Randomly Noted

As 2010 draws to a close, there has been – as one could expect – a change in the top five companies traded here in terms of their market capitalizations. Three of the top five from 2009 stayed in the top five for 2010 – Exxon Mobil continues to be first with a market cap of $369.92 billion (up from $327 billion a year ago). Amazing what high oil prices will do.

The new number two is Apple, riding the success of its iPad tablet, launched in the middle of this year. Apple’s market cap at the end of this year was $296 billion, up from $188 billion a year ago. That’s a whopping 57% gain.

The other carryover was Microsoft, which came in 3rd this year at $238.27 billion. It held the number 2 spot last year with a $278 billion market cap. That means this year it declined 14%. The new kids in the top five class?

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Over the past couple of weeks, Moody’s Investors Service has been downgrading more pools of commercial mortgage backed securities. And buried in releases of a couple of those downgrade notices comes word that a loan on famous New York City office building landmark has moved into special servicing.

The building is 666 Fifth Avenue and it was built in 1957 by Tishman Realty & Construction. It at one point had Citigroup as a major tenant, with a “Citi” logo replacing the numbers “666″ on the side of the building. Kushner Properties bought the building for nearly $1.8 billion near the top of the NYC real estate market in late 2006.

And now there appear to be some issues with that loan.

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General Electric reported earlier today that its earnings and sales were a little softer than everyone expected them to be although orders for new equipment and services grew in the third-quarter – a sign business is picking up.

But one of the clear challenged that remains for GE is its real estate portfolio in its GE Capital unit. The company reported today that its real estate business lost $405 million. Now, that’s better than the $538 million loss in the year-ago quarter, but it shows that the weight of bad loans continues to drag down GE Capital.

The company also noted that it has $1.4 billion in non-performing loans, so, more losses are likely. It wrote off $222 million of losses from that real estate loan portfolio.

Three major financial institutions reported earnings today (GE Capital, the finance unit of GE, along with Citigroup and Bank of America) and while all were profitable, one sore spot stuck out when you dug through the mounds of data each company reported: Commercial real estate remains a big drag.

GE Capital had net income of $830 million – and that was after it lost $524 million in its real estate portfolio. The unit said it wrote off $186 million of bad commercial real estate debt and had $1.6 billion of non-performing assets. It placed at $6.3 billion its unrealized real estate loss.

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Former Treasury Secretary Henry Paulson gives the ultimate insider’s view on the steps taken to prevent the global credit crisis from bringing down the financial system 1 1/2 years ago. And in his book on the subject, he apparently tells of the liquidity problems facing one of the bluest of the blue chip corporations in the U.S. – General Electric. According to an article in yesterday’s Washington Post, GE CEO Jeffrey Immelt on at least four occasions spoke with Paulson about the problems GE was having accessing the credit markets. The Post, excerpting from the book, said Immelt came to Paulson’s office the day Lehman Brothers filed for bankruptcy and told the Treasury secretary the company was having a hard time borrowing money in the commercial paper market for more than a day. In other words, investors would only loan GE money overnight and barely any longer. The Post notes that a day earlier, GE had set a letter to investors telling them it was having no problems accessing capital markets. The concerns over GE had to do with its GE Capital unit and its heavy exposure to the commercial real estate market as well as its mounds of debt. GE has denied misleading investors.

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GE Capital Finance Reserve Coverage

Commercial loans and commercial real estate continue to be the bogeyman for GE and its finance unit. The company reported a profit of $3 billion earlier today but its once money-minting finance unit contributed only $336 million to that profit. The drag remains real estate, which the company was a little slow to acknowledge last year was a looming problem.

It lost $593 million in the commercial real estate portion of its business in the most recent quarter versus a $60 million loss in the year-ago quarter. More importantly, it lost $1.5 billion for the year (a third of that in the last quarter) versus a gain of $1.1 billion for the prior year.

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Bank of America and General Electric today became the latest companies to report more problems in their commercial real estate portfolios (disclosed in their quarterly earnings reports). As you can see from the chart on the left, the quality of CRE loans sitting on Bank of America’s books is deteriorating fairly rapidily. In fact, that $6.9 billion of non-performing CRE loans is a whopping 9.55% of its total CRE portfolio. That’s just about $1 of every $10 the bank has loaned in this area is currently not making interest payments. GE Capital, on the other hand, had about 2.9% of its commercial real estate portfolio that it classified as “non-earning” (for about $1.3 billion). Bank of America has also been forced to set aside more reserves against its commercial real estate portfolio – its allowance for CRE loan losses is now $3 billion versus $1.3 billion a year ago.

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General Electric lost its prized AAA credit rating today and the stock market rallied around 200 points. Standard & Poor’s, one of several credit ratings agencies reviewing GE’s credit profile, downgraded the company to AA+, citing a continued deterioration within the GE Capital unit’s business. Importantly, it left intact the short-term rating – this is the one that affects GE’s day-to-day borrowing costs in places like the commercial paper market. The markets were relieved that it was only a one-step downgrade and that something had actually happened – there has been talk of a downgrade for weeks. In fact, the impending downgrade has been cited a few times for reasons behind broad stock market sell offs. So, GE’s stock today is inching closer to that $10 a share level ($9.64 recently, up 13%).

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