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
