GE’s stumble has CEO considering breakup

New leader again suggests conglomerate split primary businesses after insurance loss

John Flannery promised a “reset” when he took over beleaguered General Electric Co. 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’s weighing a possible breakup of GE after the company disclosed its latest disappointment: a $6.2 billion charge related to an old portfolio of long-term care insurance.

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’s a different tone than he had struck just two months ago, when he had emphasized to jittery investors that he’d 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 maximize the potential of our businesses,” 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.”

Flannery’s breakup suggestion came after disclosing the $6.2 billion charge — twice as big as earlier estimates — related to an old portfolio of long-term care insurance.

The news 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.

“The viability of the conglomerate model is rapidly diminishing in relevance,” said Nicholas Heymann, an analyst with 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 3.8 percent to $18.04 at 2:01 p.m. in New York after dropping as much as 4.3 percent for the biggest intraday decline in two months. GE had staged a modest rebound this year through Jan. 12, with a 7.5 percent advance.

Since taking over for Jeffrey Immelt, Flannery has cut costs and overhauled management as part of a broader turnaround. His efforts couldn’t 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 $20 billion in other assets, taking the spotlight off the possibility of a more ambitious restructuring. Flannery said Tuesday he would update investors in the spring.

GE will take a $9.5 billion pretax charge related to GE Capital’s North American Life & Health portfolio, according to a company statement. The after-tax impact of $6.2 billion will be $7.5 billion when adjusted to the rate following the recent U.S. tax overhaul. GE’s finance unit will pay $15 billion over seven years to fill a shortfall in reserves.

The announcement comes just two months after 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,” Flannery said 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.”