How GE Compares to Other Banks

Rolfe Winkler has run the numbers on how General Electric (GE) compares to other banks (yes, GE is a bank) and has come to the conclusion that as of December 31, GE had total tangible common equity of... wait for it... $5 billion. As a result, its leverage ratio, of tangible assets divided by tangible common equity, is a whopping 140 -- the kind of number which would make Fannie or Freddie blanch.

GE is now trading at less than $11 a share, which is a drop of 81% from its all-time high in 2000, and a drop of 36% just since the beginning of this year. It's weird: even as the company retains its triple-A rating, the stock market seems to be worrying that it might actually be moving into the arena of insolvency.

GE's not trading at option value yet -- it still has a market capitalization of more than $100 billion -- but it's clearly distressed. According to Winkler, GE managed to lose $9 billion of tangible common equity in just three months. With only $5 billion left, this might be a good time to start raising equity, rather than debt.

Comments

[ashades:]

GE will survive unless the country as a whole goes belly up. Many of the reasons for GE's decline are not mentioned in these posts. Many long term investors (baby boomers and greatest generation)who have made plenty of money on GE have retired and are cashing out due to the whole economic downturn.
Their selling off of historically good stock does not mean the company is bad, just the risk for their retirement. Long term GE will be up to 50 & 60, shorter term it will end the year in the 20's..
If it hits ten buy as if your retirement is counting on it.

Feb 17 04:48 PM

[igggy:]

For those who are buying GE perhaps it is nothing but GM + C if you know what I mean. Are you buying the other two as well?

Feb 17 06:05 PM

[jstratt:]

In Oct 2007 I owned about 1200 sh of GE and concluded that GE was a financial company and we were entering a financial crisis. I sold off over 50% of my position.

Last March 2008 I believe it was when Immelt stated that earnings would be good then 2 weeks later announced bad earnings. I did some research and located the GECS 10k. From memory I recall 40 billion in RE purchased in the past 2 years and 50 billion in SIV assets. They also pointed out that their large consumer debt was non US and mostly UK and the rest of the world. I sold the rest of my shares above $30.

In December 2008 I concluded that GE will likely not fail and began watching it. In the past few days I purchased a small amount of GE. It is not a time to be greedy. Buy a long term position about 1/10th at a time. Perhaps even start buying some each month for a year.

GE will survive. Much of the dividend and Immelt will not. I will not suggest GEs future low or high but I suspect it will go lower and then rise for many years. Purchases in this era will do well over time do to GEs diversified business mix and some level of financial acumen. This is however my only allocation of high risk capital.

Feb 17 08:32 PM

[MN Dabbler:]

Bear Stearns was founded as an equity trading house in 1923 by Joseph Bear, Robert Stearns, and Harold Mayer with $500,000 in capital. The firm survived the Wall Street Crash of 1929 without laying off any employees and by 1933 opened its first branch office in Chicago. In 1955, the firm opened its first international office in Amsterdam. In 1985, Bear Stearns became a publicly traded company. It served corporations, institutions, governments and individuals. The company's business included corporate finance, mergers and acquisitions, institutional equities and fixed income sales, trading and research, private client services, derivatives, foreign exchange and futures sales and trading, asset management and custody services.

Further historical notes regarding Lehman and Merrill can be provided upon request. The problem with history is that it's history.

Feb 18 02:33 AM

[22thoroughbred:]

I am naked 150 GE Sept. $17 calls and it is one posn. I am most comfortable holding, i received $9000 ( 60 cents a contract) to wait for 9/10/09 for GE to stay below $17 and the contracts to expire worthless. I have about $60,000 in margin requirement held for 8 months, so if this plays out I make just under 14% on my money for 8 months or 21% annualized, who here believed GE will go to $17 by then, almost a 60% gain...show of hands.

Feb 18 03:00 AM

[klarsolo:]

22thoroughbred,

let me just say that this is a risky bet that I would be very uncomfortable with. Even in a bear market GE can easily rally 50-60 % before resuming its downtrend again. The sudden spike in volatility plus the fact that your naked calls would then be at-the-money can wipe you out. Good luck.

Feb 18 09:18 AM

[maynardgk:]

Yes this is quite risky for a mere 20% gain. Nothing goes in a straight line and all it takes is a little positive sentiment to spark a short-cover in the DOW, GE could be a leader in such a rally.



On Feb 18 03:00 AM 22thoroughbred wrote:

> I am naked 150 GE Sept. $17 calls and it is one posn. I am most comfortable
> holding, i received $9000 ( 60 cents a contract) to wait for 9/10/09
> for GE to stay below $17 and the contracts to expire worthless.
> I have about $60,000 in margin requirement held for 8 months, so
> if this plays out I make just under 14% on my money for 8 months
> or 21% annualized, who here believed GE will go to $17 by then, almost
> a 60% gain...show of hands.

Feb 18 01:11 PM

[swygert@law...:]

Unlike the CEO's of Wall Street's mega banks, the GE CEO today showed us that morality still has a place in the corporate headquarters -- when you haven't earned it, you have no moral right to it.Doing what's right trumps contract rights when it counts.

Feb 18 01:36 PM

[aarc:]

22thoroughbred,

Resistance for GE on the monthly chart is 21.40.

Expected recovery bounce for the US stock markets is late March to early April 2009 and most likely will end by Sept 2009 before the final run down usually called the capitulation sell-off that should end by late Nov to early Dec 2009. It is going to be a tedious a-b-c flat pattern on the weekly chart with Dow Jones expected to have a bear market rally from 6,800 to 10,500 range with higher probability of 9,700 (meaning 10,000 less likely to broken to the upside during the bear market rally). Bear market rallies usually range in 38.2% to 50% retracement of the last run down. It is impossilbe to know exactly where the retracement is going to end until the very last moment. For Dow Jones, the 3rd wave of the C wave started May 2008 at 13,136 and should end by Mar/Apr 2009 at the 6,800 area.

That means GE could be testing the resistance range $16.83 to $21.40 by Sept 2009 assuming GE will be able to go down to $9.39-$8.43 range by late March 2009 before the bear market rally starts for a 38.2% to 50% usual retracement range of the 3rd wave of the C wave on the monthly chart where the C wave started Sept 2008. GE is an A-B-C zigzag pattern on the monthly chart which started August 2000. Equal move target is $3.06 projected Nov/Dec 2009.

These are nominal ranges only. I assume nothing extra-ordinary should happen in the near future such as a major war errupting in Europe or a global stock market meltdown with consequences way beyond the capabilities of the G8 or G20 members to curtail -- or that the governments across the world finally decided to gang up against the impending severe recession and nip it in the bud with massive global recovery initiative programs thereby preventing what history usually repeats.

Feb 18 02:09 PM

[Bill Thompson:]

GE has absolutely stopped lending. It will be interesting to see if they change that, may be a rally soon, see here crashmarketstocks.com

Feb 18 04:54 PM

[If U Say So:]

Right you are karsolo.
The profit has to be inline with risk assumed. While GE has been in the toilet and it doesn't seem terribly likely it will hit 17 tomorrow, 7 months is a lifetime in a once blue chip name paying a nice dividend (for awhile anyway). I can't even imagine taking 60 cents a contract on any naked calls, unless I had inside info on an imminent chapter 11 filing from Immelt himself. However, I might consider some naked puts if the premiums would expand a little.


On Feb 18 09:18 AM klarsolo wrote:

> 22thoroughbred,
>
> let me just say that this is a risky bet that I would be very uncomfortable
> with. Even in a bear market GE can easily rally 50-60 % before resuming
> its downtrend again. The sudden spike in volatility plus the fact
> that your naked calls would then be at-the-money can wipe you out.
> Good luck.

Feb 18 05:10 PM

[levin70:]

Understand that the article is looking at Assets (including goodwill, which it should remove, but doesnt) divided by tangible equity available to common holders. This article is not looking at assets divided by tangible net worth - two very different animals.

Always understand what the numbers are, before you talk about what they pupport to mean.

Especially when talking about solvency. If you really think that preferred holders (perpetual prefferred to boot) are akin to debt holders, i have a bridge to sell you, real cheap even.

This article was well below your standards felix. Normally what you post has weight to it. This unfortunately does not.

Feb 18 06:16 PM

[zaparozhe:]

22thoroughbred:

I assume you a very wealthy guy who can afford to make little bets like this to amuse yourself.

If you're not, you're an idiot with little understanding of risk v reward. One day you'll get run over like the guy who picks up nickels in front of the steamroller.

Feb 18 06:41 PM

[bigtime99:]

Unfortunately, technical analysis is bunk.


On Feb 18 02:09 PM aarc wrote:

> 22thoroughbred,
>
> Resistance for GE on the monthly chart is 21.40.
>
> Expected recovery bounce for the US stock markets is late March to
> early April 2009 and most likely will end by Sept 2009 before the
> final run down usually called the capitulation sell-off that should
> end by late Nov to early Dec 2009. It is going to be a tedious a-b-c
> flat pattern on the weekly chart with Dow Jones expected to have
> a bear market rally from 6,800 to 10,500 range with higher probability
> of 9,700 (meaning 10,000 less likely to broken to the upside during
> the bear market rally). Bear market rallies usually range in 38.2%
> to 50% retracement of the last run down. It is impossilbe to know
> exactly where the retracement is going to end until the very last
> moment. For Dow Jones, the 3rd wave of the C wave started May 2008
> at 13,136 and should end by Mar/Apr 2009 at the 6,800 area.
>
> That means GE could be testing the resistance range $16.83 to $21.40
> by Sept 2009 assuming GE will be able to go down to $9.39-$8.43 range
> by late March 2009 before the bear market rally starts for a 38.2%
> to 50% usual retracement range of the 3rd wave of the C wave on the
> monthly chart where the C wave started Sept 2008. GE is an A-B-C
> zigzag pattern on the monthly chart which started August 2000. Equal
> move target is $3.06 projected Nov/Dec 2009.
>
> These are nominal ranges only. I assume nothing extra-ordinary should
> happen in the near future such as a major war errupting in Europe
> or a global stock market meltdown with consequences way beyond the
> capabilities of the G8 or G20 members to curtail -- or that the governments
> across the world finally decided to gang up against the impending
> severe recession and nip it in the bud with massive global recovery
> initiative programs thereby preventing what history usually repeats.

Feb 18 09:57 PM

[iliketofrol...:]

ROFL a capital ratio of 6.78%, since when is that good? I am pretty sure the regulatory minimum is 6% to prevent the FDIC from taking over the company

Feb 18 10:15 PM

[iliketofrol...:]

meant bank not company...

Feb 18 10:20 PM

[monday1929:]

Technical analysis is a tool, not magic. Long term charts gave one the perspective to see that the Dow could easily fall 30-80% from its peak. I love having those with your beliefs on the other side of my trades.


On Feb 18 09:57 PM bigtime99 wrote:

> Unfortunately, technical analysis is bunk.

Feb 19 07:59 AM

[Edward, Lor...:]

Ah, the ancient lawyers game: set up a straw man and then attack it. In logic: proceed from a false premesis. The more blandly stated the better, and if repeated, better yet. Herein, "GE is a bank."

I hold a little bit of GE, small new car's worth, and since the 60s have felt it was more like a no-load, no-expenses mutual fund than any particular sector representative. It is in part a heavy industrial, a light industrial, a services company, a bank too, and yet is none of those things particularly. Whatever it is it isn't just "a bank."

And I suspect those short GE because it is "just a bank," are going to be burnt, too bad. And perhaps the shorts believe that too, more the motive to slam it hard right now so they can still get out. Don't get hit by a locomotive on your way out.

Feb 19 10:03 AM

[Igneous:]

Most interesting string. Being newly retired and my wife losing her good job I'm nervous about staying long on GE. I think losing or downsizing their financial division would be like a dose of antacid medicine to me. Shouldn't the reduction of their AAA rating or say a 50% cut in dividends alter a decision to stay long?
What say ye all?

Feb 19 12:36 PM

[GE watcher:]

I think your comment that GE didn't take any TARP money and is therefor better off then the banks that did is a little misplaced. GE chose to hit up Buffett for billions in preferred stock at a 10% rate + warrants and over $10B in equity markets instead of hitting up the FED. I think if you back that out you would see that GE would be in the same ugly ratio position as the major banks. The only thing working in GE Capital's favor is that they didn't make the same type of bad loans that are impossible to value in this market as the major banks did. GE Capital is only really impacted by the economic cycle. They are strong enough to survive this cycle after they delever.



On Feb 17 11:32 AM User 358187 wrote:

> I would say a very poor analysis on the part of the writer. IF you
> are going to compare apples and oranges, the first thing you might
> want to do is see how the tangible equity in the banks are minus
> their TARP money? My off the cuff guess is all are showing negative
> equity positions. GE has not taken any of that money and yet still
> shows a cash/short term investments balance in the range of $50B.
>
>
> Why do these so called analysts constantly promote negativism against
> companies? My guess is this guy shorted GE?

Feb 19 02:25 PM