Analyst: GE doesn't need to sell credit unit

NEW YORK—An analyst at Stern, Agee & Leach Inc. said Tuesday that General Electric Co. does not need to sell its private label credit card business given the market's instability.

Shares of General Electric, which hit a 5-year low Tuesday, have come under pressure in recent days as investors worried that earnings at its GE Capital unit could face the same challenges as other financial services firms.

Analyst Nicholas Heymann of Sterne Agee said in an investor's note Tuesday that turmoil in the financial service sector may delay the sale of GE Capital's private label credit business, but the company is "under no obligation or financial need to sell this business, particularly given the current market turmoil."

GE Capital remains very well capitalized and the business does not face liquidity constraints, said Heymann, who met Monday with senior managers at GE Capital.

GE shares tumbled on fears that its financial business would be hit by the collapse of Lehman Brothers and shakiness at other banks. On Sunday, GE's financial services business posted on its Web site assurances to investors. It reiterated that its commercial real estate business will earn $1.5 billion to $1.7 billion in 2008.

Heymann said selling the credit business "at a price that might be currently viewed as unfavorable could potentially create more questions than if GE were to retain the business and operate it pending the return of more stable market conditions," he said.

"We strongly sense that GE is highly unlikely to complete its previously targeted sale of NA Private Label Credit Card (PLCC) business at below NAV," he said.

CEO Jeff Immelt told analysts this summer that GE hopes to complete a deal for the private-label credit card business before the end of the year.

Chief Financial Officer Keith Sherin told analysts in July that the conglomerate was having trouble selling the business, describing it as a "tough time to go out and find someone with $30 billion of funding."

Heymann estimated the business will earn about $500 million this year on a net basis. It could face reduced earnings because of weaker consumer spending next year. However, higher interest and fees along with sharing the reduced earnings with merchants could help offset any earnings decline.

He maintained a "Hold" rating for GE.

Shares of GE, based in Fairfield, Conn., were down 10 cents to $24.50 in afternoon trading. Earlier they touched a new 5-year low of $22.16, which was lowest level since shares traded at $24.30 on March 7, 2003.