General Electric: Breaking Us Up Is Un-American

(Update includes analyst comments from the earnings conference call; updated share prices throughout.) General Electric ( GE) executives strongly implied on a conference call Friday that Obama administration proposals that threaten to break up its industrial and financial units would be bad for America's still- fragile economy.

Executives, speaking with analysts after reporting second-quarter results, said forcing GE to separate the two units would restrict lending activity in the U.S.

"We're providing a lot of capital to the markets, especially in the U.S.," Chairman and CEO Jeff Immelt said on the call, noting that GE lends to consumers and small- and mid-sized businesses.

GE General Counsel Brackett Denniston said the Obama administration proposals would "affect important sources of lending when the country needs lending." Denniston said GE has "heard considerable skepticism" from members of Congress about the Obama administration proposals, particularly those that would break up financial and industrial companies.

GE Units Breakdown

Denniston reiterated comments Immelt has made in recent days, arguing that mixing banking and commerce was not a cause of the crisis. He says GE should be grandfathered, or granted an exception to the Obama proposals, because its existing business mix was already in place before any changes would go into effect.

That would be a neat trick: not only would GE not have to break itself up, it would also be protected from any potential competitors who wanted to try and replicate its mix of industrial and banking activities.

Alas, analyst Steven Winoker of Sanford Bernstein, on the conference call, noted that the regulatory proposal put forth by the Obama administration specifically said grandfathering would not be allowed. And while Jeffrey Sprague of Citigroup wondered whether the Obama proposal was aimed directly at GE, Denniston didn't take the bait.

"We think it was a broader conceptual type of thing," he said, adding he doesn't think it is central to the Obama administration's proposals. Obama officials rarely mention it while discussing their plans to reform the financial system, he said.

GE reported profits from continuing operations that fell 47% vs. the year-ago quarter, but beat Wall Street's expectations. The company earned $2.9 billion from continuing operations, or 26 cents a share. Analysts polled by Thomas Reuters predicted earnings of 23 cents a share.

The company's strongest segment was Energy Infrastructure, in which revenue grew by 13% from last year's second quarter. But Capital Finance saw an 80% sales drop and NBC Universal revenue fell by 40%.

GE touted what it said was a record backlog of $122 billion in contractual service orders and said the $7.1 billion cash flow in its industrial unit is ahead of a plan it laid out for investors earlier in the year.

Immelt said GE so far has seen no orders from the $787 billion government stimulus package signed by Obama in February. But he reiterated, as he said two months ago, that the stimulus could bring GE $190 worth of revenue through more than 400 potential projects.

Analysts' initial reaction to the numbers was mildly positive, though Terry Darling of Goldman Sachs wrote in a report that "strong share price performance over the last several days likely limits upside, with on-going regulatory uncertainty still a key overhang."

GE is one of several major U.S. companies to beat expectations this week. Other positive surprises came from Google ( GOOG), Intel ( INTC), JPMorgan Chase ( JPM) and Bank of America ( BAC).

GE shares were losing 6.1% to $11.65 in recent trading.