GE stress test in Q1 09

GECS is at the center of the storm. We will analyze the potential loss caused by GECS 1.Financial Receivables: 372 bil --60 bil Non-US Residential Mortgages: a.26% ARM with high LTV, only write-off 218 mil in 2008, incremental loss rate -20%, loss -3.2bil b.rest loss -10%, loss -4.4 bil --Real Estate: 46.7 bil, , incremental loss rate -10%, -4.7 bil --installment and revolving credit: 51 bil, already write-off 4.6 bil (-9%), incremental loss rate -3%, -1.5 bil --rest: 220 bil, loss rate -3%, -6.6 bil total potential loss: 20 bil allowance: 5 bil need more -15 bil 2.Other Assets: 86 bil --Real Estate 37 bil, Equity positions, Commercial, loss rate -20%, loss -7.5 bil --rest: 50 bil, loss rate -2%, loss -$1 bil subtotal: 8.5 bil 3.Investment securities: 34 bil, potential incremental loss -5-10%, -2.5 bil 4.Long term borrowing: 321 equity: 104 bil --> GECS alone might took another 26 bil charge pros: --Average consumer mortgage LTV is 76%, not so bad --Analysts lowered the estimate earning from 2008 level 19.4 bil to 13 bil, 6.4 bil drop. GECS earned 7 bil in 2008, if all loss is from GECS, it imply analysts estimate the loss of 13.4 bil, half of my number. If the company took hte charge over two years period, anlaysts' estimate will be in line with my number. It means prices has probably factored in analyst's estimate for 2009.