Real Estate Losses
The U.S. government has launched a stress test program that will assess banks' ability to cope with worse-than-expected financial conditions, to determine how much additional capital banks may need.
Economists at the Fed have established a 'baseline' scenario that calls for the U.S. economy to contract by 2 percent this year, with a rebound in 2010, and assumes 8.4 percent unemployment. The Fed's 'adverse' scenario calls for a 3.3 percent economic contraction and 8.9 percent unemployment.
GE said that based on stress-testing using the Federal Reserve's baseline scenario for the U.S. economy, it would expect $900 million in losses against loans at its GE Real Estate portfolio, representing an implied default rate of 8 percent.
Assuming the Fed's adverse case for the economy, that number would rise to $1 billion, or an implied default rate of 10 percent. Its current implied default rate is 1.01 percent, said Jayne Day, of GE Real Estate.
Concerns over how well GE Capital is reserved against an expected rise in defaults, as the slumping economy makes it harder for consumers and businesses to pay back loans, have hammered the company's shares. GE's stock is down about 71 percent over the past year, a steeper slide than the 38 percent fall of the Dow Jones industrial average.
GE last month cut its dividend by 68 percent in a move to conserve cash. As of March 10, it had raised $40 billion of the $45 billion it had planned to seek on debt markets in 2009.
Standard & Poor's last week stripped GE of its "AAA" credit rating. Some investors took its one-notch cut as a sign that there were no major surprises lurking in GE Capital.
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Trader disclosure: On Mar. 19th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (AA), (BAC), (EEM), (FXI), (VIP), (TS); Seymour's Firm Owns (PBR); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Macke Owns (GE), (SDS), (MOS); Macke Is Short (BRK.b); Najarian Owns (C) Call Spread; Najarian Owns (GDX); Najarian Owns (GD) Call Spread; Najarian Owns (GLD) Put Spread; Najarian Owns (MS) & (MS) Calls; Najarian Owns (MSFT) & (MSFT) Calls; Najarian Owns (TGT) Call Spread; Najarian Owns (WFC) & (WFC) Puts; Najarian Owns (XHB) Call Spread; Najarian Owns (MCD) Calls
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