GE: The Decimation Continues 33 comments
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General Electric (GE) was down as much as 15% in early trading, as the market is still unconvinced that the company can stand under the weight of its massive debt load at GE Capital. The market is betting that GE is not viable in its current state.
The really interesting thing about GE is the fact that it is basically two different companies. There is GE Capital, which has way too much leverage and has made some very risky plays in real estate and debt obligations, and then you have the other side of GE, which makes everything from medical equipment to appliances to alternative energy solutions. One business is on death watch as the other business, while struggling, is in nowhere near the dire condition of the other.
Bill Gross, founder of Pimco, was interviewed on CNBC’s Squawk on the Street and he was asked, “How do you restore the confidence in GE that they are so lacking right now?” To 
which he said,
“The problem is in GE Capital. General Electric itself is a strong industrial corporation with major exports and a major production base. It is the heart, in addition to the auto companies, I suppose, of industrial manufacturing in this country.”
The fact is that GE does have particular parts of the company that justify a better valuation than selling for little more than 3 times trailing earnings. However, the extreme leverage of GE Capital is toxic enough to bring those parts of the company down with it. The massive debt load will come due at some point, and further write-downs of GE’s balance sheet are looking like an inevitability.
So, GE needs to find a way to break out of this free fall before they begin to attract the “too big to fail” bailouts that are all the rage these days. The options from here are not pleasant but options are becoming more sparse by the day. Perhaps the company could spin off or sell certain units, but getting GE Capital off the company's balance sheet could be too good to be true. They could hold a secondary offering, which would be highly dilutive to shareholders as shares are down so much already, but at this point it seems to be more about survival anyway. Or a shakeup in leadership could go part of the way to restoring confidence. Immelt was in charge when GE pushed to expand its exposure to finance with GE Capital; he has been in charge as the ship began to sink. His efforts to restore confidence in the company have been little help, and claiming the dividend was safe and other gaffes actually did the opposite of restoring confidence. The board must at least be considering the possibilities of sending him packing.
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You have to detox him first.
The way you detox GE is take their stock below a dollar and force Immelt out and break up the company by selling NBC and GE Capital and get GE back to making stuff.....
preferably in this country.
Jeffry was what -- 42 when he took over. He had no experience with capital and look where it got GE.This is a problem GE created with its corporate culture of valuing youth over experience.
Perhaps you'd like to throw the baby out with the bath water?
On Mar 04 02:18 PM battman wrote:
> From globeinvestor.com
>
> "The cost of insuring GE Capital's debt against default with credit-default
> swaps earlier spiked to 20 per cent upfront — meaning an investor
> had to pay $2-million immediately plus $500,000 a year to insure
> $10-million of debt, according to data from Phoenix Partners Group.
> Later in the morning the upfront payment eased to $1.5-million."
>
>
> Are they STILL doing these f'in CDS's? Isn't that a big part of
> the problem in the ifrst place?!?!?!?!?!
>
> Will they ever learn?
Geithner and Bernanke, with all their recently minted paper trillions, will have to figure a way to take over the financial parts of GE and leave the industrial sections to continue to thrive. This is far more important to the future of the US than subsidizing AIG's CDS casino, funneling money to incompetent WS bankers, or paying deadbeats' mortgages.
Interesting that Neutron Jack had three crown princes, for those old enough to remember: Immelt, Nardelli and (do you remember?) McNerney. Of the three, two turned out to be incompetent and Nardelli has presided over not one but TWO disasters. (I'd have ruined Home Depot for a lousy 100 million bonus, half the price.) Only the forgotten triplet, McNerney, scorned by Welch, has proved competent. It says a lot about the four of them and particularly Welch. With so much talent at GE, how did he manage to include two major losers in his Top Three Picks?
Don't hold your breath yet - we might have another general coming down like a Colossus Rhodes.
GE is reminiscent of a flagging behemoth that couldn't compete in key sectors and bring in the medicine men to evangelize and re-invent itself through hype. Hollywood actors and actresses do that all the time. When their box office drops, they get together and create media sensation to boost audience and movie goers.
Sorrowful state - hope foundation Edison would not roll over in his grave.
On Mar 05 10:24 AM Teutonic Knight wrote:
> With the recent revealation of GE's previously obscured and perhaps
> hidden exposure in Eastern Europe and other European finanical markets,
> the saga is just beginning to unravel and looks alike to that for
> AIG's.
>
> Don't hold your breath yet - we might have another general coming
> down like a Colossus Rhodes.
>
> GE is reminiscent of a flagging behemoth that couldn't compete in
> key sectors and bring in the medicine men to evangelize and re-invent
> itself through hype. Hollywood actors and actresses do that all the
> time. When their box office drops, they get together and create media
> sensation to boost audience and movie goers.
>
> Sorrowful state - hope foundation Edison would not roll over in his
> grave.
www.ge.com/ar2008/pdf/...
in million US$
Total Shareowner's equity 104,665
Goodwill Assets 81,759
Other intangible assets - net 14,977
That means tangible common equity 7,929
Total liabilities 684,157
Insane gearing 86X tangible book, sound familiar like FNM or FRE.
This is the iconic model of American AAA corporations.
On Mar 04 08:37 PM The AntiCramer wrote:
> Credit default swaps do serve a purpose. Legitimate hedging activity
> should be allowed and encouraged. Rampant speculation in the CDS
> market is the problem.
>
> Perhaps you'd like to throw the baby out with the bath water?
I personally sold much of my GE when I concluded it was a financial company and we were in a financial crisis. I sold the rest last spring when Immelt stated earnings would be good a couple weeks before they tanked. He either lied or doesnt have a clue and I dont care which.
GE is an unknowable risk in one sense. However I think I can make some estimates. The items that caused me to sell all of my GE were as I recall the 40 billion in RE purchased in the past 2 years (in last years GECS 10k report), the 50 billion in SIV assets and I think 100+ billion in non US consumer debt. It is only my gut opinion but I think GE can survive those issues based on its diverse asset base.
I choose to believe in GE, at least to a point. I dont believe GE is rotten to the core as some other institutions may be. In the end GE is an important business that should endure.
As for Immelt it is not the time to create more turmoil. It may take a few months but Immelt is history when the time is right to hold those who should be, accountable.
what position have they placed the company or in a bigger picture this country .
No parachutes.. let's start over.. the next guy can't possible do worse..
I only hope Obama starts to back up some of the campaign promises..
appears he is content to let the train wreck at full speed.. unless I am
missing something in his same old same old policies and cabinet picks..
We in the masses are going to have to do something drastic to shake up
policy making at all levels.. government refuses to do the right thing...
taxation in the last ten years blows my mind..unrelenting assaults.
left of the philosophy that the founders put in place..
I think the international bankers who ran these companies should go to jail when they lose so much money that they go bankrupt.
At one point financial companies made up close to 20% of the S&P500 in terms of market cap. Thats crazy considering they don't actually produce anything except more leverage. The whole banking process is corrupt to begin with. If you gave me a dollar and then I lended it out 20 times to other people who also agreed to deposit their money back with me its only a matter of time until two of those people ask for the demand deposit on the same day. Its just a large ponzi scheme to begin with. Banks should operate with much lower leverage ratios than are allowed to. Personally why can't banks just be repository institutions. I place my money in a bank. Pay 1% per year for storing and helping me with transactions. They don't loan it out at all. The money is always there. Let people lend to other people directly. No more wholesale risk. No more runs on the banks, bailouts, etc... If I make a bad loan my bad and my responsibility. No one else gets hurt.