GE Doubly Punished by Bank Tax - TheStreet



) --

General Electric

(GE) - Get Report

appeared to take a double hit Thursday when the Obama administration announced a proposal to tax big financial companies.

General Electric's stock fell 0.77% on the day, apparently in reaction to the news, while

Goldman Sachs

(GS) - Get Report


Morgan Stanley

(MS) - Get Report

fell by 0.32% and 0.19%, respectively, and shares of the largest four U.S. banks,

JPMorgan Chase

(JPM) - Get Report



(C) - Get Report


Bank of America

(BAC) - Get Report


Wells Fargo

(WFC) - Get Report

all shrugged off the proposal's announcement.

The action reflects the fact that insured deposits, an important source of funding for retail-oriented banks, would not be subject to the tax. GE, Goldman and Morgan Stanley, on the other hand, still rely heavily on issuing debt through the capital markets, liabilities that would be taxed at 0.15% under the proposal.

General Electric's inclusion with this group is perfectly appropriate from a size perspective. With $658 billion in assets at the end of the third quarter, its financial unit is much closer in size to Goldman ($882 billion) and Morgan Stanley ($770 billion), than it is to

U.S. Bancorp

(USB) - Get Report

($265 billion).

General Electric will not say whether it expects to be subjected to the tax, though the proposal's statement that it covers "recipients and/or indirect beneficiaries of aid provided through the TARP, the Temporary Liquidity Guarantee Program (TLGP), and other programs that provided emergency assistance to limit the impact of the financial crisis," creates a pretty wide umbrella that would seem to clearly cover GE.

While General Electric did not take TARP money, it was the largest issuer under the TLGP. It did, however, pay $2.3 billion through the third quarter to issue under the program. Spokeswoman Anne Eisele wrote via email only that the company is reviewing the Obama proposal.

Bernstein Research put out a note late Thursday that includes an estimate of the potential impact of the tax on GE. The firm doesn't believe the fee proposal could take effect any earlier than the second half of 2010, and it thinks GE's hit would be in the $600 million to $650 million range by 2011.

The immediate financial impact of the tax is only part of the problem for General Electric, however. General Electric's inclusion with the "highly levered Wall Street firms," that the proposal says it is targeting is bad PR.

General Electric would rather investors focus on its industrial business, as they typically assign industrial companies a higher price-to-earnings multiple. Not to mention that being seen as a Wall Street firm is also bad for the company's public image. When top bank executives were called before a Congressional panel Tuesday to answer for their sins, General Electric boss Jeff Immelt was not among them, and General Electric would like to keep it that way in the mind of the public.

General Electric's Eisele disputes my assertion that General Electric wants to shed its image as a financial services company. As evidence, she points to quarterly updates GE has given during the past year on its GE Capital unit. She also corrected my assertion that GE's television ads are all about its industrial unit, by

pointing me to one that promotes GE Capital


She's right. I'd seen the ad many times and never realized it was about GE Capital. I guess I got distracted by the power tools and jets taking off. Maybe if they'd worked a few McMansions with "for sale" signs in there, or a few shots of complex legal documents...

So I stand corrected: General Electric is NOT trying to shed its image as a financial company. I'm sure, then, they won't mind my reminding you of their inclusion in this distinguished industry.


Written by Dan Freed in New York