This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

GE Capital Could Feel Reform Sting

NEW YORK ( TheStreet) -- The debate rages about how much GE Capital and its parent company General Electric (GE - Get Report) will be affected by financial reform legislation.

GE's financial services businesses provided 32.3% of consolidated revenue to the parent company in 2009, so the stakes are high. Equity holders clearly feel "finreg" will have a negative effect on GE. The stock has lost 22% of its value over the last three months, more than double the 9% that the Dow has dropped over the same stretch. Investors are increasingly worried about how GE Capital will respond to the stricter rules that are expected to be adopted.

GE




Financial Reform Will Hit GE




Argus analyst John Staszak acknowledged the fears behind the stock's selloff in a recent research note, but also displayed some skepticism about how well founded they are.

"Regulatory concerns, though perhaps overblown, are likely to weigh on the shares in the near future," Staszak wrote.

Credit Suisse analyst Julian Mitchell falls into the camp that the reform bill will not hurt GE in any way. He believes current analyst expectations for the GE Capital business are too low, and goes further, suggesting that: " T he parent may even be able to step back from its current 2011 commitment of $2 billion capital contribution."

Mitchell frequently compares GE Capital to regional banks throughout his report. However, the unit is currently governed by the Office of Thrift Supervision, or OTS, and is considered a thrift holding company, not a bank holding company.

The OTS was known for less restrictions and regulations. He considers peers of GE Capital to be Wells Fargo, Citigroup and Bank of America. When, in fact, GE Capital's peers are industrial banks such as John Deere Savings Bank (owned by John Deere) and Power Capital Bank (owned by Caterpillar.)

Chris Whalen of Institutional Risk Analytics believes that the Dodd-Frank Wall Street Reform and Consumer Protection Act will change that. The Federal Financial Institution Examination Council (FFIEC) lists several GE financial entities that Whalen says will now fall under the umbrella of the Federal Reserve.

Whalen points out several ways that GE Capital will potentially be affected by the Dodd-Frank bill:

1 of 6

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
GE $27.27 -0.15%
AAPL $128.70 -0.19%
FB $78.81 -0.23%
GOOG $540.78 0.54%
TSLA $230.51 1.98%

Markets

DOW 18,070.40 +46.34 0.26%
S&P 500 2,114.49 +6.20 0.29%
NASDAQ 5,016.9290 +11.5380 0.23%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs