GE Bailout Chatter Begins

We think you can safely put GE in the too big to fail category, and if you thought that saving Citigroup (C) was going to be tough, GE will be a nightmare. But the talk of how much government support the AAA-rated company might need has already begun;

WSJ: Unlike banks, GE Capital doesn’t disclose a Tier 1 ratio. Large banks are in the region of 9%. To get to that level, GE Capital might need as much as an extra $25 billion of capital, estimates Richard Hofmann at CreditSights.

Normally, GE would be able to fill any capital hole with equity raised from private investors. But turning to them in the current turmoil looks tough.

Therefore, should the need arise, the government might be persuaded to inject capital, especially since GE securities are so widely held. That wouldn’t be straightforward, however, because bank regulators don’t have formal oversight of the vast majority of GE Capital’s business.

Theoretically, the unit could be spun off as a stand-alone bank-holding company. One potential problem: An independent GE Capital might need a lot more equity to convince investors that it can make it comfortably through the cycle.

The idea of the U.S. government owning a stake in any part of GE might seem outlandish. But if GE Capital had been a stand-alone bank going into this crisis, the government would almost certainly have plowed Troubled Asset Relief Program dollars into it already.

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