Stephen’s Posterous

Facing the worse year for stock dividends since World War II, Judith Saryan holds firm to her mantra, "Dividend-paying stocks are good, but dividend-growing stocks are even better."

Finding them, however, means digging into a lot of balance sheets and debt covenants, says the 54-year-old co-manager of the Eaton Vance Dividend Income Fund (EDIAX).

Saryan says fewer companies will increase cash payments to shareholders in this year, choosing to conserve cash. In fact, Standard & Poor's predicts that dividends paid by companies in the S&P 500 index will plunge 22% in 2009.

Already this year, Pfizer (PFE), General Electric (GE), Dow Chemical (DOW), U.S. Bancorp (USB) and other venerable dividend payers have announced dividend cuts totaling $35.9 billion.

Still, income-hungry investors can find "good dividend plays in every sector," Saryan says.

Founded in 2005, Saryan's fund has fallen 20% in value so far this year. Still, its annualized performance has beaten the S&P 500 index for each of the last three years.

Here are some excerpts from our recent conversation with Saryan:

Barrons.com: Given all the turmoil over the last year, are dividend-paying stocks still good investments?

Saryan: Traditionally, a dividend strategy lowers the variance and the volatility in any portfolio, and provides investors with a consistent income. That's a nice feature in this sort of environment. But while dividend-paying stocks are good, dividend-growing stocks are even better. Companies that hike their dividends send out a strong signal about their financial health.

Q: Many high-profile companies have cut or eliminated their dividend. What do you expect in the coming year?

A: The environment remains a tough one, especially in the financial sector. Companies will trim dividends because they need cash and want to avoid the capital markets. Even companies with lots of cash, and the ability and wherewithal to increase their dividend will take their time before making a decision. Plenty of companies will continue paying dividends, and some will hike them, though fewer than we've seen in past years. Finding these names requires looking at income statements, and balance sheets.

Q: What specifically do you look for?

A: The easiest thing to find on a balance sheet is cash. Also important is the amount of cash generated by the business, or cash flow. But we also look at the amount of debt, and then drill down into the debt covenants to see when the bonds are due to mature. If a lot of debt is maturing soon, the company may choose to hoard cash.

Q: Do you prefer high yields?

A: Don't look for the high yields because they can be the most distressed companies. We prefer names with lower yields and good prospects for hiking dividend payments. We try to avoid cyclical companies with yields of 6% or higher, though we will look at companies with steady, recurring revenue streams, such as utilities, that yield over 6%.

Q: Should a company raise its dividend if profits aren't growing?

A: It can be a reasonable decision if the company has hit a temporary pothole caused by the economy, if there's lots of cash on the balance sheet and management has reason to remain confident in its future. Rewarding shareholders in tough times is a particularly good idea because it may be the only return an investor gets. One note of caution: If a company borrows money to pay a dividend, it's a red flag.

Q: How has your portfolio changed in the current environment?

A: We reduced our exposure to financials in the last year. We do hold financial stocks, primarily insurance companies with business models that have gained our confidence. But our exposure to banks is limited due to worries about the earnings and cash flow, the balance sheet and assets on the balance sheet.

Northern Trust (NTRS) is our biggest bank holding, and it has a very defensible business model. It doesn't lend money or invest in questionable mortgage securities. Instead, it receives fees for managing investment portfolios, and thus has managed to circumvent the balance-sheet problems facing many banks.

Northern's decision last month to return $1.6 billion in TARP funding is a good sign because it means that they don't need the capital. The company hasn't raised its quarterly dividend since October of 2007. But the payment has remained steady at 28 cents a share and given time Northern will be in a position to hike it.

[Editor's Note: On Feb. 27, Northern Trust announced that it would repay a $1.6 billion federal bailout loan as quickly as possible, responding to lawmakers who criticized the company for sponsorship of parties and concerts at a professional golf tournament last month. Company officials said the bank acted within government guidelines by sponsoring the tournament and insisted no Troubled Asset Relief Program money was used to fund the event.]

Q: What financial stocks should investors avoid?

A: Be careful with European banks. Many have too much debt. In fact, looking across Europe, I don't think any banks have balance sheets that leave me feeling comfortable.

Q: Once, financials were a place to go for decent dividend stocks. What sector has taken their place?

A: Telecom has strong dividend potential thanks to strong balance sheets and a consistent revenue stream fueled by consumers who pay them monthly for their services. AT&T (T) and Verizon Communications (VZ) are two of the best names, generating consistent cash flow. AT&T hiked its dividend in January, while Verizon should hike its payment as much as 7% this year.

Vodafone Group (VOD) has an even better dividend-growth profile. We expect the company to raise its dividend 10% in June.

Q: What other names do you find attractive?

A: Wal-Mart Stores (WMT) is increasing sales in a very tough environment by luring shoppers with its low prices and a wide assortment of merchandise. The company just raised its dividend 15%, which is ahead of our expectations for operating earnings growth this year.

Q: What other sectors or stocks should dividend investors fear?

A: Aflac (AFL) worries our analysts. It's been a good dividend name. However, its balance sheet includes a lot of hybrid securities from European banks, which are fixed-income securities similar to preferred stock. We worry that many European banks will not be able to pay the dividend on these securities, and the securities will lose value.

Q: The fund has a high yield. Why?

A: In part, because we employ a "dividend capture strategy," which means we use a small percentage of the fund to purchase positions in companies that are about to pay their dividend and then we move on. It's a way to enhance the fund's yield. We have done it very judiciously, and will keep using the strategy. But I don't recommend it for ordinary retail investors. Success depends on properly timing the purchase and sale.

Q: Can you find good dividend-growing stocks anywhere?

A: I think every sector has a good dividend play, though the information-technology sector can be tough. The sector doesn't traditionally pay as much in dividends as other sectors. But we do like IBM (IBM). The company will raise its dividend about 20% this year.

Q: Thank you for your time.

Source. Subscribe to Barron's. Eaton Vance Dividend Income Fund.

Experience can work against you. That's what Rohit Girdhar found in 2004, when he took a test of his skills as a project manager.

Mr. Girdhar had spent eight years managing software programmers at General Electric Co. and product developers at Teradyne Inc. He says he thought the computer simulation would be a "piece of cake." Instead, Mr. Girdhar's project fell behind schedule and racked up errors, largely because productivity declined when he added workers to meet an increased work load, as he had done in his prior jobs.

Mr. Girdhar, now director of corporate development in Asia for German semiconductor maker Infineon Technologies AG, says he is more careful these days before adding people to a project, and tries to question assumptions before making decisions.

The test Mr. Girdhar took is a sign of renewed skepticism among management researchers about the value of experience. Kishore Sengupta, an associate professor at France's Insead business school who designed the simulation, says users with 10 or more years of project-management experience collectively generated higher costs and more errors and missed more deadlines than less-experienced colleagues. "The more experience we have, the more overconfident we get," Mr. Sengupta says.

Vijay Govindarajan, a professor at Dartmouth College's Tuck School of Business, started looking into experience 25 years ago, when considering why some companies failed at long-range strategy. After studying businesses like Encyclopedia Britannica and Sears, Roebuck & Co., he concluded that some managers are so set in past ways that they can't cope with new situations.

Sears had built its success on department stores in urban areas, and missed the threat from Wal-Mart Stores Inc.'s discount outlets outside big cities, says Mr. Govindarajan. Encyclopedia Britannica long succeeded by deploying aggressive sales people to peddle $1,000-plus sets door to door, but didn't quickly confront the challenge of cheaper digital reference sets, like Microsoft Corp.'s Encarta on CDs. That caused profits and market share to plunge in the 1990s.

Companies "overestimate the value of experience," says Mr. Govindarajan. "Experience becomes a liability in times of change."

Mr. Sengupta says managers don't always learn the right lessons from their experiences, particularly when they involve complex projects. It's hard to judge cause and effect properly when there's a long time lag between an action, hiring a worker, for instance, and a result such as more output. Other conditions vary, further muddying the picture. Mr. Sengupta says managers typically don't change course easily, sticking with old habits and goals, even when situations change.

Paul Ritchie, head of global project management for customer services at German software maker SAP AG, says he has seen such problems. In the 1990s, SAP's project managers typically helped clients install big software programs to control major portions of operations, such as billing, personnel and inventory. Each installation could take more than a year; the project manager had to devise the best way to get the work done, says Mr. Ritchie.

Now, SAP offers smaller, more specialized software that can be installed in a few months -- the time it previously took just to plan a bigger project. Managers who previously focused on how to get work done now must worry about what software to install, and when.

That requires greater familiarity with clients' businesses and a more flexible mind-set, says Mr. Ritchie. Project managers also must deal with new types of customers, work faster and draw on the experience of others. Mr. Ritchie says some veteran managers struggle with these tasks.

For instance, some project managers used to require clients to submit formal "change orders" to tweak software, he says. That made sense for a big payment system. Now, clients may want to change the way sales data is presented on a marketing report; SAP managers must respond more nimbly.

To help project managers break old habits and learn new skills, SAP last year started using its own computer simulations. One exercise asks managers to help new employees adjust after an acquisition. "It lets [managers] think differently about their projects," says Mr. Ritchie.

Alan Over, a managing consultant at U.K.-based PA Consulting Group who participated in Mr. Sengupta's simulation, says he now questions his assumptions more. He seeks fresh perspectives from colleagues managing other projects.

In one recent project, Mr. Over was helping a U.K. government agency overhaul its supplier-management process. He started by managing forcefully, which had proved successful on an earlier project.

Then a colleague noted that the government project was expected to run much longer than the previous one, and questioned how agency employees would adapt to a top-heavy management style. Mr. Over says he changed his style to allow employees more autonomy.

"I try to force myself to be nervous," he says. "Whenever I find myself falling back on what I did last time, or think I'm doing well, I try to unsettle myself."

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Berkshire Hathaway shares lost more than 30% in 2008, and more since. Meanwhile the value of the company's portfolio fell just 10%. The Sage of Omaha doesn't focus on the share price. But he says risks, formerly under appreciated in the investment world, are now being overpriced. As that corrects, shares of the billionaire's investment company could benefit.

Buffett admits he "did some dumb things", most notably buying billions of dollars of ConocoPhillips stock when energy prices were near their peaks.

Even so, the per share book value, or assets minus liabilities, of Berkshire's holdings fell a smidgeon less than 10% in 2008, against a 37% loss on the S&P 500 index and a near 20% fall for the average hedge fund. In that context, the Nebraskan investor's worst performance since 1965 - and only his second annual decline in book value - doesn't look so bad.

Berkshire shares tell a different story. At the end of 2007, they traded at a premium to book value of more than 80%. By the end of last year, the premium had shrunk to less than 40%. Now, it's only just more than 10% based on the year-end book value, admittedly now too high. The shares are off almost 50% from their late 2007 peak.

Of course, the gloominess of the economic outlook is a real concern. Buffett sees the economy in a shambles through 2009 and probably beyond. That affects both Berkshire's own businesses and those of companies whose stock it owns. But other potential worries look less rational.

One centres on derivatives. Berkshire has written put options on global stock indexes and various derivatives on corporate credit. These have generated $13bn-odd of paper losses between them, so far. Yet not only is Buffett's record comforting as to the eventual outcomes, the exposure is scaled to Berkshire's capacity - unlike, say, that of the flailing American International Group. An improbable total loss on the credit derivatives, for instance, would absorb only half Berkshire's cash on hand.

Meanwhile, Buffett's company has one of the strongest balance sheets in the US, which he calls it Gibraltar-like. As shown by his investments in the stock or debt of companies as diverse as Goldman Sachs, Harley Davidson, General Electric, Swiss Re and Tiffany, he is finding opportunity amid the carnage.

A fearful market could be focusing too much on the unhappy keywords attached to Berkshire: finance, derivatives, investments and insurance, to name a few. When irrational fears start to subside, the Buffett premium could return. While it might be damped by the fact that the 78-year old isn't mortal, that could still help Berkshire stock even before the underlying investments turn around.

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The first step in addressing a problem is to admit that you have one. By cutting its quarterly dividend, General Electric has put its foot forward. The road to recovery, however, remains long and tortuous.

Investors had ample warning: GE said the payout for the second half of 2009 was under review back on Feb. 6. Even before then, the stock's double-digit yield was a flashing signal that a cut was likely. Friday's announcement prompted another sharp fall in GE's share price. However, it also answers a big question that was hanging over the stock, which could tempt in some buyers.

Beginning in the second half of the year, the quarterly payment will drop to 10 cents from 31 cents. That will conserve $13.3 billion by the end of 2010, which is almost a year's worth of operating cash flow from GE's industrial business. Meanwhile, the new dividend yield of 4.7% remains attractive, and looks more sustainable.

Cutting the dividend isn't a silver bullet, however. GE's triple-A credit rating remains under review and still looks likely to be cut. It has demonstrated prudence, which should please the likes of Moody's, not to mention politicians, who might wonder why a company benefiting from government debt guarantees was still being so generous to shareholders.

The saving in 2009 will be just $4.2 billion. That is handy, but not enough to fully assuage fears of bigger write-downs in the finance business or a weaker performance in the industrial business.

Moving to a more defensive posture was long overdue and is welcome. But the unavoidable consequence is to stoke fears that the outlook for GE's businesses continues to deteriorate.

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Feeling unnerved by disappearing dividends? Tobacco stocks might be your fix.

Even long-standing dividend payers are cutting cash distributions to survive the recession. Tumbling stock prices make many dividend yields temptingly high, but also unlikely to last. Dow Chemical cut its payout for the first time in 97 years. CBS had a 20% dividend yield until it slashed the payout last week. General Electric's 13% dividend yield looks wobbly.

But loyal smokers of top-selling cigarettes should let tobacco companies maintain or even raise dividends. The key is choosing companies with strong balance sheets and brands that have maintained market share.

Take Altria Group. The maker of market-leading Marlboro cigarettes offers a dividend yield of 8.3%. It will need to pay $1.28 a share this year to keep the dividend steady, or 75% of expected earnings. In cash terms, that is $2.6 billion, leaving $875 million in free cash flow left over, according to UBS analyst Nik Modi. That residual amount would be enough to meet the $740 million in debt due in 2009.

Altria's capital structure should allow it to keep distributions generous. Even after levering up to acquire smokeless-tobacco maker UST, Altria has $11 billion in net debt, less than two times last year's earnings before interest, taxes, depreciation and amortization. Altria shares trade at 9.0 times this year's earnings, and it has limited capital spending requirements.

Of course, litigation risks linger. That partly explains why Altria's credit rating is at the bottom of the investment-grade spectrum. But the worst of the court battles are probably past. Altria has managed legal battles for many years, but says it has paid just $108 million in claims. That left room to raise dividends regularly.

A higher federal excise tax on cigarettes starting April 1 will hurt tobacco companies. But Altria already is passing part of the cost on to consumers, even as it adjusts relative pricing to reduce the risk of consumers trading down. A pack of Marlboros now costs about 40% more than a generic alternative, compared with a roughly 70% premium a few years ago.

Investors seeking faster growth might consider Lorillard, maker of Newport, a menthol-flavored cigarette. Newport is the second best-selling cigarette in the U.S. behind Marlboro and the only major brand posting sales growth. Lorillard's dividend yield is 6.1% based on last year's earnings, but the company's $1.1 billion net cash position gives extra assurance. Lorillard trades at 11.3 times this year's expected earnings.

The group of tobacco companies within the S&P 500-stock index has outperformed the index every year since 2000, according to Standard and Poor's. Now is no time to call it quits.

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It's been a challenging year at Berkshire Hathaway. While Chief Executive Warren Buffett has made a slew of savvy preferred stock and corporate-bond investments, the company's famed portfolio of stocks has been slammed in the ongoing bear market.

So far this year, Berkshire's class A shares have slumped 20% to $77,500, near the lowest level in five years and just over half the stock's peak reached in late 2007.

The investment company's woes come in spite of recent investments outside the common stock market. For example, the company has bought $2.6 billion of convertible securities from Swiss Re that pay a 12% interest rate. Berkshire also has bought a series of bond issues from the likes of Vulcan Materials, Harley Davidson, Tiffany and Sealed Air that pay 10% or more.

Berkshire's problems these days clearly stem from its equity portfolio, which could be down more than 25% in 2009, based on our calculation of the performance through yesterday of Berkshire's 17 largest investments, which historically have accounted for over 85% of the portfolio.

Wells Fargo has been the biggest disaster, as Berkshire's holding of 290 million shares as of Dec. 31, 2009, has lost more than half its value as Wells Fargo dropped to $12 from $29 on Dec. 31. That alone has cost Berkshire over $5 billion. Other losers include American Express, U.S. Bancorp, Procter & Gamble and ConocoPhillips.

Coca-Cola, Berkshire's largest holding at $8.5 billion, has held up relatively well, declining about 5% year-to-date, versus a drop of 17% in the Standard & Poor's 500 index. The total stock portfolio now may have dropped below $45 billion, down from $76 billion on Sept. 30.

Wall Street is eagerly awaiting Berkshire's fourth-quarter earnings release, which is expected late Friday, February 27, 2009, and the company's annual report on Saturday, February 28, 2009. The annual will contain Buffett's widely read shareholder letter, as well as more detailed disclosure on the $37 billion of long-dated equity puts on U.S. and major foreign stock markets that Berkshire had sold as of Sept. 30.

The rising value of those puts and the resulting losses on that derivative position have weighed on Berkshire shares partly because it's not easy to gauge the value of the puts, which have an average maturity of 13 years and can only be exercised at maturity.

The customized puts, which aren't traded on any exchange, had suffered a loss of $1.7 billion in the first nine months of 2008. Additional losses since then could top $5 billion. Berkshire also has suffered unspecified losses on some $10 billion of credit derivatives linked to junk bonds given that market's fall since Sept. 30.

Investors typically value Berkshire based on book value and earnings. Based on both measures, the stock looks attractive. We estimate that Berkshire's current book value is in a range of $62,000 to $65,000 a share, down from more than $77,000 on Sept. 30 and roughly $71,500 on Oct. 31.

This suggests that Berkshire now trades for about 1.2 times book value, below its average of 1.5 times book in the past decade. Berkshire's market value now is $118 billion. Based on third-quarter results, Berkshire's operating profits are running at an after-tax annual rate of about $5,300 per share. This means Berkshire trades for a relatively reasonable 14 times estimated '09 earnings.

Berkshire's results this year likely will be depressed by the economy since some of the company's wholly owned businesses are involved in retailing, building materials and manufacturing. Berkshire, however, will be helped by its new high-yielding investments, including the total of $8 billion of 10% preferred stock that it purchased from Goldman Sachs and General Electric in the fall.

Investors will be going through the '08 annual Saturday and focusing on year-end book value, which may have stood around $70,000 a share; the equity derivatives loss in the fourth quarter and guidance about how to value those puts, as well as Berkshire's cash position.

The company had nearly $28 billion of cash at its insurance units on Sept. 30, but that position fell in October as Berkshire bought $5 billion of Goldman preferred, $3 billion of GE preferred and $6.5 billion of Wrigley debt and preferred stemming from its buyout by Mars. Cash may have dropped to the $10 billion to $15 billion range at year end.

The declining cash position may have been a reason that Berkshire sold over half its equity holding in Johnson & Johnson in the fourth quarter, raising almost $2 billion. Berkshire is on the hook to purchase $3 billion of convertible preferred stock of Dow Chemical if it goes through with its deal to buy Rohm & Haas.

Berkshire has taken some lumps this year, but it remains a financial powerhouse at a time when credit is dear and investment opportunities are plentiful. This plays to Buffett's strength, although he probably wishes he had invested less in 2008 and had more cash to invest now.

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General Electric hasn't kept pace with the plunging banks. But its shares have still dived more than 42% this year on doubts over its finance subsidiary. A trawl through GE Capital's balance sheet shows why investors should remain wary.

On the surface, the unit looks enviably positioned. It retains a triple-A rating, has no meaningful exposure to U.S. residential mortgages and enjoys one of the highest tangible-common-equity ratios in the financial sector -- a meaty 4.9% at the end of last year, against, for instance, J.P. Morgan Chase's 3.8%.

Dig a little deeper, however, and the uncertainty mounts. One reason: GE Capital has large concentrations of other real-estate assets, commercial exposures and foreign residential mortgages, that could lead to large losses in a deep recession. Another: Despite some changes, GE Capital still looks like a classic wholesale finance company, relying on market funding. This is a drawback when credit markets are skittish and large amounts of long-term debt, $133 billion this year and next -- are coming due.

On the asset side, a big source of jitters is GE Capital's $36.7 billion in commercial-real-estate investments. These are equity-type investments, the first to absorb any losses. As a result, most firms are currently applying big haircuts to this type of asset.

In its fourth quarter, Goldman Sachs Group, using mark-to-market accounting, took a 25% write-down, totaling $961 million, on its commercial-real-estate equity investments. GE Capital, which values its holdings using estimates of future cash flows rather than marking them to market, took $300 million of impairments last year, equivalent to less than 1% of the equity investments.

That is even more surprising given that GE has booked sizable unrealized losses on its book of securities backed by commercial real estate, which the company does mark to market. These bonds, senior to equity in the investments they fund, are written down by 23%. Admittedly, they are in different deals from GE's equity investments. But the huge divergence in the accounting hits understandably rings alarm bells with investors.

In GE's defense: Marks on the debt securities may be exaggerated by extreme stress in the market for such securities. Second, unlike some other investors, GE operates most of the properties in which it has equity-like investments, arguably giving them a higher value.

Also, in the vast majority of the equity deals, GE itself provided the debt funding, not third-party investors, meaning there could be less immediate refinancing risk to the individual deals. Finally, GE does flag the risks by disclosing in its annual report that its real-estate equity investments' "estimated value" is $4 billion less than the value on the balance sheet.

But since GE was a big commercial-real-estate equity investor in the frothy years, it added $12.6 billion of these assets in 2007 alone, investors should watch this portfolio very closely.

Attention should also be paid to GE Capital's $59.6 billion of overseas residential mortgages, many of which are based in troubled markets like the U.K. Some $3.3 billion of these mortgages are more than 90-days past-due, but GE Capital's loan-loss reserve is equivalent to only 11.5% of the past-due total, up only slightly from 10% at the end of 2007.

Cross-bank comparisons should be treated warily because of differences in loan-portfolios. But, for example, Bank of America's reserve for residential mortgages in the U.S. is far higher at just under 20% of nonperforming residential assets.

The need to clear up uncertainties about future credit losses at GE Capital is key, not just for stock investors and creditors, but also for the ratings firms. Going by GE's credit-default-swap spreads, the market expects the triple-A rating to go. How much lower depends on how many losses are lurking in the balance sheet -- and the amount credit markets will charge to keep supporting wholesale-funded businesses.

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Warren Buffett's Berkshire Hathaway bought $250 million of debt from jewelry giant Tiffany & Co. The debt sports a yield of 10%, according to Tiffany’s filing with the Securities and Exchange Commission. Half of the notes are redeemable in eight years, the other half is redeemable in 10 years. New York-based Tiffany said it will use the proceeds to refinance existing debt and for general corporate purposes.

The investment is the latest in a series of deals in which Berkshire has scooped up securities with yields of 10% or more as the cash-rich firm takes advantage of cash-starved companies. In late September, Berkshire bought $5 billion of Goldman Sachs Group preferred stock yielding 10%. It has also purchased high-yielding debt or preferred stock from General Electric, Swiss Re, Harley Davidson and a handful of other companies.

It’s an intriguing strategy for Mr. Buffett. A number of analysts and Buffett watchers have questioned whether the investor has lost his mojo amid the latest market mayhem. Berkshire’s stock lost 32% in 2008, hurt by large holdings such as Coca-Cola and Burlington Northern Sante Fe.

But with the market in such turmoil, it’s hard to argue with investments that lock up a 10% yield or more over the next decade, Mr. Buffett’s legions of supporters say. Investors now eagerly await Berkshire’s quarterly filing of its holdings, expected some time in the next several days.

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The US economy is suffering its steepest downturn since at least the 1970s and could descend into a depression, Jeff Immelt, General Electric’s chief executive, warned on Thursday. He said businesses and consumers alike were struggling to contend with tumultuous markets and a financial-services industry under siege.

“Unlike the other downturns that I’ve been a part of, this one is faced with limited liquidity,” Mr Immelt, GE’s chief since 2001 told a conference. “Once you break through ’74-’75, you don’t stop ’til you get to 1929.” When asked whether he would call the current slowdown a recession or a depression, Mr Immelt joked that he would need to refer to his college economics text book for a precise answer but said “it is one of those”.

He contended that governments were “firing as many bullets” as they could to stimulate economic growth and stabilise the credit markets. Those measures, he said, should begin to take hold by early next year. “Governments are all in,” he said. “And in my view, government always wins.”

GE remains one of the world’s largest and most-profitable companies, with operations in dozens of countries and an array of businesses that range from aircraft engines and medical-imaging equipment to cable television and lightbulbs. Yet the unfolding credit crisis has crimped profit at GE’s own financial services business, raising concerns for the company’s strategy and once-unquestioned financial strength.

GE has responded to the crisis with steps to shrink the finance arm, GE Capital, and its funding needs. But unlike GE’s response to the early 1990s downturn, Mr Immelt said the company would not rebuild GE Capital through a spate of acquisitions of distressed assets. Any likely acquisition targets would instead augment GE’s industrial businesses.

At the discussion, which was hosted by the Wall Street Journal, Boston Consulting Group and IESE Business School, Mr Immelt reiterated that he would not cut GE’s stock dividend or veer away from a plan to run GE as a company with a triple A credit grade, even if ratings firms eventually opt to lower its debt.

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