David Faber: GE Capital Services
is ‘about 20 times levered’
Posted Wednesday, March 4, 2009
After a dubious series of GE conversations by anchors and pundits Friday, CNBC is unleashing the reporters.
David Faber on Wednesday was the latest to provide a detailed report on GE stock activity.
Faber, shortly after the market closed, discussed on "Closing Bell" the wild ride of GE shares, recovering from an early morning onslaught in an "eventful and ugly day for General Electric stock price."
Faber showed a chart of GE Capital Services listing $650 billion in assets and $34 billion in tangible equity (described by Faber as "shareholders equity minus intangibles and goodwill"). "So it's about 20 times levered," Faber said.
Faber said there was no specific news driving the share price movement, then said — in a statement that sounded very finely tuned and likely given extensive thought beforehand — "The out-of-the-money put buying, growing CDS prices and falling stock price of GE: Well, similar to a pattern that we saw last fall in many other financials. Whether part of an effort to sow fear or not, the end result was often the same — perception can become reality, and the market has yet to be wrong, for long."
Note the phrasing in bold. Faber is indirectly suggesting it is possible GE stock might be falling not because of truth, but short seller rumor-mongering.
Faber did not attribute this defense to the company. Whether he is being careful to list every possible rationale for the stock drop or truly believes there are bogus short rumors floating is unclear.
But it is only fair to note, the panic-mongering was a defense used by Lehman Brothers and Bear Stearns.
And it is not at all the argument cited by legendary investor Bill Gross, who told CNBC that GE is falling on expectation of a rating downgrade from AAA.
Or Karen Finerman, an extremely respected and successful money manager on CNBC's own "Fast Money": "It's impossible to know what's in that balance sheet. ... So it's hard to make evaluation when you have one part of the balance sheet that is a gigantic question mark that so dwarfs the other elements of their business."
Or the rest of the "Fast Money" panelists Wednesday:
Guy Adami: "The world is worse than they portray it to be."
Tim Seymour: "The debt guys by the way once again seem to be well ahead of the equity guys on this one."
Jeff Macke: "They're in the classic case of someone who tells you 'trust me' over and over and over again, the more they say it the less you do. I remain long some puts in GE."
If these money-managing giants with credibility on the line aren't even suggesting the possibility of a run-on-banks mentality — but citing other very credible reasons for the stock decline — then it doesn't seem very likely.
This writer has never had any position in GE stock or options and is not a financial analyst trained to evaluate companies.
Faber's report came across as somewhat overprotective of GE. But it was thorough, adequately explained the extent of the negative price action, and is another positive step in CNBC treating its parent company no differently than the many others discussed on the channel.