than stellar news.
Segment profit fell 36% compared with the second quarter of 2008 as 13% growth at Energy Infrastructure and solid growth at Cable were more than offset by:
- An 11% decline in Technology Infrastructure earnings due to softened demand and pricing pressure in Healthcare and Transportation.
- An 80% decline at Capital.
- A 41% decrease at NBC Universal.
The top line suffered, too, with GE Capital Services’ (GECS) revenues falling 29% to $13.4 billion, and industrial sales down 7% to $26 billion.
Investors’ main concern was GE Capital. As mentioned, revenue declined 29% in the second quarter and Capital Finance profit plunged 80% in the quarter to $590 million. Breaking down the segments, real estate revenue fell a larger-than-expected 48% from nearly $2 billion to $1 billion in the quarter. The real estate division lost $237 million, compared to a profit of $484 million in the same quarter last year.
“In a difficult environment, we are ahead of schedule on our plan to create a more focused financial services company. Capital Finance remains on track to be profitable for the full year,” Immelt said. Loan volume was 25% higher than the prior quarter, even as it continues to reduce its balance sheet. Borrowing by GE’s finance arm has been high thanks to its eligibility for the Temporary Liquidity Guarantee Program, which it used more than any other firm.
Cash flow was another concern investors had as the company has more retirees than employees. At least here, the offset was to the positive side as strong working capital improvements more than made up for declines in progress payments, leading to results ahead of operating targets. Cash generated from operating activities totaled $7.1 billion, ahead of plan.
Recently, with CIT Group (CIT)’s collapse, many have compared it to GE Capital because of the mix in its loan portfolio. However, analysts think the problems at CIT could actually be a boon to GE Capital, as it can lure customers away and in the event of its bankruptcy, even raise rates. It’s not clear how this would mesh with GE’s strategy of shrinking GE Capital to 30 percent of total profits from around 50 percent in the past.
In recent pre-market trading, GE stock traded 1.5% lower, reflecting concerns arising from the difficulties shown in the report despite Immelt’s assertion that “We continue to position GE to win in a reset economy.”