Evidence of meeting #24 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was market.
A recording is available from Parliament.
Liberal
The Vice-Chair Liberal Massimo Pacetti
I understand that. So it means you're not perfectly matched in terms of your assets and liabilities, and I don't expect you to be, but is that part of the problem as well?
Discounting or forgetting about the fact that your new business is just non-existent because there is no money, my question is, if your ABCPs were so strong and your asset-backs were so strong, you shouldn't have run into existing problems. Correct?
Senior Vice-President, Capital Markets, GE Capital
I understand your question.
Liberal
The Vice-Chair Liberal Massimo Pacetti
If you were perfectly matched, which I don't think you would have been--
Senior Vice-President, Capital Markets, GE Capital
For the ABCP market, the issue is more one for the sponsor of the program, because they are the ones who need to roll the paper. It's not a GE responsibility; it's a problem for the banks that were our sponsors of the conduit. They got issues and they had to keep a high inventory of those papers.
The problem is that in the street, when they publish their financial statements, it's not seen as being very good that they cannot roll paper and they have a large inventory of it. Each time you can see, close to the quarter ends of banks, the market shifts a bit more. They have that problem.
For our commercial paper program, we have backup lines of credit. We can fund in the U.S. We can bring money cross-border. So we don't have any problem with that. But GE committed to reducing the utilization of commercial paper. I don't have the exact numbers, so I will not give those, but I think that reduced by more than 50%, probably around 60%.
Elyse, maybe you have the numbers. I don't have them.
Liberal
The Vice-Chair Liberal Massimo Pacetti
The question is that a company like GE should not have been affected by the ABCPs. First of all, you're saying your assets were strong enough, or non-toxic. Secondly, if you can't lend on a paper basis, can't you lend on a bond basis and provide some other type of guarantee?
President, GE Capital
To your comments, two things happen. One, if you recall with the fall of Lehman, you had total uncertainty in the overall confidence in the market. So we, along with everyone else, just experienced globally, not only in the U.S. and Canada--
Liberal
The Vice-Chair Liberal Massimo Pacetti
I don't mean to interrupt, but does GE get lumped into that? Even though you're a solid company, you still get lumped into the fact that--
President, GE Capital
Everyone does. You're a financial services company, and as Jean-François mentioned, the commercial paper market for financial services companies declined dramatically in Canada as well as everywhere around the world. So when you're relying on short-term lending--
Liberal
The Vice-Chair Liberal Massimo Pacetti
So no matter what you would have done to prevent it, you would still have been affected on the overall stock market.
President, GE Capital
I think everybody was affected. We have taken very quick and decisive action now to obviously move away from the amount of paper we have short term, towards more long-term debt. We've built our cash reserves from what was $15 billion to now over $47 billion--
Liberal
The Vice-Chair Liberal Massimo Pacetti
Just quickly, in one of your recommendation you're saying we should probably change the thin capitalization rules from what is presently in the regulations from 2:1 to 10:1. Is that not what caused this problem to begin with, especially in the United States?
Senior Vice-President, Capital Markets, GE Capital
No. As we mentioned in the paper, the banks in Canada are considered to be very conservative compared to the rest of the world. They are already leveraging at 16:1 or 20:1, so going to 10:1 is not aggressive. On top of that, there's not going to be much change to the real level of capital we have. It's just that we cannot deduct the reality of what we do. We borrow across--
Liberal
The Vice-Chair Liberal Massimo Pacetti
So who is going to be subject to 2:1 ratios, versus the banks that are subject to 16:1, you're saying? Who else would be in the 2:1 category?
Senior Vice-President, Capital Markets, GE Capital
Only industrial companies are at that level. There aren't any financial companies that can work with that type of ratio, that I know of.
Liberal
The Vice-Chair Liberal Massimo Pacetti
Okay.
Just quickly, Mr. Hanemaayer, using the example of Tricor, wouldn't you be able to organize yourselves and set up a company, for example, that provides leasing from the manufacturing point? For example, you mentioned Bombardier. Wouldn't they have enough muscle to put some pressure on BDC and be part of the new lease availability?
Senior Vice-President, Canadian Recreational Vehicle Association
Bombardier is no longer in the business, so I don't quite understand how---
Liberal
The Vice-Chair Liberal Massimo Pacetti
Well, can't you get them back in the business? Wouldn't it be in their best interest to be in business?
Senior Vice-President, Canadian Recreational Vehicle Association
Bombardier is no longer in business. It was bought by GE.
Liberal
Senior Vice-President, Canadian Recreational Vehicle Association
I'm sorry, you mean Bombardier manufacturing; I thought you meant Bombardier financial.
Liberal
The Vice-Chair Liberal Massimo Pacetti
On the manufacturing end, wouldn't it be in their interest to set up a financing arm?
Senior Vice-President, Canadian Recreational Vehicle Association
Would it be in Bombardier's interest to set up a finance business? You'd have to ask Bombardier.