By Don Miller
Even though it just posted its third-highest annual profit ever, investors
hammered shares of U.S. industrial giant General Electric Co. (GE) last week on a triple
play of bad news:
- Its first dividend cut in 71 years.
- Speculation over a possible credit-ratings downgrade.
- And growing worries that the once-unthinkable was becoming possible - a
corporate bankruptcy that would put GE on the growing list of onetime Corporate
America heavyweights that are now taking government bailout money.
GE’s biggest worries revolve around the company’s gigantic financial-services
unit, GE
Capital Corp., and whether it has adequate capital to counter an expected
rise in delinquencies on its loans. Investors are also concerned about GE
Capital’s accounting methods and how the company is valuing its vast real estate
portfolio.
“Probably
the biggest controversy surrounding GE right now is what the fair value of (GE
Capital’s) $661 billion is if/when a write-down to fair value should occur,”
BernsteinResearch
analyst Steven Winoker wrote in a note to clients last week,
Reutersreported.
Investors voted with their feet last week as GE shares were pounded - leaving
the stock down 59% for the year. GE has lost about $266 billion in market value
in the last 12 months.
And some Wall Street analysts think investors are right to abandon ship.
“We think investors have rightly questioned managements’ forecast and
planning assumptions that continue to seem too optimistic and out-of-step with
the environment,”
Merrill Lynch & Co. (MER) analyst John Inch wrote
in a note to clients.
GE Vice Chairman and Chief Financial Officer Keith
Sherin said Thursday that he sees no need to raise additional capital, and
noted that the company’s financial-services businesses expect to be profitable
in the first quarter of 2009 and all year, Bloomberg
News reported.
Sherin also said GE will host a GE Capital investor meeting later this month
to examine the “hot spots in the company, including real estate, U.S. consumer
[finance], global mortgage with a focus on U.K.
