Where Will GE's Jeff Immelt Be at 2 PM Today?

Most certainly in front of a computer, watching the Webcast of the FDIC Board meeting, waiting to see what changes the agency finally makes to the Interim Rule governing the Temporary Liquidity Guarantee Program. For that matter, other potential participants in the $1.4 trillion debt-insurance scheme will also be focused on the FDIC later this afternoon, if only to check whether the weight of the intended US government guaranty will stand diminished, essentially by the possibility that the timing of principal and interest payments in the event of default will be subject to bankruptcy-court delays.

The FDIC's Final Rule should determine how equities trade in the last hour today.

In a speech delivered yesterday, FDIC chairperson Sheila Bair stressed that the guarantees on qualifying senior unsecured debt will be backed by the "full faith and credit of the United States government". But unless the FDIC can confirm that all amounts due on default will be paid promptly, the rating agencies are unlikely to grant the underlying debt "AAA" status. Which of course will defeat the purpose of the guarantee programme altogether.

General Electric (GE) said last week that it will tap the FDIC for guarantees covering $139 billion in corporate debt via its finance arm. Banks are automatically enrolled in the FDIC guarantee program unless they decide to opt out. However, a group of nine large banks, including Goldman Sachs (GS), Bank of America (BAC), Citigroup (C) and JP Morgan (JPM), had objected to certain key provisions in the Interim Rule. In particular, the nine banks, and Credit Suisse (CS), warned that anything short of an unconditional and prompt payment obligation on the part of the FDIC will place American financial institutions at a distinct disadvantage when compared to their British and European counterparts.

Disadvantage apart, the biggest risk in below-par guarantees for varying maturities (all FDIC coverage expires on June 30, 2012) is the reality of multi-tiered perceptions of US government credit. At present, 4-year US government default risk is being priced by CDS traders at 37 basis points, with firm buyers demanding 42 basis points. Imagine a scenario in which an entirely new series of reference instruments creates a range of US-related CDS spreads, as high as 100-plus basis points in instances where pricing specialists incorporate both, the quality of the FDIC guarantee and the credibility of the issuer, in their calculations.

In her speech, Ms. Bair did indicate that the FDIC "will be acting to ensure a prompt payment mechanism on the guaranty". But it will be critical to see whether she will meet the nine banks and Credit Suisse all the way. Shares within the already depressed financial sector will take another hit in the event of a compromise decision.

In any event, applicable interest rates for FDIC-backed issuers will not be as low as many on Wall Street are expecting, even if the guarantees are unqualified. Yield spreads over Libor, for example, will need to capture a lender's costs of funds and the CDS spread on US government risk. And if the US government keeps issuing more debt paper and more guarantees, CDS spreads for US government default risk will rapidly widen; for perspective purposes, it will be helpful to point out that the CDS spread for UK today is 75 basis points, while Italy is being quoted at 125 basis points.

Stock position: Short GE, CS.

Comments

[chaliebrown:]

what a joke.

where can i turn in my US citizenshi to stop paying taxes to bailout the rich friends of King George and King Paul?

no one cares about the public taxpayer anymore. The govt only wants the taxpayers money to bailout the rich bankers and CEO's.

will canada take me?????

2008 Nov 21 09:08 AM

[philipmax:]

get me a ticket too if they accept US $.


On Nov 21 09:08 AM chaliebrown wrote:

> what a joke.
>
> where can i turn in my US citizenshi to stop paying taxes to bailout
> the rich friends of King George and King Paul?
>
> no one cares about the public taxpayer anymore. The govt only wants
> the taxpayers money to bailout the rich bankers and CEO's.
>
> will canada take me?????

2008 Nov 21 10:51 AM

[Acronym:]

We must use the only american vote that matters, our dollar vote. We must bail out the stock market with our rainy day funds. We the people have all the power. It sucks that it has come to this but we must be both the super hero and the victim these days.

2008 Nov 21 01:07 PM

[Rob Delsman:]

Stop Whining and get smart!
The self absorbed, egocentric , S.O.B’s on Wall Street are never going to get it. They and their talking head friends keep talking about consumer confidence and how to get YOU and ME spending again, wrong answer.

This is not about consumer confidence, this is about consumers being pissed, really pissed. Do you really think that a bailout of Detroit is going to work? Answer, NO! Consumers will simply not buy these cars because they are pissed that their money was taken from them to finance an industry that has had 30 years to get their stuff together.

If Jeffguano and GE go to the public trough, whatever they borrow should be passed directly to the consumer in the form of debt forgiveness. Better for the balance sheet and the consumer has less debt and more discretionary income.

2008 Nov 21 03:30 PM

[doubleguns:]

Dont buy, dont buy, dont buy. If we dont buy anything other than what we need to live and some entertainment we will get thier attention . Dont use credit cards any more, slow way down, maybe every 10 years, on car purchases and then only buy made in america but not by the big three they will get hurt. Revenge is a dish best served cold. let them bleed over the next 3 yrs wondering when the consumer is going to start buying again. No more credit, cash only. Have you noticed lay away is back.

When the depression/recession is over then we see what fat cats are left. I suspect not many and they will have a better appreciation of consumers. If they mistreat us we quit buying again.

If only we could do it.

2008 Nov 21 05:09 PM

[Timeline St...:]

I am not a GE shareholder, and would not become one for a simple reason - their balance sheet. Take a look at it. It's impenetrable, with massive assets and liabilities that are out of proportion to their revenue stream.

Who knows the true worth of their assets?

Who knows the true value of their liabilities, or when they are due?

Who can calculate even a basic, and trustworthy, indicator for GE given how convoluted their financials appear? For instance, what's their book value and do you trust it?

GE is a bank with a diversified technology company as its veneer. Too confusing and opaque for me. Why invest in GE when there are many tech companies with much better growth prospects, much cleaner financials, and no need to go to Washington with a tin cup in hand.

2008 Nov 22 08:10 AM

[notsosmart:]

its all a scam.drive less,spend less.invest nothing at this time.keep your car going as long as possible.do without the granite counter.(i drive a 17 yr old car.my wife A 10 year old car.both paid by cash.if you have a job-save your money.you may soon lose it.do all you can to secure yourself because the scammers,scoundrels & crooks want to fleece the sheeples down to the last penny.wake up.

2008 Nov 22 03:25 PM

[Ryan Yamada:]

Good article - worthless comments.

2008 Nov 22 06:53 PM

[Rob Delsman:]

Typical GE Loser


On Nov 22 06:53 PM R Y wrote:

> Good article - worthless comments.

2008 Dec 02 10:09 PM

[Rob Delsman:]

Typical GE Loser. Hope that you have LOTS invested

2008 Dec 02 10:11 PM

[ronsgirl:]

I one hundred percent agree with you. Don't buy. Don,t buy. I have a dishwasher Jenn air that has been repaired 3 times and the dishwasher is maybe two years old. and for the most part of it it has been repaired shortley after I got it. I had to wait for them to make a electrnic panel, because they dont have them in stock,more less probly had sonme one in china to make it, 6 months for them to makeIt. And now the same thing happened again and the repair person came out and fixed the spinner and said they would order the other electrnic panel. I called them and they said it takes a long time to make. so I called G&E to see whats took so long. I was told . she called the repair person and they closed the repair order because it was fixed. Im like what. I have been calling them .there telling me It;s on order. So what I have to wait another 6 month to get my dishwasher repaired. The dishwasher is defective . I believe. This is the thired repair. I clled G&E and talked to consemer affair. Tee. She acts like it;s no big deal sorry about your luck.! I have a fractured back to boot and can't stand for long poriods.so the dishwasher means alot to me. They just don't care. So I with you. I'm in debt and stuggling to pay my morgage each month. My husband had to take out part of his saving to pay bills. Times are hard. for alot of people and they want to bail out the big guys,How about us the little people venting. so stop buying. Your right! carsal.octOn Nov 21 05:09 PM doubleguns wrote:

> Dont buy, dont buy, dont buy. If we dont buy anything other than
> what we need to live and some entertainment we will get thier attention
> . Dont use credit cards any more, slow way down, maybe every 10 years,
> on car purchases and then only buy made in america but not by the
> big three they will get hurt. Revenge is a dish best served cold.
> let them bleed over the next 3 yrs wondering when the consumer is
> going to start buying again. No more credit, cash only. Have you
> noticed lay away is back.
>
> When the depression/recession is over then we see what fat cats are
> left. I suspect not many and they will have a better appreciation
> of consumers. If they mistreat us we quit buying again.
>
> If only we could do it.

2008 Dec 08 05:21 PM