After six hours and some 200 slides, analysts emerged slightly dizzy from GE Capital’s ”deep dive” into its finances, but still doubting the finance arm of General Electric (NYSE: GE) could deliver even on its worst-case scenario.
Headlines out of the analyst conference focused on how the company backed off its December projection of $5 billion in profits in 2009, with Nicole Parent of Credit Suisse Group commenting that it was still unclear whether GE could “earn its way through elevated losses” on its portfolio.
In a new report released this morning, CreditSights took issue with GE Capital’s use of tangible common equity to tangible asset ratio.
In our view, GECC cherry picked the capital ratio where it looked best, but senior creditors should account for all junior levels in the capital structure when assessing loss absorption cushion.
CreditSights deemed GE Capital’s stress-tested Tier 1 capital ratio of 7.10 percent “inadequate” and said it should stand at more than 10 percent to weather the current deep economic recession.
Two weeks ago, GE saw its long-term ratings cut to “AA+” by Standard & Poor’s. The company slashed its dividend to shareholders for the first time in 71 years.
epeon
The problem with financials is that every decade or so they take a huge bath. This is one of the reasons why financials should not be considered "blue chips" in my opinion. GE is a financial company grafted onto an industrial concern.
GE's industrial business is a good one. However, it too will be affected by the global downturn. However, many of GE's products are the best in the world. GE power generation turbines and jet engines are the best. Note, I did not say among the best. They are the best and they get a well deserved premium price for them. Unfortunately, the same cannot be said for their financials. And, unfortunately, the financial people are running the company.
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