Sunday, March 29, 2009

Is GE going bankrupt?

Wow… is the CFO really telling us the truth, the whole truth and nothing but the truth… I very much doubt it.

Off the wires, no link.

"DJ reports GE Capital credit default swaps worsen even as GE released a statement emphasizing its strong cash position. The CDS are most recently quoted at 17.5 points up front, from 16.5 points up front earlier today, according to Phoenix Partners Group. That means investors must pay $1.75 mln up front, plus a $500,000 annual fee, to protect $10 mln of GECC senior bonds against default for five years."

That means the first year cost is $1.75 + $500k, or $2.25 million.

That's 22.5% first year cost to insure $10 million against default!

This means that the market is saying that the odds of GE going bankrupt within the next twelve months is greater than one in five, and that assumes zero recovery.

If the bonds would recover more than 80% in the event of a default then it is implying more than a 100% risk of default, which is obviously impossible.

This is occurring despite GE's CFO appearing this morning on CNBC making the case quite clearly that there is no risk of default under any materially possible scenario.  In other words, his assertion is that the odds of default are zero.

More GE (IMPORTANT) - The Market Ticker

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