Posted on 11/03/2009 2:49:01 PM PST by FromLori
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.
by MinnesotaNice on Tue, 11/03/2009 - 15:20 #118761
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 :-)
reply
"Oh. Never mind..."
Bump for reference
Thanks, can never get enough of her, just imagine the fun she’d have with all this.
If the GE portfolio is as crappy as GE stoves and dishwashers, this bunch is in real trouble...
I cooka the books, for you!
Speaking of cooked books
http://www.zerohedge.com/article/reason-market-swoon-realistic-testimony-feds-jon-greenlee
Hording your cash???
Master Chief Rahm of Freddie's Diner will cook up a nice Freddie Mac-lactose cheese souffle.
Let's cook up some inflation to loosen whats left of their assets.
I think Newsmax was reporting recently that GE has been banking on the Obama gang to not only bail them out but make them highly profitable (cap n’ tax you know). I don’t think Obama’s toadies would be stupid enough to bite the hand that feeds them, but then again if they have to throw GE under the bus...
What, throw their propaganda division along with all them
green windmills and solar panels under the bus?
Nahhhh....
Ah yes, their propaganda division (*NBC). I’d overlooked that. I’m sort of ashamed I did. If there’s anything this year has shown, it’s that the MSM has nothing to do with journalism and everything to do with huge, continual power plays in NY and DC.
Thank you!
Illegitimi non carborundum
(Dont let the bastards grind you down.)
nos volo vinco vici victum
(We will overcome.)
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