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GE's $19 Billion (And Increasing) Toxic Asset Sink Hole
One, and maybe the only, of the recent benefits of the FASB's meager attempts at providing balance sheet transparency has been the requirement for banks and financial companies to disclose the difference between the Fair Market Value and the Carrying (Book) value of their assets, especially as pertains to loans held on the balance sheet. And while even the FMV calculation leaves much to be desired, it does demonstrate which companies take abnormal liberties with their balance sheets, instead of performing needed asset write-downs as more and more loans turn toxic. A good example of just such optimism appears when one evaluates the disclosure by "banking" company General Electric. On page 38 of the firm's just released 10-Q, the firm indicates that the delta between its loan portfolio FMV and Book Value continues increasing, and as of September 30, hit an all time (disclosed) high of $18.8 billion. In other words, General Electric, whose market cap is about $150 billion at last check, is likely impaired by at least $19 billion if it were forced to access the market today and sell off its loans. The $19 billion is 13% of its entire market cap. And the real number is likely much, much worse.
The delta between the Carrying and Fair Market Value of GECC's loans can be seen on the chart below:
A reminder of how GE calculates loan FMV is taken from the company's 10-K:
Based on quoted market prices, recent transactions and/or discounted future cash flows, using rates we would charge to similar borrowers with similar maturities.
In other words FMV uses the traditional Level III evaluation methodology. And even when using DCF (we assume that was used as it will always give the firm the "best", most palatable value reading), GE is still seeing a nearly $20 billion balance sheet shortfall?
What is more troubling, is that even as GECC has been collapsing its balance sheet, with book value of loans dropping from $305 billion to $292 billion from FYE 2009 to Q3 2008, the FMV-Book delta has increased from $12.6 to $18.8 billion. And this is occurring in a time when the credit market is presumably surging? Is there something wrong with this picture? As we pointed out, the $18.8 billion is likely a gross underestimation of the real valuation shortfall, if one were to really mark all of GE's myriads of illiquid loans to market.
Yet if nothing else, this shortfall should explain GE's urgent desire to sell NBCU and to use the ~$30 billion in proceeds to plug what is becoming an ever growing hole.
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Prechter on Bloomberg Radio 3pm today edt
http://www.bloomberg.com/audioplayers/playr_go.html?&clipName=Bloomberg%...
OK - I haven't heard this yet, but I'm having a hard time controlling my laughter already. The guy has some nerve, you know, staying in the public eye, "commenting" and issuing "forecasts", after having issued bone headed predictions for almost two decades (OK maybe a handful of right calls - even a stopped clock is right twice a day). The guy has been in cash/short since f--kin' 1987 for chrissake!
I'm huge fan but he's not ALWAYS wrong.
http://www.bloomberg.com/avp/avp.htm?N=video&T=Prechter%20Says%20Dow-Gol...
that path does not look good...
that path does not look good...
Another dividend cut from .40 to the TARPtastic
.01/qtr level.
jeff immelt's head is a sinkhole as are his media properties
I'm very upset that you would hamper GE's ability to raise capital by focusing on logical reasoning. These loans will cure. It just takes the right image.
http://www.youtube.com/watch?v=2AWK-I-ew4w
Maybe Robo can come provide some images.
What is $19 billion between friends... and the USG will never allow those loans to be sold in the open market if it would impair the financial health of GE... there will be some multi-alphabetic acronym set up by Geithner and Bernanke to purchase those loans :-)
But don't those friends actually do nothing, produce nothing but simply control things? So they will have to have slaves do the actual fixing? Yes the FED will honor GE's debts. I mean God can't reward those it chooses to reward without having people actually come in and make the rewards good. Ok so what if GE chose to reward mostly psychopaths with low self esteem who don't feel good about themselves unless they are in charge of 50,000 lbs of thrust in a chair with buttons to a 20 or 30 mm main cannon and 7 inch rockets and stuff. But it all served a higher purpose. Because those weapons are all used defensively. They never go and attack people with them.
GE is not in the club. If they were, the loans (paper) would just be scrubbed through the GSEs. Something else is going on here. The FED may have turned the corner on the big stall. Now is the time to start slowly letting the market take its victims. The banking equivalent of Final Destination.
GE is most definitely in the club.
Ahh...no problem, Immelt's in the club.
+1 GE is the fed, and the mic, and the tbtf, and the ptb, and the msm, and the...
screwball is correct.
http://www.newyorkfed.org/aboutthefed/org_nydirectors.html
Tyler:
1. Absolutely very well done and thank you for this analysis...puts things in perspective for GE. I trust you will allow cnbc to take advantage of your work and publish the results as part of their business journalism?
2. Does this piece of research take into account any QSPE or SIV assets? As you would know, I'm fishing down the FASB 166/167 rabbit hole.
Thank you once again for your outstanding work and thanks as well to the entire ZH team.
The number cited by TD that is required disclosure would only be for on balance sheet loans, so it wouldn't include any contingent exposures from off balance sheet vehicles. If you go to the Investor Relations section of GE's website you should be able to download their 10-Q in PDF format and enter QSPE and SIV in the search box for the Acrobat document to find all the references to them in the 10-Q.
Thank you Green.
I had thought that off balance sheet items are required disclosure in the reporting scheme..
deadhead, I was just referring to the number TD cited, which is the relatively newly required disclosure of estimated fair market value of loans carried on their balance sheet, which can then be compared to the carrying value of the same loans. I'm not sure what is required disclosure with regard to off balance sheet exposures.
Here's a link to the GE Q3 10-Q. I think what you're looking for starts on p. 56 of 180 and goes for 2-3 pages. There are a couple of items that could trigger $5.8 billion in collateral requirements from GECC should their credit rating be cut below a certain level. Given their size off balance sheet issues don't look like a big deal, certainly not in comparison for the numbers you see for major banks.
http://www.ge.com/pdf/investors/financial_reporting/ge_10q_3q2009.pdf
Not if you are Enron, whoops I meant GE and the banks.
Isn't Immelt a board member of the NYFed? Isn't GE an minority owner of the entire Federal Reserve? In either case, the Club isn't going to let GE go down. No money, no problem.
Wasn't CFA (cash for appliances) supposed to save GE ? It was wasn't ?
More like fiat for wind farms.
Or universal GE healthcare systems.
CFA would just save China anyway.
speaking of other black holes (no not paris hilton), anyone notice that aig up almost 17%?
been wondering the same.....perhaps it's the pai gow table rotation again....
rumor floating govt cut deal to exit aig on very favorable terms - unsubstantiated
Who'd be on the other side of that trade? Another (group of) Federally subsidized entities?
The entire goddamn United States is a toxic asset sinkhole at this point.
For some time now I've been thinking along the same lines.
GG...I never thought that I would see the day where I would agree with a statement like yours but unfortunately the facts of the matter force my hand.
I am absolutely fucking sick of the whole matter and the supporting lies, fraud, cheating, attempted CONfidence games, ad infinitum.
p.s... not to be picky, but shouldn't "sinkhole" be replaced with "shithole"??
ROFL...yeah man, totally.
I knew that you'd like that! You always speak bluntly and frankly, which is a trait I admire most deeply.
Immelt and the other Hahvad boyz, like Dimon , have their brown noses stuck straight up Obama's ass for a very legitimate reason : TARP II ..... "bringing bad things back to life".
Odd that GE is never referred to anywhere as another TBTF bank.
It is the other way around.
Mr. Change has HIS nose up Dimon, Immelt and Blankfein's rectum for the $600 million in campaign funds and Madison ave. slick advertising that got Mr. Change elected.
You don't think a bunch of high school and college kids sending $10 bucks over the internet got Mr. Change that campaign war chest?
Now it's pay back time... Mr. Change, who's your daddy? Dance Mr. Change... TARP II over to Wall Street... Make that TURBO TARP II on steroids over here...
Keep dancing to Dimon's tune, Mr. Change...
You're right, PI. Mr. Change has already cashed those checks but will need much more for 2012 now that ACORN is getting shut down.
It's a daisy chain of noses up arses.
TD, what happened to your field trip over to the Eastern bloc where you were supposed to look at this stuff first hand.
Did you do an article on that, I was always looking for it but never saw it. thanks
Prechter has made some bad calls but he's not ALWAYS wrong.
http://www.bloomberg.com/avp/avp.htm?N=video&T=Prechter%20Says%20Dow-Gol...
Robo posted:
http://www.zerohedge.com/article/mass-chaos-confusion-and-bewilderment-a...
Nothing on page 38. Of the GE -Q? Not there.
How dare you bad mouth the parent of such a fine broadcasting network as CNBC. Shame on you ZH.
Keep up the good work.
Note to comment writers: It's "the Fed," not "the FED." If you like capital letters, call it "the FRB." (Federal Reserve Board.)
I apologize if this seems picayune, but people see it written incorrectly and start making the same mistake themselves.
MN Nice. I hate that term. I've lived my whole life in MN, and I promise I'm as big a prick as anyone anywhere.
Well... then you better get a screen name and avatar... cause anonymous just isn't going to cut it... and you might find I am not so nice every once and a while... so if offers a nice juxtaposition :-)
does this mean that mark haines' retirement check from the mother ship will be just a tad light? :)
Anne from GE here: GE writes assets to hold on our books to maturity, therefore the swings described here should not matter -- the whole premise of this post is irrelevant. We never wrote them up when assets were inflated, and we have no reason to write them down when assets are deflated. It is like having a 30 year mortgage and saying today you are under water on the value of your house. It is irrelevant if you don't need or plan to sell. We have provisions for losses set aside to handle those that go into default.
Suddenly I have now become aware of the new meaning of relevance. Being underwater for the next 15 years is irrelevant. Just don't plan on selling.
Got it. Thanks .
"We have provisions for losses set aside to handle those that go into default."
Um... Anne from GE... where have I heard that before... oh I know... it was during the collapse of all the major banks.
What's up with you fools. Do you want a company the size of GE to collapse?
The stock is inaccurately valued. Nothing personal against GE.....or any of the other massively overvalued financial behemoths.
TD--
I love playing devil's advocate with you...
Please reference page 19 in the GE 10Q. They itemize loan loss reserves, totaling $12,060mm. That's certainly sufficient by an FDIC/SEC standard; although that standard isn't the gold standard. GE would need more than that 64% reserve/loss ratio if crowding out occurs and they can't find even a FMV bid (or liquidation) for these assets.
So while GE should really have $18bn in loan loss reserves, my point is that their enterprise can't be crippled by taking FMV on these assets.