April 14, 2007

GE takes a $373,000,000 hit to earnings due to subprime and Alt-A (liar's loans). IndyMac is next


Ya gotta wonder what's going on on the boardroom of IndyMac (NDE) today, with it's $70 billion in Alt-A loans in 2006 (of the $386 billion total) that is in total meltdown now.

Here's the latest shocker from GE on the meltdown. If GE is taking it in the shorts, what's NDE got cookin for us? I smell bankruptcy. NDE will be the NEW and LEND of Alt-A. And I'm happily short NDE at time of writing.

Subprime woes take toll on GE results

The US subprime mortgage crisis hit General Electric on Friday, wiping $373m from the industrial conglomerate's first quarter profits and prompting its executives to warn of an incipient "bubble" in global credit markets.

GE said it had replaced the senior management team at its mortgage unit, and would reduce its workforce by around 1,000 people, or 40 per cent.

GE will also cut by half the loans it makes to less than $15bn this year - a sign of its belief that the subprime market has yet to hit the bottom.

"We have got to get our house in order," Keith Sherin, GE's chief financial officer, told the Financial Times.

Mr Sherin said the problems in the subprime sector, which targets borrowers with weak credit histories, were being replicated in the market for "Alt-A" loans for borrowers with slightly better credit scores.

38 comments:

Anonymous said...

.
.
back up the truck on NDE it's going down

Anonymous said...

I thought GE made lightbulbs? You mean they also lent money to crack hos?

crack ho said...

Another One bite the dust, hip hip hooray!

HOUSE OF PAIN said...

THIS IS THE BIGGEST NEWS SO FAR !!!

Subprime woes take toll on GE results- wiping out $373m in profit ~~~~


Subprime woes take toll on GE results

By Francesco Guerrera in New York
Published: 13/4/2007 | Last Updated: 13/4/2007 17:25 London Time


The US subprime mortgage crisis hit General Electric on Friday, wiping $373m from the industrial conglomerate's first quarter profits and prompting its executives to warn of an incipient "bubble" in global credit markets.

GE said it had replaced the senior management team at its mortgage unit, and would reduce its workforce by around 1,000 people, or 40 per cent.

GE will also cut by half the loans it makes to less than $15bn this year - a sign of its belief that the subprime market has yet to hit the bottom.

"We have got to get our house in order," Keith Sherin, GE's chief financial officer, told the Financial Times.

Mr Sherin said the problems in the subprime sector, which targets borrowers with weak credit histories, were being replicated in the market for "Alt-A" loans for borrowers with slightly better credit scores.

Mr Sherin sounded a broader warning on the health of the global credit markets.

He said he was concerned at the rise in the level of high-yield debt, which has fuelled the boom in leveraged buyouts by private equity groups, and the growing use of "no covenant" deals, which strip lenders of the right to force borrowers to repay the debt.

"The levels of debt assumed in LBO activities and the lack of covenants . . . to me those are sign of a bubble," he said.

GE is in talks with a number of buyout groups over the $8bn-$10bn sale of its troubled plastics business, which it expects to clinch by June.

GE, whose WMC mortgage division is the fifth-largest US subprime lender, is the latest blue-chip company to be wrong-footed by the abrupt downturn in the industry, which has been hit by a sharp rise in defaults and delinquencies.

GE saw a reduction of $373m in the profits of its GE Money division in the first quarter of 2007 and took a $500m markdown to reflect the lower value of its assets.

Mark Begor, chief executive of GE Money, Americas, told Wall Street analysts the subprime woes would have smaller impact, about $50m, on second quarter results.

Despite problems in the subprime unit and the plastics business, GE reported net earnings from continuing operations of $4.5bn in the three months to March.

The 8 per cent increase over a year ago was in line with analysts' forecasts.

Profits were driven by a strong performance in the infrastructure unit, which has been powered by strong orders in the Middle East and Asia. Revenues were up 6 per cent to $40.2bn.

Net earnings, including discontinued operations, were up 2 per cent at $4.5bn.

house of pain said...

Subprime bailout? $120 billion
More than 1 million borrowers may be at risk of defaulting on their mortgages. Assisting them all wouldn't come cheap.

By Stephen Gandel, Money Magazine senior writer
April 13 2007: 4:21 PM EDT


NEW YORK (Money) -- Want to pick up the check for every homeowner who got saddled with a risky mortgage? It's a big one - on the order of $120 billion.

Lawmakers and consumer groups in recent weeks have been calling for assistance for those at risk of defaulting on their mortgage.

More from Money Magazine
Buyers in charge: 4 strategies

Best places to retire young

Subprime: Bailouts won't cut it


Best Places to Live
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Estimate monthly housing payments
Price of home: $
Downpayment: $
Interest rate: %
Yearly property taxes: $
Yearly homeowner's insurance: $




Principal and interest: $
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TOTAL: $

Quick Vote
Should subprime borrowers be bailed out?
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Comedian Kathleen Madigan has a reality check for subprime lenders hoping to get bailed out by the government.
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On Wednesday, Congressional Democrats led by Charles Schumer (D-N.Y.) advocated steering hundreds of millions of dollars into nonprofits to help the growing number of homeowners who are having trouble paying their mortgage.

But economists and industry experts say the cost of a bailout would be significantly more than that.

read more: http://money.cnn.com/2007/04/13/real_estate/subprimebailout_cost.moneymag/index.htm?postversion=2007041314

Anonymous said...

Immigrant crop picker earns $15,000 a year but got approved for a $720,000 mortgage.

¡Esa es un grande hipoteca!


http://sfgate.com/cgi-bin/article.cgi?f=/g/a/2007/04/13/carollloyd.DTL

Anonymous said...

I'm short NDE too, but I'm very nervous about the insider buying. Any thoughts?

RE.Agent said...

> ¡Esa es un grande hipoteca!

Es un nuevo paradigma, y todos que ahora no compra, será tasado hacia fuera por siempre. Recompensarán cualquiera que compra con un curso de la vida de riquezas, a medida que su característica continuará su aumento el 30% anual del precio.

Los que se alquilan, y cualquiera nacido en una generación futura, no podrán producir un hogar de arrancador $10.000.000 en 15 años. Vivirán en ciudades de la tienda, y Hondas.

Esta burbuja del activo es diferente que todos los otras - nunca retrasará, o hacer estallar. Los aumentos son permanentes.

Anonymous said...

short WCI too

POed said...

Hey, who was it who said no worries, the contagion appears isolated? And who was stupid enough to believe it could be? No matter: it's not like analysts are held accountable for their words, anymore than people are held accountable for say, I dunno, signing a contract?

No matter: the "contagion" obviously will spread, as after all, there is no REASONABLE difference between an Alt-A borrower and a sub-prime (or a prime) borrower when they're all being screwed by inflated prices that will depreciate, especially when paid for via a toxic loan... One's FICO score matters very little, as we're seeing people with 850 FICOs going upside-down and defaulting.

I love the fact that the post from houseofpain accidently included a reference to an article entitled, "best places to retire young". Hmmm, that might be of interest to the people who actually PROFITED by the bubble, and sold before the bubble burst?

And that, my friends, is the reality of what happened. That "profit" they took was in fact paid by loans taken out largely by people who couldn't afford the house, much less pay the loan back. In essence, the final "profit" IS being paid in the form of a bad loan, lost taxes at the local level, etc. We'll all pay for it.

We just finished a massive consumer fraud scam, wherein the "winners" pocketed an average of $300k, an amount which more resembles lottery winnings than reasonable profits on a zero-down, no-doc, no-risk loan after selling a house after 5 years.

In essence, our Government just concluded a massive game of chance (3-card Monte, Roulette), where the winners will enjoy the windfalls, due to recent changes in the capital gains tax. Meanwhile, the "losers" will no doubt be given compensation for stupid investing, too. Hey, there are NO losers here, right?

Just curious, though: didn't alarm bells go off, with anyone in State and Federal regulatory agencies thinking, "huh, 20% appreciation in a year? That sounds like a Ponzi Scheme to me!" Didn't that raise an eyebrow of suspicion ANYWHERE?

Nope, no one wants to ask THOSE types of questions when our President had already said it would be flat-out unpatriotic NOT to buy after 9/11, i.e. housing and consumer spending were Bush's means of staving off recession, sort of as a de facto government war bond...

keith said...

The insiders were sent out (and given $) to buy to make it appear to the market that the insiders were confident and buying. Classic stock pump move, by the people who have tons of stock to protect (as well as their jobs). That plus the CEO cheerleading statement the other day are hilarious.

I think this CEO and CFO are just weeks away from an SEC investigation.

They have to come clean per Sarbanes at the next earnings on the deterioration of the Alt-A market (nobody's buying the paper) and the rising default rate on their 2005 and 2006 trash.

Oh, this one will be fun. Just like NEW and LEND. Wish I had the guts to but more puts. Maybe I do

Anonymous said...

In articles like this one about the $15k yr fruit picker who bought the $750k house, the reporting always describes the racism of predatory lending: minorities are getting worse loan terms on average vs. caucasians.

One thing I wish they would include in each story like this is the fact that this is a story of minorities preying on other minorities.

The evil and corrupt Hispanic, African American, Asian, etc. loan officers, mortgage brokers, real estate agents, and appraisers are manipulating the trust of less educated members of their own ethnic group.

I live in Southern California so I have witnessed this first hand for years now. I have seen these ethinic REIC members market their services to their group almost like they are some sort of a social service (Ex. Home Buying seminars advertised as if they are a charity to help X minority get a leg up). Money grubbing scum knows no color.

AXESWINGER said...

RE.Agent said...
> ¡Esa es un grande hipoteca

Are you from Spain? Or did you use Microsoft Word Translator.
That's funny.Ok you Mexicans ,now you can Read HP TOO.

stuckinthecity said...

"We have got to get our house in order," Keith Sherin, GE's chief financial officer, told the Financial Times.


WOW!

buzz kill said...

The government bailouts will keep interest rates low so that all the rest of the subslime lenders go bk too. Nothing government does is any good. They suck at everything.

Anonymous said...

HAHA. GE sucks. I feel sorry for any suckers who work for GE!

ThomasEdison said...

I wonder how long it took for the lightbulbs to come on in the GE boardroom? I think some of them are still flickering.

Anonymous said...

IMH (Impac) is also rumored to be in bad shape.

serindippity said...

paging Neutron Jack, paging Neutron Jack

code blue, emergency six-sigma sterilization required in the lending sector


Remember back when General Electric actually made stuff in America for Americans, actual stuff other than flim flam loans?

Who knew that we'd be nostalgic for a-bomb parts?

Stuck in So Pa said...

Mish had a good article at "Whiskey and Gunpowder" a few days ago basically saying that "the containment is SPREADING".

I loved it!

Anonymous said...

GEC is finished, so goes evil America!

Anonymous said...

WAMU is doing no-qual commercial loans in SoCal and not even getting the standard and necessary loan documentation normally required of commercial loans.

They are attempting to swell their portfolio at any cost and unload to a buyer, but they waited too long and they will go down bigtime. 2/3rds of their residential portfolio is comprised of toxic loans. Watch soon for an earnings announcement that will drop the DOW by 500 points in a single day

Anonymous said...

I worked as an underwriter for IndyMac, GE, New Century, Washington Mutual, Bank of America and many others over the years. They all allow loan officers, brokers,and management to continually abuse underwriters who resist approving loans that are either fraudulent, cannot afford the loan applied for, or who ask for documentation to satisfy questionable loans.

They are only interested in the monthly volume at any cost. Credit Unions will be next as they are moving into loans from brokers...Wescom, Kinecta, etc. are already suffering losses that are not disclosed to memebers. They have less experience than their moronic mortgage company management counterparts. Their porfolio loans are probably more horrific than the mortgage companies. Mark my words....

Anonymous said...

"GE said it had replaced the senior management team at its mortgage unit..."


They get it backwards once again... Letting management go now when the market's going into the toilet is a blessing. These guys made their bonuses and there's no more to get. Time to go on vacation for 5 years in the Carribean.

Anonymous said...

And this news came out after market close, hoping everyone will be more interested in the weekend and forget it come Monday morning.

Friday after market close is going to continue to be hot news time.

Anonymous said...

"I worked as an underwriter for IndyMac, GE, New Century, Washington Mutual, Bank of America and many others over the years. They all allow loan officers, brokers,and management to continually abuse underwriters who resist approving loans that are either fraudulent, cannot afford the loan applied for, or who ask for documentation to satisfy questionable loans.

They are only interested in the monthly volume at any cost."

heh. yup that sounds exactly like GE management at work. extremely short sited bad mistakes just so long as you make the numbers for the next quarter. who cares what happens down the road. go GE.

Anonymous said...

The biggest bubble in history is taking out the speculators and the mortgage business. Who is next?

Markus Arelius said...

Whoa. This is huge.
GE has their hands in a lot of businesses. They relied on the finance unit to not only gain profits for themselves on mortgages, but as a GE procurement arm to force suppliers into less-than-mutually-beneficial pricing and sales conditions. A decline in the home market is going to hurt GE. A lot.

Hayley said...

Funny about the poster that mentioned the credit unions. I have been getting a bad feeling about mine for some time. Not only does it look like white trash nation behind the tellers counter, they have obviously hired some moronic customer service consultants to steathily (supposedly) collect service data. Then they seem to be pushing home equity loans for hot tubs. They built a lovely new office building for their executive offices.

I thought credit unions were supposed to be like co-ops, not in buisness to lose money, but not in business to reap grand profits either. I've been getting ready to pull my accounts out of mine and head over to somewhere that feels like a real bank (we still have a few locally owned in my area.) Anybody else have thoughts on this?

LongOnRedInk said...

I had accounts at Kinecta for many years but I closed them out in February. Nothing to do with mortgage lending in particular but I had been watching exceptionally bad management for too long and didn't want my money at risk.

Kenduffelsniffenspotzen said...

Hayley said...

"Funny about the poster that mentioned the credit unions. I have been getting a bad feeling about mine for some time. Not only does it look like white trash nation behind the tellers counter, they have obviously hired some moronic customer service consultants to steathily (supposedly) collect service data. Then they seem to be pushing home equity loans for hot tubs. They built a lovely new office building for their executive offices.

I thought credit unions were supposed to be like co-ops, not in buisness to lose money, but not in business to reap grand profits either. I've been getting ready to pull my accounts out of mine and head over to somewhere that feels like a real bank (we still have a few locally owned in my area.) Anybody else have thoughts on this?"

I live in Green Bay. Have noticed the same. Have already shifted some of my money to larger banks. Bankrate.com rates banks and credit unions on a 1 to 5 scale. But the strongest "banks" in town are only rated "3".

Anonymous said...

Finally some news that makes sense. GE's subprime division is WMC. They probably did thousands of fraudulent loans. They were my biggest competitor in the subprime biz becuase they were willing to "make it work." I had one broker tell me he could get WMC to call his "D" customer (someone already 5mos behind) an "A" rating so they could get enough of a loan to cover a refi to get out of foreclosure. He got this kind of "favor" 'cause he gave them 10million a month inbusiness (or so he claimed). It's about time GE started reporting some losses.

Anonymous said...

I wrote the comments about credit unions and lending policies of for various lenders. I have accounts at 2 different credit unions and I am worried about my money. They are supposed to be concerned with "member funds" but none of them seem to be. I thought they would be different, but they are worse actually. They don't have a clue what they are doing, but want to compete with the big mortgage companies, and ultimately it is at the members expense. Since they are not publicly traded they must not have the same scrutiny, but they are now selling mortgages on the secondary market and they are haveing to buy them back at a loss, and remember that doesn't include the loans they can't sell that are sitting in "our" portfolios. Doesn't anyone look at what all mortgage lenders hold in their portfolio? Whether thaey are publicly traded, or using member funds, they need more accountability. Washingotn Mutual is notorious for the same bad lending judgment and then they hold those loans because they cannot sell them. What good are they if no one wants them and you need to sell them at some point? Hmmm....New Century? All of the lenders and credit unions I mentioned are considered some of the best....but the credit unions have me worried more. Management at Kinecta and Wescom are too busy trying to increase volume, don't know anything about mortgage fraud, quality control, sound underwriting practices, responsibility to the borrower to make sure he can afford the loan payment, etc. I don't know where to put my money where they have competent, ethical management.

Anonymous said...

One more item, as an underwriter, I have seen the mortgages the GE issues mortgage insurance for.... What happens when this information becomes public? Should be soon if we are having so may defaults. A lot of the high Loan-to-Value loans are insured by the lenders now, but I have also worked for several mortgage insurance companies and there is a big bubble there that is ready to pop!

Anonymous said...

G.E made only one mistake in my mind, it was when Welch, the well lauded and hugely paid best of business CEO of the century, did not monkey politic the exclusive mining rights to the hudson river wetlands as a compliance to the pcb pollution cleanup, and taken hundreds of square miles of minerals and clays, aluminas and pure waters to the market place railyards, mining and manufacture, G.E's original title, and G.E's spinoff of its financial sector(self protection?)and pklayed the funny money game instead, now perhaps stashed in the financial section spinoff

Anonymous said...

dont mean to be sitting in the dark about this, but i thought spining off the bank was a mistake,

rogersmith8080 said...

NDE is going to be in second place, my money is on Countrywide. Countrywide is going to be the poster boy for the Alt-A meltdown.

Anonymous said...

There are a few mistakes with some of the responses...Yes, GE makes more than light bulbs, appliances, and aircraft engines. In fact, you probably have one of their cards in your wallet. Even with the WMC hit, GE Money still had higher earnings than first quarter last year, obviously the business isn't in terrible shape. I agree, maybe the sub-prime lending wasn't the best idea, but at least they didn't get into the "Interest Only" as other lenders such as Citi got into. These people that got into these when housing markets were on the upswing planning to make a quick buck are in for a rude awakening. Several experts and professors are saying this could very well be a 10 year downturn. With all of the sub-prime lending, interest only lending, and foreclosures at an all-time, I think this is true. Oh, by the way...THE LARGEST GENERATION OF AMERICANS (Baby Boomers) ARE ABOUT TO RETIRE AND DOWNSIZE, SO THEIR HOMES WILL BE ON THE MARKET WITH THE REST! Good luck to anyone planning on selling their home anytime soon.