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.
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:
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV