IT WAS, perhaps, the point at which the world began to realise that General Electric, the US industrial giant whose annual sales would eclipse the output of many a small country, is more than a maker of lightbulbs, jet engines, Hollywood films and railway locomotives.

On Friday GE issued its results for the first three months of the year. They were truly dreadful – far worse than Wall Street had been expecting.

And Jeff Immelt, GE’s chairman and chief executive since 2001, readily identified the reason for the disappointment.

He said: “Our primary short-fall was a decline in financial-services earnings.”

For the first three months of this year, profits from personal finance operations and the group’s commercial-finance side were each about 20% lower than in the equivalent period of 2007.

Now GE expects its financial-services businesses to show a fall of 5%-10% over the full year.

In truth, GE’s problems should come as little surprise. The company is best known for the hardware it produces – an extraordinary range of products that encompasses everything from domestic refrigerators to water-filtration plants.

The group’s financial-services side is huge, however, and could never have been expected to escape the fallout of the crisis that has hit the financial sector.

GE’s subsidiary, General Electric Capital Corporation, is the largest nonbank finance company in the US. Worryingly, it was not just that the operation did badly in the quarter that shocked investors on Friday; much of the downturn came in the final part of the period.

Immelt said on Friday that both GE’s financial-services arms had slowed down abruptly in the wake of the near-collapse of Bear Stearns last month.

“The commercial-finance business, which has really been one of our best businesses in the company, had a very difficult last two weeks,” he said.

“We thought we came into the year on a conservative basis ... Obviously, we weren’t conservative enough.”

Nobody denies that American banks have been having a tough time and will continue to do so for quite a while to come. Their operating incomes collapsed in the final quarter of 2007, reaching their lowest level since the recession of the early 1990s. It comes as no surprise, therefore, that GE has been hit: it could not remain aloof from the world financial turmoil.

GE’s commercial-financing operation has been squeezed by a downturn in capital spending by US companies. Their investment is reckoned to have been 7.2% lower in the first quarter of this year than 12 months earlier.

GE is a big player in the market for providing finance for companies looking to invest, hence it suffered; also, as has been well documented, the leveraged-loans market has fallen. And sales of real estate worldwide have slumped. All these areas have hitherto provided useful earnings for GE.

On the consumer-finance side, within GE Money, provisions in the US were up by $123m (£62.4m).

The company’s woes have not been confined to its commercial and consumer-finance arms. GE is a leading player in the health-care market, and that division showed a 17% earnings fall in the first quarter.

The group’s “industrial” division, whose products range from factory-automation equipment to hardware for electricity distribution, also had an earnings fall.

The one area that remained strong was GE’s enormous “infra-structure” division. This has a strong presence in emerging countries, and includes energy systems, aircraft engines, oil and gas technology and water-processing systems.

And NBC Universal – involved in TV, film and running theme parks – managed to make some modest progress: its profits for the first quarter were 3% higher than a year earlier.

It is GE’s size – with a turnover last year larger than the output of countries such as Colombia, the Czech Republic and Malaysia – that has given it the status of a bellwether of the US economy.

Friday’s news that GE was faltering brought the predictable conclusion from some pundits that the profit warning has a particular significance.

Jerome Heppelmann, portfolio manager at Liberty Ridge Capital in Pennsylvania, said: “It’s confirmation we’re in a recession.”

In London, Stephen Surpless, senior analyst at Cantor Fitzgerald, commented: “These results confirm that the slow-down is widespread.

“While the credit crisis might be nearer to the end than the beginning, according to some, the impact on the real economy is taking place and is unlikely to abate in 2008.”

For Immelt, the latest news is, to say the least, unwelcome.

Under his leadership, GE shares have proved to be a less-than-thrilling investment. His predecessor, Jack Welch, was col-ourful, if not universally popular. But he did at least produce capital growth for shareholders.

During Welch’s two-decade stretch as chief executive, GE’s stock appreciated by an average of nearly 17% a year.

But in the six-and-a-half years between Immelt taking the top job and the end of last month, GE shares actually fell by almost 9%. Over the same period, the Dow-Jones index rose nearly 25%.

It is not a great record. And Friday’s news did nothing to improve it.

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