Sunday, November 8, 2009, 3:49PM ET - U.S. Markets Closed.
- Home
- Tech Industries
- Topics
- Reporters
- Subscribe
GE: On Second Thought, You're Right: We're Screwed
Posted Sep 25, 2008 09:04am EDT by Henry Blodget in Investing, Recession, Banking
From ClusterStock.com, Sept. 25, 2008:
The same GE (GE) that just last week was vociferously declaring that it was above all this Wall Street mess has now slashed its estimates for the quarter and full-year. The problem? That Wall Street mess:
GE today revised its earnings guidance for the third quarter, to a range of $0.43 to $0.48 per share from $0.50 to $0.54, reflecting unprecedented weakness and volatility in the financial services markets...
GE anticipates that difficult conditions in the financial services markets are not likely to improve in the near future, and as a result, is revising its earnings guidance for the full year to $19.5 to $21 billion ($1.95 to $2.10 per share) from $22 to $23 billion ($2.20 to $2.30 per share).
The good news: GE is maintaining, for now, that the problem is just its hedge fund. Its other businesses, it says, are doing fine. This week. As far as Jeff Immelt knows.
Meanwhile, now that GE has finally admitted that it, too, gambled and lost, it is doing the same thing other Wall Street firms are trying to do: frantically recapitalize. (What do we mean "other Wall Street firms"? You mean you didn't know that GE is really just a big big hedge fund? Live and learn!):
GE also reaffirmed its longstanding commitment to its Triple-A credit rating. While GE’s funding position is strong and GE has performed well during the recent market volatility, it is taking steps to strengthen its already strong capital and liquidity position, including:
- Increasing capital in GE Capital to reduce leverage ratios through a reduction in the GE Capital dividend to GE from 40% to 10% of GE Capital’s earnings and by suspending the current GE stock buyback.
- With a strong liquidity position and having already completed $70 billion in long-term funding year-to-date, GE Capital does not need to raise any additional long-term debt for the remainder of 2008.
- Although demand remains strong, reducing GE Capital’s commercial paper to 10-15% of GE Capital’s total debt going forward.
- Resizing GE to deliver 60%/40% industrial-financial services earnings split by end of 2009.
Allow us to translate that for you:
- If GE Capital were a standalone business like Morgan Stanley, we would be screwed. Thankfully, we also make airplane engines and lightbulbs, and we can still borrow against those business.
- We're desperate to conserve cash, so we're not going to buy any more of our stock back for the foreseeable future, even as we tell you it's undervalued.
- We can't believe how dependent we have become on our giant hedge fund, so we're actually fine that its earnings are collapsing. This will make our other businesses--the businesses you thought we were in--relatively more important.
And all this does come as a shock, considering that just last week, GE was spamming investors with a brag sheet explaining why it wasn't like all those Wall Street boneheads.
Ah, well. Just another addition to Jeff's credibility problem. (Can we safely conclude by now that he doesn't have any idea what the hell GE Capital is doing? Not that this would make him any worse off than other Wall Street CEOs.)
See Also: GE: We're Not Like All Those Other Wall Street Boneheads
60 Comments
Yahoo! Finance User - Thursday September 25, 2008 09:19AM EDT
It's a good long time buy...if the price comes down below $18
Virgil Villani - Thursday September 25, 2008 09:23AM EDT
It seems as though even large historically strong large cap stocks are no longer a safer form of equity holding. They are being affected by their involvement with a myrid of financial issues / exposure or the higher cost of doing business as a result of rising energy costs. I am not even sure whether this presents a buying opportunity for invests in cash who have a least a ten year outlook.
Yahoo! Finance User - Thursday September 25, 2008 09:23AM EDT
Very insightful observation, Joanne I
yo_adrian - Thursday September 25, 2008 09:28AM EDT
Hey GE, have your high-IQ, ivy league MBAs recommended a strategic plan for getting yourself out of this mess? How about a solution which could possibly help GE, the country, and American workers? My two cents: One- immediately quit trying to make money with GE Capital and reduce this segment to 5 percent of GE earnings. Two-push for GE Wind to be the primary supplier & servicer of the U.S. wind corrider. This would help GE's bottom line, reduce or elliminate U.S. dependence on foreign oil (national security issue big time), and put millions of Americans to work.
M - Thursday September 25, 2008 09:30AM EDT
Jeff will soon need to use the Dennis K. defense (paraphrased) "Yes, I am the CEO but it's not my responsibility to know what the heck is going on with the business."
Donald F - Thursday September 25, 2008 09:34AM EDT
Honestly, American Greed finally caught up and is and always has been on the shoulders of the working middle class!! How unethical along with major corruption!!! I'm pissed!!!
Jim - Thursday September 25, 2008 09:36AM EDT
How can so much change in 1 week? This certainly does not sound like the GE I have admired for so many years.
NathanS - Thursday September 25, 2008 09:37AM EDT
OMG, does any upper management actually know what their company does? if i told my boss everything was fine, then 1 week later told everyone we were screwed i would be ashamed as well as fired. Where is shareholder activism when you need it!!!
Donald F - Thursday September 25, 2008 09:39AM EDT
Large investors are just licking their "chops" waiting for our tax dollars!!!!!!!!!!!
Yahoo! Finance User - Thursday September 25, 2008 09:40AM EDT
Bob - you are a genius. GE should focus on selling more stuff like in GE Wind. Wow...I mean good thing you didn't get an MBA. Because if you had one you would never be able to make a remark like - GE should figure out to increase sales. Wow!
Doug C - Thursday September 25, 2008 09:40AM EDT
Seems like we are back to the same old game again in Washington, what happend to the BIG change coming from both Obama and McCain with them both backing the plan? Neither one has the guts to stand up against it like many Senators are. Our next president, no matter which one is already selling us, our children and our grandchildren out. All in the interest of big banks.
Doug C - Thursday September 25, 2008 09:43AM EDT
Ummm ... President Bush ... could you please tell me where the "Weapons of Mass Destruction" are? Seems like we are back to the same old game again in Washington, what happend to the BIG change coming from both Obama and McCain with them backing the plan? Neither one has the guts to stand up against it like many Senators are. Our next president, no matter which one is already selling us, our children and our grandchildren out. All in the interest of big banks.
BIGZGUS101 - Thursday September 25, 2008 09:45AM EDT
If you have investments in the market... steer clear of most of these blue chip stocks if you want to keep up with the times. While they are still necessary, they still operate like old-fashioned business. Sounds too much like they are hoping "why can't we all get along??"
matt - Thursday September 25, 2008 09:48AM EDT
Henry, Thanks for failing to point out that ge capital is continuing to make billions in profits (unlike the other wall street firms that failed or are failing). GE is being prudent, deleveraging and taking some risk off the table. If analysts were not so quick to write superficial articles, Wall Street would tale some pointers from GE and deleverage. To read more about Henry Blodget, do a google search.
Good - Thursday September 25, 2008 09:49AM EDT
Free cash flow of $2.80/sh selling for 24 looks like alot of value. Fair value is 42. I'm a buyer.
Ishiuan - Thursday September 25, 2008 09:52AM EDT
Schiavo, I agree, but there is not enough democracy in our capitalist system. Shareholders have no right except to sell their shares. No votes we make our required by law to be enacted by the board, and for that reason alone, mutual fund shareholders never even raise issues to vote on! Considering that most common investors own company shares through mutual funds (kind of like our representative government system where we hire people to vote on bills for us) the average shareholder has no say in what his or her company is doing. Buffett says we should think of our shares as part-ownership of a business, but we are clearly only silent partners.
yo_adrian - Thursday September 25, 2008 10:01AM EDT
To Yahoo! Finance User - Thursday September 25, 2008 09:40AM EDT For your info, I do have an MBA.
Want to post a comment? Sign in now to begin.
Recent Posts
Most Recommended
Copyright/IP Policy - Terms of Service - Privacy Policy - Help
Quotes delayed, except where indicated otherwise. Delay times are 15 mins for NASDAQ, NYSE and Amex. See also delay times for other exchanges.
Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page. Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes for NASDAQ, NYSE and Amex. See also delay times for other exchanges. Real-Time continuous streaming quotes are available through our premium service. You may turn streaming quotes on or off. Fundamental company data provided by Capital IQ. Financials data provided by Edgar Online. Historical chart data and daily updates provided by Commodity Systems, Inc. (CSI). International historical chart data, daily updates, fund summary, fund performance, dividend data and Morningstar Index data provided by Morningstar, Inc. Analyst estimates data provided by Thomson Financial Network. All data provided by Thomson Financial Network is based solely upon research information provided by third party analysts. Yahoo! has not reviewed, and in no way endorses the validity of such data. Yahoo! and ThomsonFN shall not be liable for any actions taken in reliance thereon. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.
Joanne l - Thursday September 25, 2008 09:09AM EDT
1st