GE’s Lending Unit to Cut 7,000 Jobs

General Electric Co.’s huge financing arm said Monday that it is eliminating 7,000 jobs and otherwise slashing costs by $1 billion this year, raising more questions about the unit’s stalled growth and the potential effect on GE’s overall performance.

The job cuts, which equal 8% of the 90,000-person global work force of GE Capital Services, were disclosed by the division’s chief financial officer, James Parke, during a meeting with bond analysts in New York. GE said the cuts were the latest reductions in its long-term program to lower costs and boost productivity.

But they also come as GE Capital is struggling to grow in the face of the weak U.S. economy, which has affected most of GE’s major businesses. Indeed, GE last week said its overall first-quarter revenue was flat compared with a year earlier, which sparked a sell-off of GE’s stock.

GE Capital generates more than 40% of the revenue and profit for the conglomerate, providing financing for a broad range of industries, from automobiles to aircraft. It offers credit cards, makes home mortgages and finances heavy equipment. The unit is based in Stamford, Conn.

GE Capital is a key reason GE repeatedly enjoyed annual double-digit growth and its stock was a market bellwether for nearly two decades. But the stock tumbled $1.70, or 5%, to $31.85 a share Monday on the New York Stock Exchange. GE--a component of the Dow Jones industrial average and the stock market’s most prized company with a total market value of $313 billion--has now fallen 19% since March 1. Less than two years ago, the stock hit $60.

In the aftermath of the Enron Corp.and Andersen scandals, the growth records of GE and GE Capital also are coming under sharp scrutiny. Although no one has suggested any wrongdoing, skeptics are wondering aloud how much GE and GE Capital might have relied on legal accounting moves, acquisitions and other “financial engineering” to help keep the growth rate intact, and whether GE is carrying too much debt as a result.

GE, with 330,000 employees overall, also makes appliances, lighting fixtures, medical equipment, plastics and aircraft engines, and it owns the NBC television network. Its strongest division at the moment is its power systems group, which makes turbines for the energy industry. The company’s revenue last year was $126billion.

GE also has come under fire over the level of disclosure of financial information, and the Fairfield, Conn.-based concern is now making more data available to the public. “We acknowledge our responsibility to ensure transparency for our investors,” Richard Wacker, an investor relations vice president at GE, said Monday.

But the added information is spawning added questions. Referring to GE Capital’s job cuts, analyst Robert Friedman of Standard & Poor’s Corp. said, “That doesn’t sound like a growth operation to me. You can’t cut your way to earnings growth indefinitely.”

Friedman, who’s frequently bearish toward GE, also said GE Capital’s current struggle could indicate that its sustained growth in the 1990s reflected the U.S. economy’s growth, “as opposed to business and management acumen” at GE, more than previously thought.

But massive job cuts and efficiency efforts are nothing new at GE, and in fact were a staple during the long run of Chief Executive John F. “Jack” Welch Jr. Under new CEO Jeffrey Immelt, this year’s reductions at GE Capital also are part of “ongoing productivity reductions,” in which the company replaces people with computers and other new technology where possible, and “doesn’t represent any shift or change in direction for us,” said GE Capital spokesman John Oliver.

“We’re putting more people in front offices who deal with customers, and consolidating back offices where you can have efficiencies through technology,” Oliver said.

In this year’s first quarter, GE Capital’s revenue fell 6% from a year earlier, to $11.8 billion, but its profit rose 19%, to $1.7 billion--before charges related to a mandatory accounting change and other one-time items.

GE’s overall earnings before the charges rose 17% to $3.5 billion, but with the charges its profit fell 3%--the first quarterly drop in net income for GE in seven years.