This morning, Ockham CEO Christian Ward was interviewed by Fox Business Network’s Charles Payne about the plight of General Electric (GE). As everyone has noticed in the last few months the GE stock has come under increased pressure as GE Capital is subject of much speculation these days. Christian was asked to give a little bit of clarity on where GE might be headed from here. In case you missed it, we have transcribed the interview here:
Payne: Where does GE go from here? I’m joined by Christian Ward of Ockham Research. Give us the depth of the crisis at GE.
Ward: Good morning, Charles. The depths are, unfortunately, very unknown. We looked at the letter that came in yesterday from GE management, as we saw the stock fall to decade lows. And unfortunately they used the word, in the very opening sentence, that this is largely because of speculation. For all the investors out there, what else are we really left with? GE Capital continues to be somewhat of a black box. It has been built upon a black box mentality. It is not part of a bank holding company where you are actually going to get some insight into what is actually going on in the books.
I think the depths of the crisis are hard to pin down, it's absolutely a crisis of confidence and management is talking about that. But realistically, management is a very large reason as to why we have arrived at this crisis.
Payne: Well that’s a fantastic point you make. What can be done to restore investor confidence if A) we don’t believe in management and B) we don’t know what the problem is?
Ward: Well, first off, it’s a very tough road. With the way the market is right now, you’re not necessarily going to be able to sell off any of these assets that are at GE Capital. GE as a company, we want to be very clear, there are some great business lines; they may be struggling like every other industrial company with many different business lines. However, GE Capital is a real concern here. If GE Capital is a problem, they have to try and fix that first.
A lot of people are talking about management changes. They’re talking about perhaps splitting off GE Capital. Unfortunately who is going to buy GE Capital? If they’re going to be brought to the table to buy GE capital, there is a great deal of trouble in terms of really knowing exactly what you have. It definitely hearkens back to the Ken Lewis-Bank of America (BAC) and Merrill Lynch deal; if you’re asked to sit in a room and buy something that may not be worth acquiring…
Payne: Speaking of Ken Lewis, they have gone to the government twice now. Will the government have to come to the rescue in this situation?
Ward: Unfortunately, I do see that as a very real possibility. First, I don’t think you’ll see a management change. The sarcastic or even cynical investors will look at this and recognize the CEO is very close with the current administration. It’s very unlikely you’ll see, if there is to be a government landing pad that is presented for GE, it’s very likely that that landing pad will be done with the current management in place. So if the government steps in, and we would say, if mark to market rules are suspended, it’s very possible that you’re going to see GE access TARP funds for GE Capital’s purposes, and have to become a little bit more transparent. But I think it would be very odd to see that before mark to market is suspended.
Payne: Christian, we only have one second left. What is your firm’s take on GE stock now? What are you telling clients right now, in just one second?
Ward: We actually give this what we call “The Sticky Note of Doom” on our system. We think it is Undervalued, but be very careful until this gets worked out.