By JEFF GERTH
Newly released documents from the Federal Reserve Board show that General Electric Co. was a significant user of one of the Fed’s rescue programs in the fall of 2008, even as the blue-ribbon company enjoyed the highest credit rating available at the time.
Over several weeks in late 2008, GE borrowed $16 billion by selling commercial paper through the Fed. Companies like GE typically rely on these short-term IOUs to fund daily operations, but as the credit crisis unfolded that fall, private markets were virtually frozen.
GE publicly disclosed in late October 2008 that it had entered the Fed’s program but did not reveal the extent of its borrowings.
Responding to a congressional mandate, the Fed this week released data showing that 82 companies borrowed $738 billion through the program, called the Commercial Paper Funding Facility.
In 2008, GE was the largest issuer of commercial paper in the United States, having almost $100 billion outstanding at one point. The company since has drastically cut its dependence on this form of financing.
The Fed program was a temporary bridge for GE. As we previously reported, by November 2008, the company had been accepted into another rescue program that allowed it to sell paper at lower rates.
Under that program, run by the Federal Deposit Insurance Corporation, GE sold more than $21 billion in commercial paper in the last weeks of 2008. By early 2009, GE was out of the Fed program but had become the FDIC program’s largest customer.
Called the Temporary Liquidity Guarantee Program, the FDIC effort offered subsidized guarantees for medium- and short-term debt offerings by banks. This allowed GE to sell its debt at lower interest rates, and by spring of 2009 the company had issued $74 billion in commercial paper and longer-term notes under the FDIC program.
GE did not initially qualify for the program. But after lobbying by the company and assistance from Hank Paulson, then the secretary of the Treasury, the FDIC changed the eligibility rules and GE was accepted. Soon thereafter, GE stopped selling commercial paper via the Fed’s facility.
In November 2008, as GE was using both the Federal Reserve and the FDIC programs, the company acknowledged their benefit on its website: “Both of these government programs provide additional levels of security for our investors, strengthen our ability to support the planned dividend in 2009, and do not place any restrictions on our dividend policy.”
Despite the help from Uncle Sam, GE was forced to sharply reduce its dividend in early 2009.