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Behind the Scenes, GE’s Top Exec Confided Credit Woes

Hank Paulson's new book details a very different recollection of events that persuaded FDIC Chair Sheila Bair to help guarantee over $70 billion in GE debt.

As the financial crisis worsened toward the end of 2008, CEO Jeffrey Immelt and other leaders at General Electric repeatedly assured the public that there was no need to worry about the company’s ability to access credit markets and refinance its massive debts as they came due.

But in private conversations that alarmed then-Treasury Secretary Henry Paulson, Immelt laid out a different picture of GE’s credit situation, according to Paulson’s new book about the crisis.

Instead, Paulson writes, Immelt on at least four occasions expressed worries about GE’s short-term debt, known as commercial paper, and eventually lobbied for access to special government guarantees for such debt.

To take one example: On Sept. 15, 2008, the day Lehman Brothers declared bankruptcy, Paulson says he was "startled" when Immelt came to his office and told him GE was finding it "very difficult" to sell short-term debt "for any term longer than overnight." A day earlier, GE sent investors a letter (PDF) saying its ability to sell commercial paper was "robust."

Immelt, in a statement issued Friday by GE, said he "does not believe" the two discussed problems with GE commercial paper on Sept. 15, or in one previous talk. The company did not contest Paulson's account of other conversations about the issue a few weeks later.

If correct, the portrayals in Paulson’s book, "On the Brink: Inside the Race to Stop the Collapse of the Global Financial System," could spell trouble for GE in court, where shareholders are accusing Immelt and other company executives in civil suits of violating securities laws by misleading investors in the fall of 2008 about GE’s finances and withholding key information.

Immelt and other defendants have denied the claims, filed in federal court in New York City, and are seeking dismissal. But a leading securities expert said Paulson’s book could complicate the litigation.

"Assuming that what is in the book is accurate," said Donald C. Langevoort, the Thomas Aquinas Reynolds Professor of Law at Georgetown University Law Center, "it offers new facts that any judge would have to take very seriously in considering whether to allow a suit alleging violations of the securities laws to go forward."

GE said in a statement that all the company’s disclosures were accurate and that to suggest otherwise is misleading.

"During the period in question, GE confirmed through its public statements the widely known fact that the CP [commercial paper] markets were under great stress. The company also disclosed that, despite this stress, it was able to meet its funding needs throughout the crisis," the statement said. "In these circumstances," GE told the government that "market intervention was important."

GE spokeswoman Anne Eisele said the company’s commercial paper volume during the period in question was "consistent with prior periods." She also disputed Langevoort’s opinion that the book could affect the litigation.

The discussions with Immelt, like others in the book, are based on Paulson’s call logs and his recollection of what transpired. There are no transcripts or documents to back up those conversations. Paulson’s spokeswoman said he was not available for an interview.

Paulson’s disclosures help flesh out one of the more perplexing mysteries of the 2008 bailout package: How, in a matter of a few weeks, GE’s highly profitable finance arm, GE Capital, became eligible for a federal debt guarantee program that initially excluded firms like GE.

See a timeline of Paulson's account of how GE managed the financial crisis compared with GE's public statements.

In his book, Paulson takes credit for helping to persuade Sheila C. Bair, the chair of the Federal Deposit Insurance Corp., which runs the program, to change the rules and allow in financial institutions like GE. By last June, the FDIC was guaranteeing more than $70 billion in GE debt, much of it the short-term commercial paper companies use for operating expenses.

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