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 General Electric Co. (NYSE:GE) is slated to announce its second-quarter earnings on Friday, ironically the same day that besieged lender CIT Group Inc. (NYSE:CIT) is expected to file for Chapter 11 bankruptcy after bailout talks with the government fell apart on Wednesday. (The Deal Pipeline subscribers can see the full story here.)If CIT files for bankruptcy, it's sure to undermine market confidence in GE Capital, which is in many of the same businesses as CIT. Formerly a unit of Tyco before being spun out, CIT no longer has the enormous balance sheet of a corporate parent to draw upon when it finds itself unable to get short-term financing. GE Capital doesn't have that problem. GE has propped it up, as has access to the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program. GE Capital has already issued a whopping $74 billion in bonds guaranteed by Uncle Sam -- making it the single biggest user of the scheme administered by the FDIC, according to Breakingviews. While the situation at GE Capital isn't as dire as it is at CIT, things are far from rosy. Back in April, Business Insider highlighted a Jim Grant presentation that revealed over $40 billion in exposure on GE Capital's balance sheet, more than enough to sink the finance unit and its parent. Henry Blodget wrote at the time: GE Capital is currently hiding $40-$45 billion of embedded losses in the GE Capital portfolio. This $40-$45 billion of losses, if rinsed through the income statement all at once, would wipe the company out. In fact, if GE weren't able to fund itself with the 'heroin injection' of the government's commercial paper program, it would already be bankrupt. But if a CIT bankruptcy has far-reaching effects similar to that of Lehman Brothers Holdings Inc., expect to see both GE's stock and bond prices take it on the chin. - George White
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From: KC,
Spreading FUD. Comparing CIT to GE is comparing apples to oranges. PS. Do some real reporting like those at DeepCapture.
Posted on:
July 16, 2009 11:33 AM
From: Tony,
Get serious. Of course CIT/GE cap don't line up perfectly, but if you think people aren't going to see CIT collapse and not draw conclusions about GE Cap, you must've been on mars when Lehman failed. Goldman didn't become a bank holding company overnight for the fun of it. I'm long GE, but not blind to trouble. Do you really think GE would be fine if they had to borrow that $74B w/o the FDIC guarantee.
Posted on:
July 16, 2009 12:33 PM
From: Thom A. Williams,
You got it! Many of us suspect and/or have good reasons to believe GE Capital's problems are far wider, deeper, and more troubling than those at CIT, endangering, of course, GE in its entirety. Will GE Capital be separated from its parent? One might suggest that only by such an Obama-imposed amputation can the parent continue to live, yet in a much smaller mansion. Your continuing comments are invited as we all watch this epic drama unfold. THOM A. WILLIAMS
Posted on:
July 17, 2009 11:10 PM
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LOL LOL THIS IS SOOO FUNNY DO YA THINK THIS GUY WHITE IS SHORT GE OR PAID BY A HEDGE FUND WHO IS?
I THINK THAT GE WILL GAIN BY CIT PROBLEMS MORE GOOD MIDSIZE CO'S FOR GE TO LOAN $$$ TOO AT HIGH RATES ONE LESS MAJOR COMPETITIOR K.D.