GE serves warrants for Buffet

General Electric received a helping hand in the wake of US's "credit crisis" from the BANK BUFFET. A lot of valuers and investors around the world have been speculating to know the true valuations of GE, with its opaque mix of finance and manufacturing. Well the BANK OF BUFFET just figured it out.

GE issued warrants of preferred stock worth $3 BN @ $22.25 per share, $2 below its last traded price and almost half its stock price at the beginning of the year.

GE who, wants to hold on to its AAA rating, also offered to issue another $12BN in form of common stock to other investors.

Many analysts felt Buffet's move is a show of returning the favour to the US, by giving a helping hand and bringing back confidence in resurrecting the US economy. Buffet who last week invested $5BN in Goldman Sachs, has now contributed personally close to 1% of money equivalent of the massive $700BN bailout package.

The soothsayer from Ohama did play it tough in striking the deal, with the interest rate on the stock pegged at 10%, a shade lower than GE's cost of equity, which is pegged to be in the range of 12% to 14%, and much higher than GE's average cost of debt @5.5%.

Many investment bankers felt that, this move would further disturb the sentiments of the economy, as they expected the big giant "GE" to give a helping hand to the US economy.

While GE boasts some $846 billion in assets, close to $600 billion of that is on the finance side--either in the form of loans or leased assets like airplanes. There's also $100 billion in intangibles and goodwill, leaving less than $200 billion in hard assets like buildings, equipment and inventory. It has about $90 billion in commercial paper, which is short-term, low-cost borrowing made for as little as one month. Commercial paper costs have risen for G.E., as it has for others, though it has been tapping that market throughout the crisis

Warren believes he may have bought GE's stock at rock bottom & believes the US economy have hit the bottom. If he is right then the US conglomerate will recover, will sell and lease more planes, automotive and finance them.

If he is wrong, then GE will be forced to borrow more or sell its stock much cheaper. Hoping Brand Buffet's gamble pays off this time.