Friday, March 06, 2009
bronte suggests GE will make it
Now if the losses are going to be that elevated (and they will) then GE should be taking the provisions when it deems them likely. That is when they are incurred. If they were to do that then the tangible capital of the whole of GE goes negative.
However if they take the extra provisions over three years then pre-tax, pre-provision earnings (ie Voodoo maths) will see them through.
Oh, if the losses are where the bears think ($60 billion range) and if the government supports GE’s liquidity (likely in my view) then voodoo maths will still see GE through – but the time period is five years and the dividend gets cut to zero.
The stock may not be a buy - but on those sort of numbers the CDS is unnecessarily wide - and Warren Buffett will make money on his preferred.
bronte also posted this laudable effort on bank solvency and the geithner plan which merits a complete read.