GE 2008 Annual Report

Another driver is the impact government stimulus will have on infrastructure investment. GE’s broad technical portfolio positions us as a natural partner as the role of government increases in the current crisis. Over the past decade, we have positioned GE to lead in the “big themes.” These include emerging market growth, clean energy, and sustainable healthcare.

Global investments in infrastructure were expected to be $7 trillion before the crisis. These investments make populations more productive, provide basic needs, and importantly, create jobs. Now there will be an additional $3 trillion in government stimulus directed towards infrastructure investments.

In the U.S., stimulus will target clean energy and smart grid technology. GE is well positioned to capitalize on these investments. We have a $7 billion renewable energy business with solid positions in wind and solar energy. We are deploying smart grid technology with key utility customers such as Pacific Gas and Electric Company, American Electric Power, and Florida Power & Lighting. This is an approximately $635 million business today, but will grow substantially in the next few years.

Similarly, we have built a $2 billion business in Healthcare Information Technology, where we are working with key customers to improve the quality of patient care at a lower cost. For instance, we are collaborating with industry thought leaders, including Intermountain Healthcare, to develop an electronic health record. We have invested jointly, co-located our teams, and set common processes and standards. There are also ongoing studies in healthcare information technology with Mayo Clinic and the University of California-San Francisco Medical Center. We will help lead the healthcare industry in transforming information management with a technology foundation.

Outside the U.S., government investments will target more basic infrastructure. In Iraq, we entered a $3 billion turbine agreement to meet the critical need to re-electrify this country. We will deliver the most flexible technology for the best value. In India and South Africa, we are pursuing $5 billion of locomotive orders. These projects are essential to meeting national energy efficiency, transportation, and environmental goals. In China, we are partnering with Commercial Aircraft Corporation of China, LTD (COMAC), as they develop an in-country commercial aviation industry. This is expected to generate multiple new business opportunities for GE. In Russia and Qatar, we are partnering with governments to improve healthcare, representing $1 billion of potential growth.

Governments will invest to stimulate their economies, solve societal problems, and create jobs. GE’s broad portfolio and expertise position us as a natural partner. Tackling important problems together will require teamwork and respect between business, government, and society. We know how to do this and intend to play an important part in solving these essential challenges.

Create a More Focused GE Capital Finance

Mike Neal’s GE Capital Finance business earned nearly $9 billion in 2008. Against the background of the global credit crisis, his team moved quickly to improve our liquidity, strengthen our capital base, reduce our cost structure, and control our losses.

In the past, investors asked me what was our target percentage for earnings contribution from financial services and I said below 50%. Going forward we expect 30% of our earnings to come from financial services. I never envisioned getting to our target in this fashion, but nevertheless we now have a more heavily weighted industrial portfolio.

Did we end up with too much exposure in certain areas during the credit bubble? Maybe, a few. Today, I wish we had less exposure to commercial real estate and U.K. mortgages.

However, while trillions of dollars of value have been lost at many financial institutions by investing in structured investment vehicles (SIVs), collateralized debt obligations (CDOs), and credit default swaps (CDSs), our risk discipline kept us out of these markets. Moreover, our decision to exit $150 billion of insurance assets earlier this decade protected us from even greater volatility.

We remain a great source of liquidity to companies, consumers, and projects. We provided $48 billion of new loans in fourth quarter 2008 and plan for about $180 billion in 2009. We are a leader in mid market commercial lending around the world. We continue to support many customers in infrastructure industries like aviation, healthcare, transportation, and energy.

We intend to stay anchored in what we know, own, and manage. We underwrite all loans and leases to our standards and typically, as senior lenders, we are secured in collateral. In addition, we are prepared to hold these assets through the cycle.

At the same time, we are repositioning our financial services business to operate as a more focused and smaller finance segment. We continue to have a set of strong businesses in core lending to mid market customers, who benefit from our expertise in energy, aviation, and healthcare; in global consumer lending, including our banking and joint ventures; and in real estate. We will be taking a close look at nonstrategic assets in these businesses, such as equipment services businesses, most of our consumer mortgage books, and a dozen or so small or subscale commercial and consumer platforms that we will reduce over the next few years. These moves will allow us to focus on our core operations and our ability to self-fund by growing our deposit base.

We are targeting our returns in financial services to be about 15%. We remain convinced that we have an effective financial services business model. We have over 10,000 global originators who understand their customers better than banks because of GE’s industrial presence. We believe that our financial services can drive earnings growth over the long term.