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Frank shines some light on G.E.

July 30, 2009

The price of reduced political risk? For General Electric, it’s worth some $6 billion of added market value this morning.

G.E..’s finance arm, GE Capital, had a investor presentation on Tuesday that was impressive on many fronts but not entirely convincing on the regulatory outlook. Obama’s proposed financial overhaul, as outlined in the June white paper, would force the company to spin off its giant finance arm, resulting in higher taxes and increased costs

But Representative Barney Frank, the powerful chairman of the House Financial Services Committee, told Bloomberg News late Wednesday that the Obama administration’s planned financial overhaul did not necessarily mean that industrial companies like General Electric or Harley-Davidson would need to spin off their finance problems.

“This particular arrangement is not part of the problem,” Frank told Bloomberg, echoing the arguments that GE Capital executives made on an investor call on Tuesday.

General Electric’s general counsel, Brackett Denniston, had indicated on Tuesday that this was indeed the thinking among Washington lawmakers, although his understandable inability to give details made his comments at the time seem less persuasive.

Goldman Sachs analysts, however, are convinced that the political risk for G.E. has diminished, upgrading their recommendation on the stock to “buy” from “neutral.”

“While numerous uncertainties remain, we are reducing our probability assumption for a costly GECS separation to 25% from 50% and this drives our higher target,” Terry Darling, an analyst with Goldman, wrote in a note today.

In trading before the market open, share of General Electric are up more than 5 percent.

Comments

GE Capital has not been a concern in my mind because they have a stake in much of what they finance. Even if the deal is for competing product, GE gets a share of the deal and some valuable market data to boot. Part of the problem? Nah.

Posted by DanO | Report as abusive
 

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