|GE CEO Jeff Immelt|
GE isn't just a read on the general business climate and spending plans of major industrial buyers globally, but through its financial arm, GE Capital, is directly exposed to the macroeconomic topic of the day, week, month and year: the European debt crisis. "With Europe on investors' minds, it is worth noting GE's European assets approximate $125 billion (out of about $570 billion in total GE Capital segment assets," according to a GE preview penned by Oppenheimer & Co. analyst Christopher Glynn. Direct exposure to PIIGS sovereign debt stands at only about $300 million for GE. In very round numbers, European assets include about $35 billion in each of CLL (commercial lending and leasing), UK/France residential mortgage (about one-fourth French prime, balance UK sub-prime), and Eastern European banks, in addition to about $10 billion of commercial real estate, and $10 billion that is described as "other/misc.", according to Oppenheimer. Jeff Sprague of Vertical Research Partners noted in a GE preview, "The most pressing area of concern for investors this quarter is likely to be finance exposures within Europe and what kind of collateral or hedging is in place to protect against defaults or declining valuations. ...We will look for updates on all of these exposures during the call and where nonearnings and charge-offs have been trending." Aside from the European credit quality issues, Morningstar analyst Daniel Holland said, "To the extent that GE Capital can come in with a solid number, without goofy tax items and can make the case that it is doing what GE says it's supposed to do, going to work and coming home and paying the bills, GE Capital could have a decent quarter."