GE's global operations in Cincinnati. The company may be split up following a $6.2 billion charge. John Minchillo / AP
GE's global operations in Cincinnati. The company may be split up following a $6.2 billion charge. John Minchillo / AP
GE's global operations in Cincinnati. The company may be split up following a $6.2 billion charge. John Minchillo / AP
GE's global operations in Cincinnati. The company may be split up following a $6.2 billion charge. John Minchillo / AP

GE’s $6.2 billion stumble reignites talk of a breakup


  • English
  • Arabic

John Flannery promised a “reset” when he took over beleaguered General Electric last year.

Now, the new chief executive officer is suggesting that the 125-year-old manufacturer might need a lot more. On Tuesday, he said he is weighing a possible breakup of GE after the company disclosed its latest disappointment: a US$6.2 billion charge related to an old portfolio of long-term care insurance.

Mr Flannery pledged on a call with Wall Street analysts to consider changes such as separating GE's primary businesses of aviation, power generation and health care into publicly traded companies. That is a different tone than he had struck just two months ago, when he had emphasised to jittery investors that he would focus GE on those three areas instead of splitting it apart.

"We are looking aggressively at the best structure or structures for our portfolio to maximise the potential of our businesses," Mr Flannery said on a conference call with analysts. A review "could result in many, many different permutations, including separately traded assets really in any one of our units, if that's what made sense."

The chief executive suggested his openness to a breakup after disclosing a larger-than-expected $6.2bn charge related to an old portfolio of long-term care insurance. That renewed concerns about the unexpected issues that can crop up in such a sprawling enterprise - and raised questions about whether GE can cut it in today's business environment.

______________

Read more:

More renewable projects in the pipeline for GCC countries in 2018

______________

“The viability of the conglomerate model is rapidly diminishing in relevance,” said Nicholas Heymann, an analyst at William Blair & Co. While GE may hang onto several of its biggest businesses, it’s becoming clear that “you have to simplify and narrow your focus.”

The shares fell 3.4 per cent to $18.13 at 3.41pm in New York after dropping as much as 4.3 per cent for the biggest intraday decline in two months. GE had staged a modest rebound this year through January 12, with a 7.5 per cent advance.

Since taking over for Jeffrey Immelt, Mr Flannery has cut costs and overhauled management as part of a broader turnaround. His efforts failed to halt a slide in GE’s shares, which posted last year’s biggest drop on the Dow Jones Industrial Average.

In November, he said the company would sell $20bn in other assets, taking the spotlight off the possibility of a more ambitious restructuring. Mr Flannery said on Tuesday he would update investors in the spring. The company reports fourth-quarter earnings January 24.

“Investors are looking at a wholesale breakup as the logical conclusion of this extended GE saga,” Deane Dray, an analyst at RBC Capital Markets, said Tuesday in a note. Whether GE follows through will depend on how successfully it can fix its power division, he said.

The company may also favour smaller moves, including an initial public offering in its jet-leasing business, Jeff Sprague, an analyst at Vertical Research Partners, said in a report.

Mr Flannery's comments stole attention from the disclosure that GE will take a $9.5bn pretax charge related to GE Capital's North American Life & Health portfolio. The after-tax impact of $6.2bn will be $7.5bn when adjusted to the rate following the recent US tax overhaul, according to a company statement. GE's finance unit will pay $15bn over seven years to fill a shortfall in reserves.

The announcement came just two months after Mr Flannery told investors that “soon we’re going to be proud of” GE’s performance. At that time, he said it would cut its quarterly dividend, shrink to a handful of businesses and essentially start anew.

“Needless to say, at a time when we are moving forward as a company, I am deeply disappointed at the magnitude of the charge,” Mr Flannery said on Tuesday on the call. “It’s especially frustrating to have this type of development when we’ve been making progress on many of our key objectives.”

The Boston company has not done any new business in the long-term care market since 2006. Still, it was saddled with obligations on contracts written years ago. The liabilities can swell when claims costs are higher than expected or when investment income fails to meet projections - a problem exacerbated by low interest rates.

GE said dividends from GE Capital to the parent company would remain suspended for the “foreseeable future” after the payment was halted during the portfolio review.

Investors have been bracing since GE warned last year about potential problems in its long-term care portfolio. At a shareholder meeting in November, chief financial officer Jamie Miller said the company was likely to take a charge in excess of $3bn, which is the amount GE Capital would have paid in a second-half dividend.

Long-term care insurance policies, which emerged in their modern form in the 1980s, cover health-related costs not paid by Medicare or standard health insurance. But the products were undermined by faulty assumptions such as how long people would live and how expensive their care would be. Low interest rates also hurt insurers’ ability to offset certain costs.

While an “outsized charge” had been anticipated, the financial impact is “far in excess” of even the worst-case scenario expectations, Tom Gallagher, an analyst at Evercore, said in a note to clients.

RESULTS

2pm: Handicap (PA) Dh40,000 (Dirt) 1,200m
Winner: Najem Al Rwasi, Fabrice Veron (jockey), Ahmed Al Shemaili (trainer)

2.30pm: Handicap (PA) Dh40,000 (D) 2,000m
Winner: Fandim, Fernando Jara, Majed Al Jahouri

3pm: Maiden (PA) Dh40,000 (D) 1,700m
Winner: Harbh, Pat Cosgrave, Ahmed Al Mehairbi

3.30pm: Maiden (PA) Dh40,000 (D) 1,700m
Winner: Wakeel W’Rsan, Richard Mullen, Jaci Wickham

4pm: Crown Prince of Sharjah Cup Prestige (PA) Dh200,000 (D) 1,200m
Winner: Jawaal, Fernando Jara, Majed Al Jahouri

4.30pm: Sheikh Ahmed bin Rashid Al Maktoum Cup (TB) Dh200,000 (D) 2,000m
Winner: Tailor’s Row, Royston Ffrench, Salem bin Ghadayer

Conflict, drought, famine

Estimates of the number of deaths caused by the famine range from 400,000 to 1 million, according to a document prepared for the UK House of Lords in 2024.
It has been claimed that the policies of the Ethiopian government, which took control after deposing Emperor Haile Selassie in a military-led revolution in 1974, contributed to the scale of the famine.
Dr Miriam Bradley, senior lecturer in humanitarian studies at the University of Manchester, has argued that, by the early 1980s, “several government policies combined to cause, rather than prevent, a famine which lasted from 1983 to 1985. Mengistu’s government imposed Stalinist-model agricultural policies involving forced collectivisation and villagisation [relocation of communities into planned villages].
The West became aware of the catastrophe through a series of BBC News reports by journalist Michael Buerk in October 1984 describing a “biblical famine” and containing graphic images of thousands of people, including children, facing starvation.

Band Aid

Bob Geldof, singer with the Irish rock group The Boomtown Rats, formed Band Aid in response to the horrific images shown in the news broadcasts.
With Midge Ure of the band Ultravox, he wrote the hit charity single Do They Know it’s Christmas in December 1984, featuring a string of high-profile musicians.
Following the single’s success, the idea to stage a rock concert evolved.
Live Aid was a series of simultaneous concerts that took place at Wembley Stadium in London, John F Kennedy Stadium in Philadelphia, the US, and at various other venues across the world.
The combined event was broadcast to an estimated worldwide audience of 1.5 billion.

Jetour T1 specs

Engine: 2-litre turbocharged

Power: 254hp

Torque: 390Nm

Price: From Dh126,000

Available: Now

UAE currency: the story behind the money in your pockets
The specs
 
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
Fuel economy, combined: 6.5L/100km
On sale: December
Price: From Dh330,000 (estimate)
THE CLOWN OF GAZA

Director: Abdulrahman Sabbah 

Starring: Alaa Meqdad

Rating: 4/5

Key facilities
  • Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
  • Premier League-standard football pitch
  • 400m Olympic running track
  • NBA-spec basketball court with auditorium
  • 600-seat auditorium
  • Spaces for historical and cultural exploration
  • An elevated football field that doubles as a helipad
  • Specialist robotics and science laboratories
  • AR and VR-enabled learning centres
  • Disruption Lab and Research Centre for developing entrepreneurial skills
MATCH INFO

Juventus 1 (Dybala 45')

Lazio 3 (Alberto 16', Lulic 73', Cataldi 90 4')

Red card: Rodrigo Bentancur (Juventus)

UAE currency: the story behind the money in your pockets
UAE v Gibraltar

What: International friendly

When: 7pm kick off

Where: Rugby Park, Dubai Sports City

Admission: Free

Online: The match will be broadcast live on Dubai Exiles’ Facebook page

UAE squad: Lucas Waddington (Dubai Exiles), Gio Fourie (Exiles), Craig Nutt (Abu Dhabi Harlequins), Phil Brady (Harlequins), Daniel Perry (Dubai Hurricanes), Esekaia Dranibota (Harlequins), Matt Mills (Exiles), Jaen Botes (Exiles), Kristian Stinson (Exiles), Murray Reason (Abu Dhabi Saracens), Dave Knight (Hurricanes), Ross Samson (Jebel Ali Dragons), DuRandt Gerber (Exiles), Saki Naisau (Dragons), Andrew Powell (Hurricanes), Emosi Vacanau (Harlequins), Niko Volavola (Dragons), Matt Richards (Dragons), Luke Stevenson (Harlequins), Josh Ives (Dubai Sports City Eagles), Sean Stevens (Saracens), Thinus Steyn (Exiles)

One-off T20 International: UAE v Australia

When: Monday, October 22, 2pm start

Where: Abu Dhabi Cricket, Oval 1

Tickets: Admission is free

Australia squad: Aaron Finch (captain), Mitch Marsh, Alex Carey, Ashton Agar, Nathan Coulter-Nile, Chris Lynn, Nathan Lyon, Glenn Maxwell, Ben McDermott, Darcy Short, Billy Stanlake, Mitchell Starc, Andrew Tye, Adam Zampa, Peter Siddle

The%20specs
%3Cp%3E%3Cstrong%3EPowertrain%3A%20%3C%2Fstrong%3ESingle%20electric%20motor%0D%3Cbr%3E%3Cstrong%3EPower%3A%20%3C%2Fstrong%3E201hp%0D%3Cbr%3E%3Cstrong%3ETorque%3A%20%3C%2Fstrong%3E310Nm%0D%3Cbr%3E%3Cstrong%3ETransmission%3A%20%3C%2Fstrong%3ESingle-speed%20auto%0D%3Cbr%3E%3Cstrong%3EBattery%3A%20%3C%2Fstrong%3E53kWh%20lithium-ion%20battery%20pack%20(GS%20base%20model)%3B%2070kWh%20battery%20pack%20(GF)%0D%3Cbr%3E%3Cstrong%3ETouring%20range%3A%20%3C%2Fstrong%3E350km%20(GS)%3B%20480km%20(GF)%0D%3Cbr%3E%3Cstrong%3EPrice%3A%20%3C%2Fstrong%3EFrom%20Dh129%2C900%20(GS)%3B%20Dh149%2C000%20(GF)%0D%3Cbr%3E%3Cstrong%3EOn%20sale%3A%3C%2Fstrong%3E%20Now%3C%2Fp%3E%0A
Specs
Engine: Electric motor generating 54.2kWh (Cooper SE and Aceman SE), 64.6kW (Countryman All4 SE)
Power: 218hp (Cooper and Aceman), 313hp (Countryman)
Torque: 330Nm (Cooper and Aceman), 494Nm (Countryman)
On sale: Now
Price: From Dh158,000 (Cooper), Dh168,000 (Aceman), Dh190,000 (Countryman)
Profile of RentSher

Started: October 2015 in India, November 2016 in UAE

Founders: Harsh Dhand; Vaibhav and Purvashi Doshi

Based: Bangalore, India and Dubai, UAE

Sector: Online rental marketplace

Size: 40 employees

Investment: $2 million