Rocky start for new GE boss
New CEO faces an expanded accounting investigation by the SEC
General Electric’s (GE’s) new chief got off to a rocky start with Wall Street as the company revealed an expanded accounting probe by US authorities. The Securities and Exchange Commission in the US is expanding probe of the company ’its s accounting to look at a $22bn charge in the power-equipment unit, the company said on Tuesday as it reported earnings for the first time since CEO Larry Culp took the reins.
General Electric’s (GE’s) new chief got off to a rocky start with Wall Street as the company revealed an expanded accounting probe by US authorities.
The Securities and Exchange Commission (SEC) is expanding its probe of the company’s accounting to look at a $22bn charge in the power-equipment unit, the company said on Tuesday as it reported earnings for the first time since CEO Larry Culp took the reins. The justice department is also examining the write-down, which stems from goodwill impairment.
The probe adds to the pressure on GE, which is already contending with one of the deepest slumps in its 126-year history amid cash-flow shortfalls and declining demand for its gas turbines. Culp, who was appointed in a surprise announcement on October 1, also unveiled the first steps of his turnaround plan, with a major dividend cut and a reorganisation of the power division. He will also have to deal with federal investigators.
“Yes, it’s a surprise and, yes, they slipped it in” during the call, said Karen Ubelhart, an analyst at Bloomberg Intelligence. “But we just don’t know how big it could be.’’
SHARES PLUNGE
The shares fell 2.3% to $10.90 at 9.41am in New York. GE has plunged 36% in 2018 to levels last seen shortly after the recession in 2009.
Culp’s appointment sparked a mini rally earlier in October, but that fizzled recently.
GE said in January the SEC was looking at accounting in the power division and an old insurance portfolio that prompted a $6.2bn charge. The Boston-based company said it is co-operating with the probes.
“Staff from the justice department are also investigating these matters and we are providing them with requested documents and information as well,” GE said in a regulatory filing.
Culp was tasked with accelerating a turnaround plan centred on cost cuts and a more focused portfolio of manufacturing businesses. Until Tuesday, he had not publicly addressed shareholders or offered insight into the direction he would take, making the earnings report and subsequent conference call among the company’s most highly anticipated.
While the dividend cut was a blow to investors, it was not unexpected. Former CEO John Flannery had suggested a reduction was likely, following a separation of the health-care unit in another year.