GE Profits Take a Dive; GE Warns of LBO "Bubble"

14 de abril de 2007

<body><div id="article"><tr><td height="28" valign="middle" width="184"></td><td valign="middle" width="185"></td></tr><h1>GE Profits Take a Dive; GE Warns of LBO "Bubble"</h1><p>Apr 14 (EIRNS)--General Electric warned that it will take a $373 million hit on its profits for the first quarter because of the housing crisis and the "bubble" of leveraged buyout (LBO) debt. Keith Sherin, GE's chief financial officer, told today's Financial Times that the cut in profit was not just due to the sub-prime mortgage crisis, but to the "Alt-A" mortgage crisis as well. "We do have similar pressures in Alt-A," Sherin said.</p><p>He also announced that GE will not only dismiss 1,000 employees, or 40% of the workforce in its mortgage unit, but also that it will halve the number of mortgage loans it makes ($15 billion last year).</p><p>Sherin also expressed serious concern about junk bonds accumulated from the LBO boom by equity funds. The "no covenant" deals characteristic of current LBO's, strip the rights of lenders to force borrowers to repay debt, he said. Even junk bonds used to have "covenants" which put them in default automatically in case of massive credit downgrades of the borrower or similar circumstances.</p><p>"The levels of debt assumed in LBO activities and the lack of covenants...to me those are signs of a bubble," he said.</p></div></body>