NEW YORK ( TheStreet) -- The debate rages about how much GE Capital and its parent company General Electric ( GE) 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.
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: