Fallout: The Financial Crisis

Investors worry about GE’s outlook

Bob Moon Mar 5, 2009
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Fallout: The Financial Crisis

Investors worry about GE’s outlook

Bob Moon Mar 5, 2009
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TEXT OF STORY

Tess Vigeland: If you want to gauge the deeply conflicted mood of investors these days, just take a look a what’s been happening to stock in General Electric this week. For years, decades, the company that makes everything from jet engines to washing machines and light bulbs has been a Wall Street bellwether. GE posted its third-highest profit ever last year. But yesterday, the company’s share price plunged to its lowest level in almost two decades. It recovered a bit today, but trading has been volatile in the extreme. Analysts point to nagging worries about the company’s big financial division, GE Capital. Here’s our senior business correspondent Bob Moon.


BOB MOON: In the past 12 months, shareholders have essentially cashed in roughly $224 billion of the huge conglomerate’s market value. And this morning, after three straight days of sharp declines, GE’s chief financial officer took the rare defensive step of reassuring share holders on a live appearance on CNBC.

Keith Sherin acknowledged investor worries that the company’s finance arm might not have enough cash set aside to cover upcoming losses from real estate loans, credit card defaults and other financial dealings. But he insisted the company isn’t hiding a “time bomb.”

KEITH SHERIN: We can basically fund ourselves all the way through 2010 without any issues, and we don’t have any short-term liquidity issues. So I think the credit volatility is overdone.

But that didn’t stop the naysayers whose criticism has helped drive down the stock in recent days. Sterne, Agee and Leach analyst Nicholas Heymann says GE may, indeed, have access to enough cash to run itself through next year. But he points out much of it is being borrowed at low rates with the backing of the federal government.

NICHOLAS HEYMANN: That’s the definition of having access to capital. I mean, the government can’t guarantee everything for life.

Heymann says since GE isn’t officially a government-rescued bank it can avoid putting a price on its bad assets right away. And he contends that leaves GE with precious little wiggle room — especially with its industrial businesses struggling:

HEYMANN: Whereas it’s not anything about to go off a cliff, it’s tough times, and right now, on its own without government assistance, it isn’t sustainable.

Analysts say it also hasn’t helped that GE sprang a surprise dividend cut on shareholders, many of whom have long counted on GE’s dividend as a reliable source of income.

I’m Bob Moon for Marketplace.

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