Is GE management gutting the company's finances?

Check out this ridiculous truth about General Electric which has devolved into nothing more then a shadow bank posing as manufacturing company:  Total cash is $10.2 billion vs debt of $388 billion.  With 38:1 debt leverage at a time when interest rates are threatening to find a long term bottom, what can possibly go wrong?


So here we have an industrial giant which is in huge debt and which has huge fixed costs which is darned near out of cash.  This is a house of cards waiting for a stiff wind (or another government bail out).  Under these extreme conditions, you would expect the CEO to be hoarding cash, trying to get something in the kitty in case a rainy day shows up (AKA rising interest rates).  But noooooooo!  Instead he's paying out the cash to shareholders (cough cough top company officers) at the rate of 57%!  For every buck the company makes, 57 cents go back to shareholders.



Normally this would be a bit too high to be sustainable.  I would like to see it more like 20% leaving 80% of the profits to go into debt reduction.  But at these extreme levels of debt to cash it's completely ridiculous and it in fact smacks of the end game where corporate officers stop worrying about the long term because they already know they are doomed.  In these cases, their goal turns to looting the company as quickly as possible.  When interest rates finally do start going up, GE will be paying higher and higher rates to roll over this ridiculous amount of debt.  If interest rates went up just 2 percent here and if GE had to roll over all of its debt over the next few years, the service on this debt would go up by a whopping 7 billion per year.  That would not be life threatening if GE had a big cash hoard to offset the debt but 10 billion dollars is very little in this situation.

I'm not alone in this assessment.  Macroaxis predicts a 64% chance that GE will BK within the next 2 years.  Another one of these (famously accurate) bankruptcy predictors is the Altman "Z-Score".  The ratings go like this:

• 0 to 1.81 = clear distress/high odds of BK in the next 2 years.
• 1.82 to 2.99 = grey zone.
• 3.00 and higher = safe from BK within the next 2 years.

So what is GE's Z-Score?  1.3 as you can see from this web site.  That is clearly and solidly into the distress zone.  Think the CEO doesn't know about this?  REALLY?   From that site: "Study by Altman found that companies that are in Distress Zone have more than 80% of chances of bankruptcy in two years."  Of course GE management knows about these indicators.  All they do all day long (when they are working at all) is look at charts and numbers and analyses.  Yet still, in the face of an 80% chance of BK in the next 2 years, they pay out the profits to themselves and other fat cat investors at a rate of 57%.  It might be legal, but it is a scam.  And when it collapses they are going to stick you and me with the bill FOR SURE.

It's not that GE is a bad manufacturing and services company.  It's that they are running a vendor finance scam.  They got big by doing work in return for promises to be paid for it instead of actual payment.  GE used its good name to get credit at low rates which its customers could never qualify for.  It then spent the money on the projects and took on the associated debt.  Those projects would never have happened had its customers had to qualify for the debt on their own.

Many GE customers will turn out to be not credit worthy and they will default on GE during the next big recession leaving GE to default on its bonds.  This is how the corporate vendor finance scam works.  It makes the leaders of these companies look like manufacturing and economic geniuses when in fact it will eventually be discovered that they are just con men running a con game.  They fully expect their buddies in the US government to continue bail them out via the back door.  Some day government will not be able to do it and GE will have to stand on its own.  Good luck with that.  It will collapse IMO.