Under $10.00… Is GE Really A Bank? (GE, BAC, C)

Today marks a monumental moment for the markets.  The DJIA has broken through some of the major key support levels of November 2008, and now the questions are mounting over whether the S&P and NASDAQ will hold those levels as well.

But yesterday shares of General Electric Co. (NYSE: GE) briefly broke under $10.00.  Today, the shares are solidly under $10.00 and guessing where a bottom may be is as useful as betting for or against the local weatherman’s forecast.  The  market is trading G.E. as though it was a troubled bank.  With the speculation of major bank nationalizations coming, we wanted to see  what the actual correlation was.

For starters, GE can’t hide the fact that 2009 has so far been a dud.  Its shares are now off about 40%.  Frankly, I can’t find another time period where a year has started off like this.

The two banks where nationalization rumors are single-handedly pushing the sector into “way out of the money call options” are Bank of America Corp. (NYSE: BAC) and Citigroup Inc. (NYSE: C).  If you think G.E. looks bad, these two banks are worse.  Far worse.  The BigCharts.com reading here shows it all.  Citi shares are off more than 60% in the same period, and B of A is down more than 70%.

Citi trades around $2.00 today, and it closed 2008 at $6.69; and B of A trades around $3.30 today, and it closed out 2008 at $14.08.  GE closed out 2008 at $16.20.

Warren Buffett gave an endorsement to G.E. with his investment late last year.  Buffett did not buy the common stock in the deal, but if you look in his full holdings he does still own a decent amount of G.E. common stock.  He owns Bank of America too.

GE is massively tied to financials because of its exposure to the sector.  We cannot even fathom a guess as to what percentage that will be in the future.  GE ended 2008 with $172 billion of  infrastructure equipment and service backlogs. Energy Infrastructure was 21.1% of its 2008 consolidated revenue, technology infrastructure was 25.4%,  NBC Universal was 9.3%, and capital finance was 36.7%.

The company has not yet cut its dividend.  We are certain it will.  And now the rumors are that it is going to lose its Triple-A ratings from Moody’s and/or S&P.  If you look at G.E. stock, it is not at all acting like the ratings agencies really believe that it is a Triple-A rated security.

Anyone buying G.E. has to just assume that the stock you buy will not have the same dividend ahead and that its Triple-A status won’t be there. Rating these companies is difficult.  For that matter, any major industrial company’s guidance  for the full year may be guesswork at best.

G.E. is not in the same boat as the banks.  It does not seem likely that Uncle Sam could take control any second.  But at $9.30, the “pricing-in” notion is beginning to seem like expectations might include everything except the Holy Hand Grenade of Antioch going off.

JON C. OGG
February 20, 2009