正文
In the credit-derivatives market, the cost of insuring against a default by the company\'s finance arm was nearly as much as protection on bonds of troubled insurer American International Group Inc., according to data from CMA DataVision.
The downward spiral in investor confidence resembled those that have humbled other financial giants in the past year, including AIG, Lehman Brothers Holdings Inc. and Citigroup Inc. But GE doesn\'t appear to be in similar straits, and it bristles at the comparisons. Its industrial units, while weakened by the recession, still expect to generate more than $18 billion in profit this year.
We are well-positioned to weather this downturn, the company said in a letter to investors Wednesday.
More
* GE Capital Sparks Concern
3/02/09
* Read Mr. Immelt\'s letter to investors.
* Earlier: Immelt on Dividend, Triple-A Rating
But that seemed to matter little to the market. GE shares at one point dipped below $6, their lowest level since 1991.
GE Capital is being viewed as very risky right now, says Tim Backshall, chief strategist at Credit Derivatives Research LLC.
Investors have fled GE despite repeated efforts by Chairman and Chief Executive Jeffrey Immelt to shore up its position. Since October, GE has sold $15 billion in new shares, reined in its finance unit and reduced its reliance on volatile short-term funding.
GE also has sold $31 billion in new bonds -- most of them guaranteed by the government -- to fund its business in 2009, and it shifted $15 billion to GE Capital. Friday, GE said it would cut its dividend 68% in the third and fourth quarters, saving $4.4 billion.
But investors worry that Mr. Immelt has been slow to respond to changing market conditions, and that GE Capital will face steeper-than-expected losses in the global economic downturn.
Steven Winoker, a senior analyst at Sanford C. Bernstein & Co., said GE has set aside roughly $10 billion in provisions for losses on its $380 billion in receivables at the finance unit. The concern is that number should be much higher, he said.
GE Capital makes loans to consumers and businesses, as well as clients of GE\'s aviation and energy units. It has vast lending activities outside the U.S., including banking operations in developing markets like Central and Eastern Europe, which also are experiencing economic headwinds.
In addition, the finance unit is among the world\'s largest investors in commercial real estate like office buildings and shopping malls. Sinking property values have prompted GE to write down the value of its holdings, but not as much as some other investors. As of the end of 2008, GE said it had booked a $4 billion unrecognized loss on about $37 billion worth of buildings, about 11% of its property portfolio.
If GE were to write down its real-estate portfolio by 25%, it would have to take a $9 billion hit to earnings and equity, UBS analysts said in a report Tuesday. In the report, UBS analysts said GE Capital may need to raise additional funds, in part because of pending losses in its real-estate portfolio. GE has pared its real-estate holdings, but has boosted real-estate lending. As a result, its total real-estate assets increased $6 billion, or 8%, last year.
GE has said it shouldn\'t have to mark its real-estate assets to market because they are long-term investments. A spokesman said its real-estate portfolio is conservative, as it is diversified across regions and property types and GE uses very little leverage to buy properties.
In its letter to investors, GE said it had no plans to raise additional capital, calling reports to the contrary inaccurate. GE spokesman Gary Sheffer denied market rumors that GE is considering a spinoff or divestiture of GE Capital, perhaps in partnership with the federal government.
In its letter, GE said it has $63 billion of total equity, $34 billion of tangible equity and $36 billion in cash, giving it a financial cushion that compares favorably to other financial institutions.
Many investors expect GE to lose its treasured Triple-A credit rating, which could raise its borrowing costs. A sharp downgrade could trigger billions of dollars in additional financial obligations. Moody\'s Investors Service is reviewing GE\'s rating for a downgrade; Standard & Poor\'s has a negative outlook on the company.
Despite the run on GE shares, some investors are holding on. It just seems like the bears are in the driver\'s seat, said Mike McGarr, portfolio manager at Becker Capital Management, which owns nearly one million GE shares. It looks oversold to us.
The downward spiral in investor confidence resembled those that have humbled other financial giants in the past year, including AIG, Lehman Brothers Holdings Inc. and Citigroup Inc. But GE doesn\'t appear to be in similar straits, and it bristles at the comparisons. Its industrial units, while weakened by the recession, still expect to generate more than $18 billion in profit this year.
We are well-positioned to weather this downturn, the company said in a letter to investors Wednesday.
More
* GE Capital Sparks Concern
3/02/09
* Read Mr. Immelt\'s letter to investors.
* Earlier: Immelt on Dividend, Triple-A Rating
But that seemed to matter little to the market. GE shares at one point dipped below $6, their lowest level since 1991.
GE Capital is being viewed as very risky right now, says Tim Backshall, chief strategist at Credit Derivatives Research LLC.
Investors have fled GE despite repeated efforts by Chairman and Chief Executive Jeffrey Immelt to shore up its position. Since October, GE has sold $15 billion in new shares, reined in its finance unit and reduced its reliance on volatile short-term funding.
GE also has sold $31 billion in new bonds -- most of them guaranteed by the government -- to fund its business in 2009, and it shifted $15 billion to GE Capital. Friday, GE said it would cut its dividend 68% in the third and fourth quarters, saving $4.4 billion.
But investors worry that Mr. Immelt has been slow to respond to changing market conditions, and that GE Capital will face steeper-than-expected losses in the global economic downturn.
Steven Winoker, a senior analyst at Sanford C. Bernstein & Co., said GE has set aside roughly $10 billion in provisions for losses on its $380 billion in receivables at the finance unit. The concern is that number should be much higher, he said.
GE Capital makes loans to consumers and businesses, as well as clients of GE\'s aviation and energy units. It has vast lending activities outside the U.S., including banking operations in developing markets like Central and Eastern Europe, which also are experiencing economic headwinds.
In addition, the finance unit is among the world\'s largest investors in commercial real estate like office buildings and shopping malls. Sinking property values have prompted GE to write down the value of its holdings, but not as much as some other investors. As of the end of 2008, GE said it had booked a $4 billion unrecognized loss on about $37 billion worth of buildings, about 11% of its property portfolio.
If GE were to write down its real-estate portfolio by 25%, it would have to take a $9 billion hit to earnings and equity, UBS analysts said in a report Tuesday. In the report, UBS analysts said GE Capital may need to raise additional funds, in part because of pending losses in its real-estate portfolio. GE has pared its real-estate holdings, but has boosted real-estate lending. As a result, its total real-estate assets increased $6 billion, or 8%, last year.
GE has said it shouldn\'t have to mark its real-estate assets to market because they are long-term investments. A spokesman said its real-estate portfolio is conservative, as it is diversified across regions and property types and GE uses very little leverage to buy properties.
In its letter to investors, GE said it had no plans to raise additional capital, calling reports to the contrary inaccurate. GE spokesman Gary Sheffer denied market rumors that GE is considering a spinoff or divestiture of GE Capital, perhaps in partnership with the federal government.
In its letter, GE said it has $63 billion of total equity, $34 billion of tangible equity and $36 billion in cash, giving it a financial cushion that compares favorably to other financial institutions.
Many investors expect GE to lose its treasured Triple-A credit rating, which could raise its borrowing costs. A sharp downgrade could trigger billions of dollars in additional financial obligations. Moody\'s Investors Service is reviewing GE\'s rating for a downgrade; Standard & Poor\'s has a negative outlook on the company.
Despite the run on GE shares, some investors are holding on. It just seems like the bears are in the driver\'s seat, said Mike McGarr, portfolio manager at Becker Capital Management, which owns nearly one million GE shares. It looks oversold to us.
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