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Shocking realization of the morning...GE Cap and BofA suck.

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October 16, 2009 – Comments (11) | RELATED TICKERS: BAC , GE

Here's a shocking realization that Mr. Market just seems to be realizing this morning...

GE Capital and Bank of America are a freaking mess.

Perhaps I just don't see things as clearly as the analysts out there, but I'm staying far away from both of these companies.  I realize that the big profits can be made made when near dead companies are brought back to life, but GE Cap is way too much of an unknown for me to invest in General Electric despite the fact that I like some of its divisions.  Call me risk averse.

Finance arm pushes down General Electric 3Q profit

The same goes for BofA.  It annoys me to no end when I hear the company's biggest cheerleader Dick Bove from Rochdale Securities talk about what a great opportunity the company's stock is.  Yep, he's bullish alright...just like he was when the company was trading at $50 per share, and $40 per share, and $30 per share, all the way down.  How on Earth do people listen to this guy?

Bank of America is a huge steaming pile of carp.  The only reason why it stands any chance of surviving is A) the redonculous yield curve that we have right now and B) government intervention (though the two can hardly be separated).  The only logical reason that I can see to buy BAC is that the environment for new bank business is so favorable right now that they will be able to earn their way out of their past sins.  I can actually see some merrit to that line of thought, but when there are so many awesome companies out there I just don't understand why anyone would take a chance on BAC at this level.

BofA posts $1 billion loss on consumer credit woes

Author's note, I own a small position in BofA corporate paper that I purchased at the height of the credit crunch.  Believing that the government will continue to prop this company up is a lot different than believing that equity shareholders will be rewarded going forward though.

Thoughts?

Deej

11 Comments – Post Your Own

#1) On October 16, 2009 at 10:18 AM, JakilaTheHun (99.93) wrote:

I liked BAC under $3.50 on the same basis you liked the corporate paper --- the government won't allow it to fail.  Plus, at that price, risk-reward greatly favored the long side.  At the current price, I wouldn't touch it. 

If people want to invest in banks, they should look at micro-cap and small-cap commercial banks.  Many of them are still beaten down based on fears that every single small bank in the country will be seized by the FDIC.  Of course, it's a tricky sector to analyze, but it's still easier to analyze a small bank than it is a mega bank.

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#2) On October 16, 2009 at 11:37 AM, ikkyu2 (99.15) wrote:

I really like the part of GE that isn't a finance company.  They actually build real stuff for which there is probably going to keep being strong worldwide demand.

The bad part is that GECS is a freaking mess.  A few months ago, the Barclays Capital analyst tried to delve into the balance sheet and break it down, in a special 4 part report.  There was so much uncertainty, so many assumptions, that at the end of it the report was pretty useless, but reading the whole document left a bad taste in my mouth.  You got the idea that nobody, maybe not even the operations officers at GECS, really knew what kind of exposure their organization had to credit default risk.

I keep remembering how GM lost $68 per share in one quarter a couple years ago and it was all over the newswires as an 'accounting change'.  GECS has done a lot of 'accounting changes' over the last couple quarters as it writes itself down; it currently represents about 85% of assets but only contributes 10% of earnings, and that's kind of ugly.  Reminds me of GMAC.

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#3) On October 16, 2009 at 11:58 AM, davejh23 (< 20) wrote:

I don't think anyone expected either of these companies to post stellar earnings. I also like parts of GE, but a huge portion of GE's profits had been coming from the finance arm...I don't own GE anymore. I hope nobody was hoping that BAC would post suprise earnings...especially since Q2 report was weak, even with asset sales...and CEO flat out said that it would be difficult to make money going forward. I believe that analyst estimates for next year are too optimistic and this stock is very overpriced...I wouldn't pay more than $6-7...and wouldn't be suprised to see the stock price in that range after Q4 and Q1 earnings reports.

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#4) On October 16, 2009 at 12:09 PM, booyahh (< 20) wrote:

sounds like sour grapes.

clearly you didn't buy them at $6 !!!

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#5) On October 16, 2009 at 12:20 PM, russiangambit (29.27) wrote:

> clearly you didn't buy them at $6 !!!

I bought GE at around $8, sold at $11, way back then. Still, I don't see what that has to do with the future price of the stock. The market is so dislocated, it could be anything  $20 or $5 , two months from now.

Lucky guess is just that lucky guess. It is not like we know the state of GE financial arm for it to be anything else than a lucky guess.

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#6) On October 16, 2009 at 12:23 PM, bigcat1969 (92.66) wrote:

Actually BoA revenue is up quite a lot thanks to the addition of a certain investment house.  Honestly the only reason GS and JPM went so high was successfully gaming the stock market, unless you really expected every single bank to book billions in profit from the stock market, this result should have been completely expected.  BoA and GE's alleged bank are two of the worst case banks on the planet today, if it wasn't for the parent company of each (the USA and GE), they would be defunct.

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#7) On October 16, 2009 at 1:34 PM, JaysRage (89.35) wrote:

This is the primary reason that I'm not invested in GE, even though I absolutely love how they are positioned in several spaces.   I love them as an emerging energy play (especially wind).   I love them as a medical device producer.   I love them as a maker of heavy construction equipment. 

I HATE HATE HATE GE Financial, so I have been unable to pull the trigger again on a company that has so many very positive things going for it besides that component.    That's the problem with a conglomerate.    

I also bought them at 8 because it was so stupidly low and sold them at about 11.50  and couldn't stomach holding it any longer.   In some ways I'm kicking myself because of all the positives and the run-up since then, but I just can't stomach holding such a bad bank in my portfolio.  

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#8) On October 16, 2009 at 3:00 PM, cubanstockpicker (20.92) wrote:

Its funny how asset sales were basically the rush in profits they made selling stock they bought in March. These profits were one timers this quarter, fueled by the massive scheme, the government and the banks played on us. If I am wrong, how can we be in a recovery with green shoots when foreclosures hit an even newer high. Now the small and large investors who think they bought low this year are realizing they could wait a bit more and buy for less. Think CHIMERA. The came with a bautiful plan of buying distressed properties in late 07, when properties started really heading down they wanted to buy at 30% below market!!! A STEAL, SO they thought.

 Thats just a micro view, unemployment is still persistently high and this little blip, although encouraging news, is still a BEAR MARKET. This is October people,

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#9) On October 17, 2009 at 6:32 AM, fmahnke (90.07) wrote:

Jakila,

You are absolutely right about some of the micro cap bank stocks.  Fear of a FDIC takeover has knocked valuations off the charts compared to the big regionals (BAC, WFC),  C is the strangest company in the world.  Nobody knows (or will admit) what is worth and management is as ambigous as any I've seen.

I bought BAC in the 80's at $7 while working as a CFO of one of its smaller divisions. I think that it was worth more then than it is today, but admit to havng trouble valuing the thundering herd.

But back to your point, I bought two micro cap bank stocks yesterday based on the Friday FDIC (and BAC) fear factor,

CZNC is clearly the most punished conservative bank I've ever looked at.  They filed a shelf registration that I beleive is an attempt to provide flexibilty to take out higher cost debt or takeover a failed bank.  They also took a hit last quarter based on the write downs of mortgage secuities which could be written back up,

A more speculative play is CRBC, which could be a 10 bagger. These guys were seriouly in dnager until a recent capital raise which should provide enough cushion for what will clearly be more credit losses.

On the flip side, I'm short FMER.  Based in the same Ohio market which has punished KEY and FITB, they sport a JPM like valuation.  Howwver, they don't have an Investment banking or fixed income trading arm. I think recent insider selling suggest that commerical credit losses will finally push earnings into the loss category  Happy trading.

 

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#10) On October 17, 2009 at 7:01 AM, fmahnke (90.07) wrote:

Correction -  I think CRBC will ultimately  be worth $2 - $5 depending on how bad the economy gets before (if) it recovers

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#11) On October 17, 2009 at 11:42 PM, VolumeMover (38.28) wrote:

I agree with your opinion on GE, but I think your off on BAC. I do think that government intervention has played a big role in the "survival" of BAC over the past 12 months, however; I also believe that BAC's acquisition of Merrill Lynch and CountryWide make it one of the most well rounded and diversified investment banks in the world. If you look at BAC, it is comprised of 4 different "pieces". The first piece being CountryWide which provides exposure to mortgage lending, Merrill Lynch which is considered to be one of the top brokerage firms on Wall Street, the commercial banking piece, and the consumer savings piece. I understand that CountryWide and Merrill Lynch were facing chapter 11/collapse due to there insolvency, however, BAC was able to acquire both of these companies at VERY low costs. Perhaps the most important part was that the government essentially promised BAC that Merrill and CountryWide would survive. If you look at the potential revenue generating aspects of this firm, I think that it is clear that it's stock price should continue to increase. I do not believe it will necessarily be a short term process, however, within the next year or 2 I would place its price target around 35$. It is nearly impossible for BAC to collapse considering its huge roll in underwriting debt and equity, and not to mention, the fact that it holds over 10% of all US deposits. 

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