Former SEC guy and Stanford Academician Joe Grundfest just weighed in at the 404rum on the question of how to quantify such issues as "remote" and "material" when it comes to the probability of a weakness in a control. And he concludes that one might come up with a standard of five (count 'em) basis points, as if that settles the question.
Just as I was about to groan in despair, Sam DiPiazza of PWC countered that five bps may sound insignificant but can indeed be quite the opposite. And GE's Phil Ameen agreed, noting that five basis points amounts to $75 million in terms of his company's revenue.
My two cents: Translate that into earnings, then multiply it by GE's P/E ratio and you're talking real money. (Look for an update soon on said translation and multiplication of said 5 bips into the potential impact on GE's market value. And anyone who wants to help there is welcome.)
Update: Having trouble computing this, I'm afraid. For GE, $75 million translates into $11.3 million in operating income if my math is right. Multiply that times GE's current P/E ratio of 19 and you come up with $214.7 million in market cap. But that's miniscule compared with GE's total, much less than 5 bips. So maybe Grundfest is right after all. Anyone care to help me out here? |
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