Thursday, November 20, 2008

GE Facing some Hard Times

I was wondering if GE at $12.84 was a good buy and I came across this article and took some pause. It seems that their GE Capital arm might pull the rest of their fairly profitable businesses underwater.

GE is a bank disguised as an industrial conglomerate. GE Capital is a division of GE, which truly dominates the results of this company. GE Capital has three subdivisions (GE Commercial Finance, GE Money, and GE Consumer Finance). In 2003, GE Capital generated $5.9 billion of GE’s $17 billion of profits, or 35%. By 2007, GE Capital was generating $12.2 billion of their $29 billion of profits, or 42%. Being a bank during the boom years of 2004 to 2007 did wonders for GE’s bottom line. Being a bank now is a rocky path to destruction.

This part seems pretty scary too judging from the amount of insane debt that they have on their books.

GE has $43 billion of long-term debt maturing by June 30, 2009, with another $38 billion due by December 31, 2009. The terms for refinancing this debt will be much worse than the previous terms.

Will they be able to pay the new interest expenses on this debt? Also what happens if they get put on the Credit Watch list by Moody's or one of those other ratings agencies? If GE should lose their AAA credit rating then they are a dead duck. I wonder what the debt covenants and capital requirements due to a ratings cut is on that debt?

No comments: