GE Money is part of GE Capital Services. Unlike its Commercial Finance counterpart, GE Money is aimed at providing a range of financial products and services to individual consumers (though it does offer business services as well). GE Money is further distinguished from Commercial Finance in that it's not as connected to the other segments of GE as Commercial Finance is. Much of the commercial business is tied to the financing, leasing, and sale of GE products, such as airplanes and wind turbines. GE Money, on the other hand, has increasingly expanded into the traditional banking market, offering products such as home mortgages and savings accounts.
GE Money provides customers with a range of financial products and services, including:
Interest rates can greatly impact financial services firms, including GE Money. As interest rates rise, consumer spending tends to decrease as a result. For one reason, it's more expensive to borrow money, as the higher rates mean higher interest payments on any amount borrowed. Another reason is that as rates increase, consumers get higher returns on money they put into savings accounts, encouraging them to spend less and save more. Rising interest rates generally have a negative effect on financial institutions like GE Money. When rates are high, GE Money is able to charge higher interest rates on loans, but the demand for loans is likely to decrease. At the same time, banks will have to pay higher rates on consumers' deposits, which are inclined to increase. Additionally, rising interest rates can lead to higher rates of default on adjustable-rate mortgages, as seen in the recent subprime lending bust.
Around one fourth of GE Money's assets are in mortgages, which are subject to conditions in the housing market. Downturns in the housing market can reduce demand for new mortgages, which was one of the main forces driving GE Money's growth for several years. Additionally, car sales have been shown to correlate with new home construction and sales. Housing slumps can decrease demand for auto loans, which is another of GE Money's largest asset bases. Relative to other companies in the finance industry, however, GE Money's portfolio is relatively light on mortgages; the estimated industry average of 65% is much larger than the 27% of GE's assets held in mortgages.
GE Money operates in nearly 50 countries, limiting its exposure to economic downturns in any one market. For example, the impact of rising U.S. interest rates or slumps in the domestic housing market is somewhat mitigated by the fact that over three-fourths of GE Money's business comes from international sources. Additionally, emerging international markets often provide larger growth potential than established markets. International expansion has been a key source of growth for GE Money, but it does entail a certain degree of risk. Emerging markets can be relatively volatile, and the wide range of laws and regulations can be difficult to navigate.
General Electric's Capital Services segment competes directly with banks such as Citigroup (C) and Bank of America (BAC). All three firms issue credit cards and offer mortgages, loans, and savings services. The greatest difference is that finance is only one part of GE's overall business while Citi's and Bank of America's revenues are largely based in financial services. Despite its competitors' focus on finance as a primary source of revenue, GE Money has performed well, especially considering that it's the third-smallest division of a larger company.