GE Plans To Shop Its WMC Subprime Mortgage Unit

Reuters reports General Electric plans to sell its subprime mortgage unit, WMC Mortgage, essentially taking the mega cap conglomerate out of the U.S. mortgage business. WMC President and CEO, Laurent Bossard, sent a memo to employees yesterday saying, "The mortgage industry has greatly changed since the purchase of WMC. The current subprime market environment has made a significant negative impact on the business." During the first quarter, GE took a $500 million pretax charge on subprime loans, with additional subprime losses likely for during Q2. According to A.G. Edwards analyst Christopher Kotowicz, "You can't gloss over a $100 million or a $200 million write down," adding that each $100 million write down affects EPS by $0.01. GE laid off 450 WMC employees during the first quarter, in addition to selling off $3 billion in subprime loans. It still holds another $1.5b in subprime mortgages. Credit-default swaps on $10 million of GE debt have jumped this week, from $2,000 to $16,875, signaling a deteriorating perception among financial institutions of GE's credit quality.

Sources: Wall Street Journal, Bloomberg, Reuters, MarketWatch [check back later today for GE's latest conference call transcript]
Commentary: GE May Ditch Subprime Loan Unit • Housing Bubble and Real Estate Market Tracker • Is This the Bottom for Submerging Prime?
Stocks/ETFs to watch: General Electric (GE)
Earnings call transcripts: General Electric Q1 2007

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

Comments

[Jim Glazen:]

gee, selling the subprime unit as that market is melting down sounds like great timing. Shrewd move Immelt. Buy high, sell low. What a bunch of morons.

2007 Jul 13 11:58 AM