stockdoc06

GE Capital: Next CIT?

You left out one big thing. CIT was almost "too big to fail" GE is the epitome of too big to fail. Employs 100,000 people and has a $600 B balance sheet. Also a very different business than CIT. GE has problems in finance, but a lot of finance went to fund purchases of GE equipment. CIT has been lending in the dark for years. If GE fails it is because may other banks failed first and in that case, there aren't going to be many solvent companies left to invest in anywhere.

GE: Worst Case Scenario Ain't So Bad

Great look at the balance sheet issues. I had done a similar analysis and came to a similar conclusion, though my book value ended up lower because I went higher on the write-offs. Important to keep in mind is that since GE is a holder of collateral they are not required to sell or mark to market. Unless you believe that inflation will never reappear or real estate will never appreciate, GE will likely never see most of those losses. To give you an example, in the affluent Columbus, OH suburb of Worthington GE recently foreclosed on a strip mall. The mall is in one of the best commercial locations in the city (on High just south of 270 for those familiar with the area) and looks like no one has updated it since the 70s. GE is investing in the property to redevelop it and based on the plans I have seen will likely turn a PROFIT in few years despite the mark they took when they foreclosed. Also, keep in mind we are talking about book value. GE isn't a static balance sheet, those assets are generating cash year in and year out so valuing them at book is really a worse case scenario. The ONLY real concern with GE's balance sheet is their ability to roll debt and fund in the short-term. Government programs have given them access to the credit markets and the AA+ rating will give them the ability to roll debt on their own once we get through the crisis. Disclosure (long GE)