Wednesday, November 26, 2008

The World's Best Managed Company

"General Electric Co. said its GE Capital financial-services arm would participate in the federal government's new debt-guarantee program, making it the first company with significant industrial operations to tap the program. ... 'It allows us to source our debt competitively with other financial institutions that are eligible, said Russell Wilkerson, a GE spokesman. GE said it expects to qualify for the program by Friday. GE said Wednesday that under the program, the government will guarantee as much as $139 billion in long- and short-term debt through next June. ... With roughly $600 billion is assets, GE Capital is as big as some large banks. ... But GE Chairman Jeffrey Immelt this September said he will shrink the unit in response to the credit crisis. ... Nigel Coe, an analyst at Deutsche Bank, said in a note that GE 'had retained a greater degree of strategic and operational flexibility,' by taking advantage of the government's debt guarantee. But Mr. Coe said it could cost GE as much as $1 billion to tap the full guarantee. ... Keith Sherin, GE's chief financial offiver, said that even after paying for the insurance, it would be cheaper for GE to issue debt backed by the federal program", Paul Glader at the WSJ, 13 November 2008.

"The government has bought Jeffrey Immelt some valuable time. But will [GE's] chief executive use it to radically restructure the balance sheet of GE Capital, the company's $680 billion finance business? ... GE Capital's heavy use of a type of short-term debt called commerical paper seems to make sense when times were good, because it was cheaper. But it left the unit exposed when investors' demand for corporate debt recently dried up", Peter Eavis at the WSJ, 14 November 2008.

Ed Harrison (EH) recently asked should GE be a AAA company, at Yves Smith at Naked Capitalism led me to EH's post. My answer: of course. If Uncle Sam is an AAA credit, why not?

Imagine, the world's best managed company needs a bailout. How do you spot a well managed company? It pays outsize executive compensation! Does this mean every other company with well paid executives in America needs a bailout too?

Without Uncle Sam's support, this junkpile of financial garbage would probably fold leaving only GE's industrial businesses. Remember those?


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Anonymous said...

IA >>>

The market killed the bond insurers...

Now we have a bond insurer with a printing press...

$ 1 B to insure $ 600 B at AAA... cheap wrap...

Can the market kill the new bond insurer?

Printfaster said...

You find the best managed company by avoiding the fools that Welch created and distributed to the many companies in the US. Here I am thinking Home Depot, Tyco and Honeywell/Allied Signal among others.

GE is an abomination, a financial company with some industrial aspects, an LTV conglomerate.

To find well managed firms, look to those with strong local connections. Honeywell of earlier days was a prototype. It was originally Minneapolis-Honeywell, then Honeywell, then the name was stolen by the GE trained raiders at Allied Signal when GE was spurned.

Other good local firms are Caterpillar, Cummins, PACCAR, HarleyD, Pfizer. Avoid those with Harvard/Stanford/Wharton MBAs. Of course most firms are infested with them, including some of the above. They are the termites that will eat wood holding the company up. The trademark is Boston Consulting or McKenzie on the resume.

Avoid conglomerates like GE, Berkshire, Tyco, or Honeywell. Stick to businesses that are businesses and have no financial component, not a vehicle for executive enrichment.

Of course some of the best managed companies are not public such as Cargill. If you are well managed, you neither need nor desire involvement from financial people.