When Jack Welch said his protégé, Jeff Immelt, was “getting his ass kicked” following a profit warning this year, the General Electric boss could console himself by pointing to a steady rise in cash returns to shareholders through dividends and buybacks. Thursday’s warning, accompanied by the suspension of buybacks and the first dividend freeze in 32 years, leaves Mr Immelt under more pressure than at any time since he took the reins in 2001.

GE has been like a sturdy ship over the decades, rising and falling with the economy but rarely springing a leak. Lately though, in spite of its industrial legacy, a fast-growing proportion of its earnings has come from financial units. They generated $10.3bn in total segment profit in 2007 or 36 per cent of the total, up 124 per cent over four years. Much of this growth rested on GE’s triple A rating.

Because of rising delinquencies and overall market uncertainty, GE sees leaner times ahead and promises to curb leverage. Retaining the premier rating remains a management goal and reducing the scale of cash outflows is now a priority. There is plenty to work with. Total payouts to shareholders last year came to $24bn, equivalent to some 10 per cent of GE’s current market capitalisation. About half of that sum was through buybacks.

With the shares down 40 per cent over one year, investors may have overreacted. True, earnings should shrink this year and possibly next, but GE’s financial units have fewer problematic holdings than their competitors and the company could emerge strengthened from the crisis. However, Mr Immelt is in for a bumpy ride. His plan earlier this year to spin off GE’s iconic appliance and lighting units was seen as a way to regain some of Welch’s “Neutron Jack” spirit. Now he may be wishing he had focused on these dull businesses. At least, they allowed him to sleep at night.

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