CDS on GECC: Conflagration

March 3rd, 2009 9:34 pm | by John Jansen |

I received an email late in the day from a  friend of the blog. I have just now (3 hours later) checked my emails and thought it worth posting.

The writer states that late in the day CDS spreads on GECC bonds widened by about 200 basis points.

Another source reports that 5 year CDS on GECC traded this morning at about 10 points up front. Very late in the day the same CDS was trading mid market 19 points up front.

This is a AAA company. We should expect that GECC should be downgraded.

Given the performance of the equity(traded down to $6.82 after hours) of the parent company, and the credit market judgement on the credit worthiness of the finance company, there is a conflagration brewing.

The hallmark of the financial market meltdown since it began to unfold around this time in 2007 is that of the possible choices of outcomes available in any given situation,the one which is most detrimental to the economy generally transpires.

Strap yourself in for another rocky ride.

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  1. 7 Responses to “CDS on GECC: Conflagration”

  2. By Dave in SV on Mar 3, 2009 | Reply

    Thanks for the update. I’ve haven’t bothered to unstrap since last September.

  3. By CreditTrader on Mar 3, 2009 | Reply

    Hey JJ, while there are a ton of reasons for GECC to blow wider, this rapid meltdown smells like some serious unwind/hedge action by dealers covering the bespoke CDOs that GECC was in.

  4. By Vikram on Mar 3, 2009 | Reply

    Yup CreditTrader. That is what it looks like. First you sell protection to construct the Bespoke CDO; then you buy it back when there is no one left to sell it. GECC’s total emerging market exposure is supposed to be $30B. My guess is that a lot of that has to do with financing GE’s industrial sales. Though anything can happen, a lot of these sales are to quasi-government or government backed organizations which are not likely to go into their country’s version of Chapter 7.
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  5. By John Jansen on Mar 3, 2009 | Reply

    Thanks for that.

    I am sure you have better read than i do but I have seen this movie before and I think I know how it ends!!

  6. By Counterpointer on Mar 4, 2009 | Reply

    John – there were some mentions of this on CR this evening. Not good, was the basic message.

    C

  7. By anon on Mar 4, 2009 | Reply

    “of the possible choices of outcomes available in any given situation,the one which is most detrimental to the economy generally transpires.”

    that’s either murphy’s law…or occam’s shotgun…i can’t remember which one.

  8. By Danny on Mar 4, 2009 | Reply

    So do we all agree that GE’s main business is no longer light bulbs, refrigerators and airplane engines; but a HUGE blackbox hedge fund?

    GE just issued FDIC insured paper/bonds; that means they are financial institution (bank)that the Fed/treasury/Govt should watch and take care in case of… Is this logic correct?

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