The one of the world’s biggest corporations called General Electric is now at the risk of bankruptcy. The century-old company founded by Mr. Thomas Edison that was listed among TOP 10 most expensive world’s brands until not so long ago, has become cheaper by more than 56% during 2018. Just this past week, this corporation’s shares has lost around 11% against the background of its insufficient quarterly financial statements.
Analysts believe that the General Electric’s bankruptcy may become a trigger by analogy with the collapse of Lehman Brothers in 2008. During October alone, against the background of large security sales, the stock markets of the US, Europe and Asia has lost about 5 billion US dollars, which has turned out to be the biggest drawdown since 2008.
Based on the quarterly statements, the corporation has demonstrated a negative dynamics in 6 of 8 sectors. If 2 years ago this company demonstrated some income in all of its fields of work, then in 2019-2020 years, 6 of them will hardly break even or possibly show some losses at all.
Investors are even more concerned about the General Electric’s obligations, which in October have been decreased by rating agencies by two stages at once. Within next two years, GE will be obliged to pay the biggest debt among companies with the same rating level. And bearing in mind that its capitalization is 1.5 times lower than its total debt, the probability of a default within next 2-3 years remains at high. Analysts also state that around 50% of the investment grade obligations amounting to 5 billion US dollars have pretty low rating and the General Electric’s obligations sale will cause a wave of instant sell-off and default of its securities.
Other US corporations also have a tough time:
– Ford. One of the biggest carmakers is close to its bankruptcy. The company is within an inch of decreasing in Moody’s and S&P rating. These problems relate to the growth in production costs and trade wars, because of which its sales has crashed in China. In 2019 Ford will be obliged to return around 15 billion US dollars of its debt with the projected profits that will only be equal to 5.3 billion US dollars in 2018.
The world’s biggest beer production company is also at the risk of its rating decrease due to the growth of a debt load of profits before taxes by 5.4 times. This means that the company will at least have to declare off dividend payout, which will definitely have implications for its shares cost.
– Dr Pepper, Campbell Soup.
These companies also have the same type of problems related to its debt service and current liquidity ratio. It is still too early to mention any default, but 2019 and 2020 may become a hard test for these corporations. Another problem is the rate growth due to which the debt service cost is increasing.
Not all investors share the opinion regarding the potential bankruptcy of General Electric. It is inappropriate to compare this corporation with Lehman Brothers, because its shares are popular among pension funds and individuals preferring long-term accumulated investments. The government of the United States of America will hardly let this industrial giant fall – on the contrary, it will give it a support or restructure its debt. This means that there is a sense to wait for the US stock market retracement and to purchase the General Electric’s shares at their minimal cost with the 5-10 years horizon.
It is hard to predict which scenario will become real. So far the shares of General Electric and of some other large corporations are traded at the “garbage” level. The default of GE is still possible and this will automatically cause the bankruptcy of some part of its investors. In case it happens, there will be a probability of a chain reaction that will lead to the global recession following 2008.