Marketplace Scratch Pad

Is GE next?

Scott Jagow Mar 5, 2009

There’s a lot of buzz about General Electric this morning. And none of it’s good. GE’s stock is down 26% over the past four days and 59% for the year. GE is the only company in top 25 of the S and P 500 with a stock price in the single digits. Bloomberg says investors are treating GE like it’s a company on the verge of failing. The concern, of course, is GE’s finance arm.

Opinions vary on the fragility of GE Capital. Henry Blodget at Clusterstock says if GE Capital were a bank, it would probably be insolvent by now. GE’s Chief Financial Officer Keith Sherin says the worries are “overdone,” and he doesn’t see the need for injecting any more money into GE Capital.

“We are well-positioned to weather this downturn,” the company said in a letter to investors Wednesday.

Please let this be true. I’ve had it with assurances that everything is fine when it’s clearly not fine. GE’s strategy seems to be “muddling through” as Blodget puts it. The Wall Street Journal points out two problems with that strategy:

One is that losses could mount faster than GE Capital can handle with its existing capital. Another is that the continuing need to calm fears about GE Capital could require a diversion of funds from the industrial business at a time when it could be buying distressed assets and winning market share.

As it stands now, GE’s industrial units are expected to make more than $18 billion in profit this year. That’s GE’s rock of survival. It can’t afford to be chipping away at that. Blodget doesn’t rule out the possibility of a bailout or bankruptcy and neither does money manager Marilyn Cohen, who’s quoted in the Bloomberg story:

It’s a leper right now. Bankruptcy seems improbable, but we’ve seen improbable things happen.

We certainly have.

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