GE faces big charge: Is a break-up next?
General Electric (NYSE:GE) CEO John Flannery started 2018 with good vibes from investors after wrapping up one of the worst year’s in the company’s 125 year history by promising a turnaround.
However, on Tuesday those vibes went south. Shares tumbled over 3% after the company announced a much larger-than-expected charge in GE Capital, sparking renewed talk of a break-up from Flannery himself.
|GE||GENERAL ELECTRIC CO.||101.55||-0.86||-0.84%|
“There could be different structures, we need to examine those….They could result in many different permutations including separately trading assets in any one of our units if that is what makes sense” he said during a conference discussing that in the ongoing reexamination of the structure of the company that.
Last October, FOX Business reported something along the same lines. “This is the one thing analysts say is going to boost the stock, is to breakup the company into various companies” said FOX Business Network Senior Correspondent Charlie Gasparino, during an appearance on “Countdown to the Closing Bell”.
GE has a successful track record of spinoffs, a point Flannery highlighted on Tuesday. “We have seen that in Synchrony and in Baker Hughes, those are two examples of how that might work, and that is something we would consider in other parts of the company,” Flannery said, adding that, “The real core is to make sure these businesses can flourish.”
He also noted a comprehensive review is ongoing; and that power, aviation and healthcare will be the focus. “In 2018 we will continue intense focus, we look at every aspect of the company, everything is on the table,” he said.
Flannery, who took over from a beleaguered Jeff Immelt last August, slashed the company’s generous dividend while promising a smaller, simpler company focused on aviation, healthcare and power. While the overall strategy was unveiled, executives kicked the can down the road, so to speak, on the finer details on how GE would transform into this “simpler” company.
However, Flannery’s promise may be harder to meet without a spinoff based on latest financial setback. Reserve testing for GE Capital’s run-off insurance portfolio, North American Life & Health, will result in an after-tax charge of $6.2 billion for the fourth quarter of 2017, and GE Capital expects to make statutory reserve contributions of approximately $15 billion over seven years.
To fund the contributions, GE Capital will be suspending its dividend to the parent company for the "foreseeable future."
GE had not responded to FOX Business’ request for comment by the time this article went to publish.