View from City Road: Asking the question at GE Capital

It is small wonder that 'Neutron' Jack Welch, chief executive of General Electric of the US, is incandescent with rage over the Kidder Peabody debacle; not only has it blown his record of unbroken earnings growth off course, but if rumours in the credit rating world are to believed, he is also about to lose his triple A debt rating to boot. Bankers are increasingly beginning to wonder, if GE knew nothing about the phantom profits being created in its Kidder offshoot, what are the controls on its fast- growing finance offshoot, GE Capital?

This is a business that has been growing at a phenomenal pace - 20 per cent per annum compound - and it now accounts for more than half GE's total profits. (General Electric, by the way, was once and still claims to be a consumer electronics company, but you would be hard pressed to realise that these days.) Over the past year there have been more than 40 acquisitions by GE Capital in Europe alone, including Guinness Peat Aviation and several car rental businesses.

GE's push for growth in the financial sector, taking on distress assets that no one else would touch, has left other bankers aghast. With all the capital and other controls that central bankers impose on them, there is no way they could match the breakneck pace achieved by GE Capital, a sort of non-bank bank which, because it does not take deposits, largely escapes supervisory control. Can GE Capital's growth be for real? After Kidder, there is reasonable cause to ask the question. That's what the credit rating agencies are doing.