Could GE Collapse?

http://www.opednews.com/articles/Could-GE-Collapse-by-Jim-Quinn-081218-572.html

by Jim Quinn



General Electric (GE), the legendary American institution, founded in 1878 by Thomas Edison, is in deep trouble. Its PR machine has been in constant spin mode as the company sinks deeper into despair. It is one of the few companies in the U.S. that still retains a AAA rating. Considering Moody’s and S&P’s track record, rating companies and financial instruments, that AAA rating is not worth the paper it is written on. One look at GE’s balance sheet will convince you they do not deserve a AAA rating. AAA companies do not need to take the desperate actions that GE has taken in the last few months.

The virtual crash in its stock price indicates that there is something seriously wrong with GE. The stock reached $53 at its peak in 2000. It closed below $17 this past week, the lowest level since the mid-1990s. CEO Jeffrey Immelt, who took over from icon Jack Welch in 2001, has made his mark by managing the company to a 68% decline in its stock price. You will not see anyone on CNBC take a hard look at GE’s financial statements or ask the CEO tough questions, because Mr. Immelt signs their paychecks. While shareholders have taken a bath, Mr. Immelt, a Harvard MBA, raked in $72.2 million of compensation between 2002 and 2007. A company that is known for its pay for performance mantra evidently does not hold its CEO to the same standards.

The first signs of cracks in this global institution appeared in April 2008. GE has met their earnings projections consistently for decades. It is widely known that they are masters of “legal” earnings manipulation. Accounting rules allow for wide discretion in reserves and estimates. GE Capital has always been a black box within the larger company. GE does not provide detailed financial information about this division. This lack of detail has allowed GE to use this division as its backstop for meeting earnings estimates. During a better than expected quarter, they take extra reserves and have the quarter meet estimates or beat by one cent. During a down quarter, they use those excess reserves to meet estimates. The GE Capital division would also sell liquid assets at the end of a quarter to guarantee smooth sailing. This earnings management had lulled analysts and stockholders into being complacent regarding GE’s business.

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Most people know GE as an industrial conglomerate that makes light bulbs, appliances, and jet engines. Their advertising agency has positioned GE as a “green” company with an advertising campaign called “Ecomagination”, stressing wind power, hybrid locomotives, and environmentally friendly products. The truth is that GE should have an ad campaign called “Bankomagination”. GE is a bank disguised as an industrial conglomerate. GE Capital is a division of GE, which truly dominates the results of this company. GE Capital has three subdivisions (GE Commercial Finance, GE Money, and GE Consumer Finance). In 2003, GE Capital generated $5.9 billion of GE’s $17 billion of profits, or 35%. By 2007, GE Capital was generating $12.2 billion of their $29 billion of profits, or 42%. Being a bank during the boom years of 2004 to 2007 did wonders for GE’s bottom line. Being a bank now is a rocky path to destruction.

Much more at the link above --

of excellent products that people will want to buy. But the easy money from banking will now have to be earned.

that historically only 25 % of their revenues came from product and 75 % from finacancial services and they need to reverse those figures. That would mean tripling their revenue from product over the next 3 years - not so easy now.

Have a read of this sometime : http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x2920691

According to this piece, GE is trying to sell off its manufacturing division in order to raise cash. No buyers have come forward. It's also trying to sell off its credit card and loan division to raise cash; again, no buyers have come forward since there is a strong likelihood of a high ratio of bad debts and craptacular credit default swaps.

No wonder Jack Welch is on CNBC so much lately.

This looks like another good example that the people that fill the CEO and other upper positions in our biggest companies have only one bottom line and that is their own personal bottom line. They seem to look at these companies as their own personal piggy banks to be raided at their leisure or even better their own bank to cover any financial gambling in which they decide to take part. Do they care if their company is losing money? Hell no! not as long as they still get their multi-million dollar bonuses and exorbitant perks. Are they afraid of being fired like us everyday workers? Hell no! they have their golden parachutes to keep them living the high life until they can use their 'extensive resumes' to con another company into opening their piggy bank. Do they care about how risky the financial ventures they 'invest in' are? Hell no! their betting with somebodyelses money why should they care. The ultimate culmination of the 'me society'. They don't give a damn about how many people lose their jobs, how many families are ruined, how many retirees lose their pensions and medical benefits, how many towns and cities they devastate as long as they get theirs screw everybody else their just a bunch of losers because their not CEOs and stealing everybodies money and getting away with it.