GE Capital: Next CIT?

GE Capital (GE), aka the next CIT, is practicing its recently acquired hypnosis skillset (perfected via daily lessons from CNBC anchors) which has culminated with a 63 page presentation replete with far too much empty verbiage and green shootery.

The take home message:

• H1 Net Income has plunged to $1.7 billion on $557 billion in total assets, and only thanks to firing pretty much everybody: $1.9 billion in SG&A savings
• This is down $24 billion from Q4 as GECC is "continuing to rapidly reduce balance sheet"
• Loss reserves are skyrocketing: currently at $6.6 billion, up one billion from Q1 (and much lower than reality)
• 2009 TY original outlook: $5 billion; Fed base case: $2.0-$2.5 billion, Fed adverse case: $0
• How many more people can GECC fire as its balance sheet implodes?
• Oh yeah, and if CRE really blows up, CIT, here we come
  

ge_webcast_presentation_07282009.pdf

659.6 KB

Comments

[ain't no fo...:]

Goldman evidently came out with an upgrade on GE this morning, upped their target to 15... in yo face Tyler, says Lloyd.

Wonder when GS will put itself on their own conviction buy list.

Oh wait, that's why they have the SLP!

Jul 30 09:18 AM

[the.bighouse:]

Who is this man Tyler?? Does he just resemble Brad Pitt or is it Brad himself undercover with advice on GE?
In all seriousness...GE, though in trouble with its financial unit, is no GM and will be around long after we all are!

Jul 30 12:02 PM

[jamino1:]

Globalization is a mixed bag. Sure it takes away jobs but it also provides cheap durable goods stripped of the huge and crazy embedded costs of labor and capital that exist here. Further with the greater availability of CNC machining worldwide you get quality controlled knockoffs at a fraction of the price. For instance I bought an axle for a 96 Toyota recently for 177 retail. I needed it because the stupid mechanic who replaced a split boot for me two years ago did not seem to care that when a boot splits, the grit gets right in and starts to grind. Anyway, if it were not for globalization I would have payed multiples of what I did for an OEM axle. This goes on everywhere you look. Strip out all the BS embedded overhead we have to deal with in production, encourage MBAs to go back to studying production instead of everyone trying to make it in finance and we may have a shot. As it is the only shot we have now is the one aimed at our head.


On Jul 29 10:10 AM Warm_Paw wrote:

> It's good to get a source of info that strips away the usual song
> and dance that all is well and although we're spiralling down, we're
> spiralling down "less quickly THIS month."
> While work has been offhsored to India, China and Mexico, we at home
> have been living on home equity loans on housing overinflated by
> empty profits in derivative trading.
> Now we take a trillion dollars of tax payer money (the govt's home
> equity loan) and create a "JOBLESS RECOVERY"
> Without jobs, bills don't get paid. Without bills getting paid, the
> masses cannot consume. Durable goods do not get sold.
> It's a real easy concept to grasp.
> I realize Obama's been handed this mess, but it's time he realize
> there was a reason US administrations in years past became protectionist.
>
> Globalization is good...for China, India and Mexico.
> Will someone explain how globalization further's the USA's interests?
> Call me narrow minded, but I'm loyal to the home team. I don't see
> the visiting team jumping in and handing the USA a large bailout
> to stabilize it's economy. Hell, Asia hasn't let the US sell cars
> in the east for how long? Some globalization!

Jul 30 12:08 PM

[Duude:]

The GE plan is to cook the books and hang on till they see a gargantuan push by the Obama administration on cap and trade. GE figures they are as best positioned as anyone to benefit from a fully implemented cap and trade economy. They may be right, but they're totally miscalculating the speed of ramping up a cap and trade economy. The government knows if they push anything in this area before 2013, reelection is out. That leaves GE to fend for itself for 3.5 years with a slow slogging economy and an almost certain landmine in commercial real estate. This should unfold into a great short in the not too distant future.

Jul 30 12:18 PM

[Go Lakers:]

I worked at GE Capital a long time and I can assure you that winning the deal from the customer was only 25% of the battle - getting it approved internally was 75% of the battle.

They are very conservative and losses will not prove any more an issue for them than any other lender. And they don't play in the pool as far down as CIT, they are pure middle-market. What will prove an issue for GE though is leverage (both theirs and their customers) and that's why CRE is the thorn in their side.

If they can get through the trough and CRE doesn't completely implode on them, they will make it. And comfortably.

Jul 30 12:35 PM

[jarco:]

What was the presentation venue? Was there a verbal presentation followed by the usual web cast questions and answers?

In my experience, the rubber hits the road when some pretty smart analysts ask some pretty thorough questions.

Jul 30 01:21 PM

[update:]

EXACTLY RIGHT.

What the permabull sheeple at this forum seem to not get is that GE is wiped out a 100 times over in toxic assets. THEY HAVE NEGATIVE VALUE.

The sole reason they exist was that they were bailed out in several laughably illegal ways, such as becoming a bank holding company (and then exemptions from what that actually entails of course) because they ain't.

And no interest loans from the Gov't who has no business making loans to anybody (talk about the original broke ponzi)

GE will screw us all with their blatantly corrupt GREEN scam in it's many forms, all of which will simply drain our society of money starting with the taxpayer and anybody else that uses elecricity or gasoline.


On Jul 30 12:18 PM Duude wrote:

> The GE plan is to cook the books and hang on till they see a gargantuan
> push by the Obama administration on cap and trade. GE figures they
> are as best positioned as anyone to benefit from a fully implemented
> cap and trade economy. They may be right, but they're totally miscalculating
> the speed of ramping up a cap and trade economy. The government knows
> if they push anything in this area before 2013, reelection is out.
> That leaves GE to fend for itself for 3.5 years with a slow slogging
> economy and an almost certain landmine in commercial real estate.
> This should unfold into a great short in the not too distant future.

Jul 30 02:12 PM

[update:]

Another misrepresentation. They are flat wiped out on paper with nothing but bail outs and hiding losses.

Your definition of making it comfortably and my definition of too-big-to-fail-social... apparently are one and the same.

And GE has always been an inherently bad company. They coined the term 'designed obsolesence', the act of making purposely inferior products to force the consumer to have to repair or replace everything.

They will take this whole 'green' scam to the next level of pain and wipe out the taxpayers in this country yet again with BIG O.


On Jul 30 12:35 PM Go Lakers wrote:

> I worked at GE Capital a long time and I can assure you that winning
> the deal from the customer was only 25% of the battle - getting it
> approved internally was 75% of the battle.
>
> They are very conservative and losses will not prove any more an
> issue for them than any other lender. And they don't play in the
> pool as far down as CIT, they are pure middle-market. What will prove
> an issue for GE though is leverage (both theirs and their customers)
> and that's why CRE is the thorn in their side.
>
> If they can get through the trough and CRE doesn't completely implode
> on them, they will make it. And comfortably.

Jul 30 02:17 PM

[GadflyOnThe...:]

Ah Hammer, in response to your question "How do these losers make it to the top of Corporate America?", there are some secrets.

First, you have to look the look, 6-4, perfect hair, chiseled looks.
Second, you have to graduate from Ivy League schools, in Immelt's case, Dartmouth and Harvard.
Third, you have to have a law degree, which enables you to implement the biggest secret: be a great BSer.

Look at our politicians: 44% have law degrees. But more importantly, the gift of gab ie BSing.



On Jul 29 08:01 AM The Hammer wrote:

> What a mismanaged company? Immelt was rolling over $100 bil in short
> term paper before the credit meltdown to fund this colossal bloated
> debt ball. Does that sound prudent?
> How do these losers make it to the top of corp america?

Jul 30 02:52 PM

[whidbey:]

GE is a defense center piece.

The Obama administration had better hold to GE for dear life since about 50-70% of our major defense systems are GE dependent. CRE may be the visible issue but even this administration knows the middle east (is the real issue), and it can go either way in the next year.Without the carriers we are going to have to be satisfied with whatever happens. Even Obama knows that could end his control of everything in the wink of an eye. GE gets what is crooked little heart wants.

Jul 30 05:43 PM

[dragonpaw:]

"GeeeeeEeeee; we bring good things to light....???!!!"
Lights out.......except for the delusional.

Jul 30 08:01 PM

[sethmcs:]

Empire strikes back. Fortunately I acquired GE a more favorable prices. Unfortunately GS made the upgrade before I rolled a short put trade on GE at a later expiration. GE ain't no CIT and will recover long-term. As a matter of fact I believe that GE is positioned to grow in many markets faster than the rate of growth of the recovery.


On Jul 30 09:18 AM ain't no fortunate son wrote:

> Goldman evidently came out with an upgrade on GE this morning, upped
> their target to 15... in yo face Tyler, says Lloyd.
>
> Wonder when GS will put itself on their own conviction buy list.
>
>
> Oh wait, that's why they have the SLP!

Jul 31 12:13 AM

[bones33:]

Another case of a silver spooned Ivy Leaguer running another American Icon into the ground.When will the shareholders actually start to take control of these companies and kick the management out on there asses.It's the complacency and docile American public letting these cronies ruin a once great nation.

Jul 31 12:17 AM

[ACCOUNTANT:]

One has to look at what GE Credit finances before getting too carried away. Much of their financing relates to the products they sell - and those products will experience very low default rates. If GE credit were as weak as this article implies, Immelt would not be pulling out all the ammunition in his fight against having to spin it off into a separate company, which is what he is currently doing. Sorry Tyler, but you have completely misread this one.

Jul 31 09:10 AM

[Brian McMorris:]

Okay, since you requested it, I will call you Narrow Minded. Business is now global. The internet has seen to that. You jingoists will just need to deal with the fact that this ball of yarn can't be unwound. If the Iranian and Chinese governments, with their lack of Constitutional protections for their citizens, can't stop the Internet, most certainly neither can Obama nor our Congress.

The study of economics reveals that first, in the 1700s, Adam Smith and the "Invisible Hand" theorized that work would be directed to those who can do the work best (at the lowest total cost). Half a century later, David Ricardo developed the "Principles of Political Economy", and introduced the theory of comparative advantage. According to Ricardo's theory, even if a country could produce everything more efficiently than another country, it would reap gains from specializing in what it was best at producing and trading with other nations.

I would add a corollary: If a country is less efficient than another at producing a good, then certainly it will reap gains by trading with other nations who are better (China and India).

Those who grasp at protectionism are blinded by fear. There is no rational basis for their arguments. Every country must be good at something. Low cost labor is definitely not a comparative advantage for a country with the highest wages and some of the highest taxes in the world. Sorry, you lose.

On Jul 29 10:10 AM Warm_Paw wrote:

> It's good to get a source of info that strips away the usual song
> and dance that all is well and although we're spiralling down, we're
> spiralling down "less quickly THIS month."
> While work has been offhsored to India, China and Mexico, we at home
> have been living on home equity loans on housing overinflated by
> empty profits in derivative trading.
> Now we take a trillion dollars of tax payer money (the govt's home
> equity loan) and create a "JOBLESS RECOVERY"
> Without jobs, bills don't get paid. Without bills getting paid, the
> masses cannot consume. Durable goods do not get sold.
> It's a real easy concept to grasp.
> I realize Obama's been handed this mess, but it's time he realize
> there was a reason US administrations in years past became protectionist.
>
> Globalization is good...for China, India and Mexico.
> Will someone explain how globalization further's the USA's interests?
> Call me narrow minded, but I'm loyal to the home team. I don't see
> the visiting team jumping in and handing the USA a large bailout
> to stabilize it's economy. Hell, Asia hasn't let the US sell cars
> in the east for how long? Some globalization!

Jul 31 10:30 AM

[Brian McMorris:]

Regarding Tyler's misreading of something: so what is new? Tyler Durden is one of the most cynical of bloggers and has developed a worldwide reputation for spinning negative posts. I guess all fame is good fame.

Tyler, if you can show me something positive you have written, I would like to read it. Do you and Peter Schiff have lunch together?

Jul 31 12:35 PM

[Suncatcher:]

It would be logical in a logical world to short GE. It so happens that this world isn't logical and betting against a government sanctioned company will kill you financially in todays economy.

Aug 01 01:29 AM

[Duude:]

The Obama administration will continue GE's waiver to the requirement placed on other bank holding companies to purge their companies of nonfinancial businesses. GE capital cannot survive without a huge capital infusion of reserves to offset their huge leveraged portfolio. As it stands now, GE capital has the remainder of GE to serve as a source of some kind of reserve through their ability to produce cash flow. If GE was required to spin off GE capital, they would need to come up with tens of billions in cash assets to right its overextended leverage. That would leave both GE capital and GE each in much weaker positions. If commercial real estate really does collapse as has been predicted by many analysts, GE will be back to the Federal trough for another multi-billion advance on top of the 160 billion they've already commanded.

Aug 01 11:21 AM

[Goingfwd:]

GE is counting on Cap and Trade bill to boost their numbers in the future. They will lobby profusely to make sure that it does. Their tentacles are so entwined with the Federal Government that they cannot fail, even when they do.

Aug 01 04:51 PM

[sethmcs:]

Not necessarily. GE capital has access to the unfrozen capital markets and can roll over its debts without government assistance. The Panic of 2007-2008 was just that--- a panic and any company heavily exposed to short-term commercial paper could fail. Immelt raised enough debt and equity to remove the possiblity of liquity failure. The psychology has changed. The financial world is not going to fall apart. Now there is a possibility that GE is undervalued. As a matter of opinion some of the so called toxic assets are undervalued as well. Time will tell of course.


On Aug 01 11:21 AM Duude wrote:

> The Obama administration will continue GE's waiver to the requirement
> placed on other bank holding companies to purge their companies of
> nonfinancial businesses. GE capital cannot survive without a huge
> capital infusion of reserves to offset their huge leveraged portfolio.
> As it stands now, GE capital has the remainder of GE to serve as
> a source of some kind of reserve through their ability to produce
> cash flow. If GE was required to spin off GE capital, they would
> need to come up with tens of billions in cash assets to right its
> overextended leverage. That would leave both GE capital and GE each
> in much weaker positions. If commercial real estate really does collapse
> as has been predicted by many analysts, GE will be back to the Federal
> trough for another multi-billion advance on top of the 160 billion
> they've already commanded.

Aug 02 12:47 AM