Securitization - GE tries something different

Yesterday GE removed 2 million accounts from its securitized master trust to shore up its performance and the accounts were mainly from their private label credit card portfolio. Its a rare event for any such a business and it tells about the proactive steps GE is taking to ensure the funds flow in future.

GE private label credit card business, under GE Money brand, is a leading player with more than 60 billion in assets. The portfolio includes private label cards for JC Penney, Wal Mart, Gap, Lowes and a number of other retailers. Securitization was always a significant source for GE for funds but due to the nature of their portfolio ( Storecards have some subprime customers) , the delinquencies in their trust went up to 10.58% recently. It was still maintaining a spread of 8% to investors (Thanks to the 26% finance charges and other fees ) but seems GE is worried about the spread getting thinner and the investor confidence in those instruments.

GE tried to sell this portfolio in 2008 but due to financial crisis and probably aversion for sub prime portfolios, it could not find a buyer . Now GE says they are going to keep it so maintaining the confidence on their securitized instruments is very vital to their access to funds.

This news is particularly interesting as a credibility building exercise from a major corporation.

Toxic Waste

Dow is at 6627 today.A drop of 1600 points since the historic inauguration day of January 20th. At that time around everyone thought the financial crisis was factored in to stock prices but i think the market is not clear about the direction the Obama administration is taking to stabilize the financial crisis situation.

As per the TARP, the initial plan was to buy back the troubled assets ( alias toxic waste) and there by inject money to banking system to boost lending activity. Now they are not sure that's the best way. It seems they are thinking over two possibilities :

1. Buy all the toxic waste at a fair price and sell to private investors

2. Lend low interest money to private investors to help buy the toxic waste.

both these cases don't guarantees an increased lending by financial institutions. The only way to do that is to nationalize the banks temporarily to unlock the liquidity and stagnation .

Bernake's confessed before the congress that bailing out companies like AIG (so far 180 billion spent and counting ) was most painful as they behaved more like hedge funds. This pain is no spreading to major banks like Citi ( 50 billion spent and guaranteed 306 billion worth of assets) and Bank of America (45 billion spent and 118 billion guaranteed). These are soon would be zombie organizations Obama's administration should temporarily nationalise so that markets will get stabilized and then its easier to direct funds to priority sectors.