Tuesday, July 21, 2009

GE's Continuing Pathetic Performance

The Wall Street Journal's headline on GE's performance results this past weekend said it all, "GE Net Falls 49% as All Units Hit."


Perhaps the most glaring insult to shareholders was inept CEO Jeff Immelt's quote,

"Despite a difficult overall economy, we are pleased with our results."

That sure took a lot of gall for Immelt to say, didn't it? Look at the nearby stock price charts for GE compared with the S&P500 over the past 3, 6 and 12 months.

The financial unit saw profits plunge 80%! Once again, Immelt's mismanagement and continuation of the firm's senseless, grab-bag diversification, has injured shareholders more than was necessary.

With virtually no relationship between the major components of the firm, those shareholders wishing to hold only industrial or media properties could have avoided the enormous losses of the financial unit's toxic holdings.

The same day, a Journal analytical piece in its 'Heard On The Street' column spanked GE for two weaknesses.
First, the piece noted how GE, contrary to many commercial banks, has continued to issue debt with government guarantees. Without conventional bank deposits for funding, the company has issued $68B of obligations under various federal programs, and there's no clear end in sight of the company's dependence upon, basically, all taxpayers.
The article also draws attention to GE's lower reserves for commercial and residential mortgage losses than its commercial bank competitors. This is an area on which the firm has been castigated in prior months, and there doesn't appear to be any sign that its management has seriously considered more realistic treatment of asset values in its real estate portfolios.
Take these two items together, and you conceivably have GE raising taxpayer-guaranteed debt while inaccurately leaving questionable real estate asset values inflated.

All in all, hardly a picture of competent, prudent management of the diversified conglomerate of which so much glowing press has been written in past decades. Instead, it's become a bloated, over-valued collection of unrelated, struggling businesses dependent upon government aid to fund itself.
This is a business model of which Immelt is proud, and the performance with which he is pleased?
Jack Welch must be spinning in his grave. Oh, wait, Neutron Jack's still alive!

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