GE’S stock rebounds from blast by a critic

After suffering a rout of 11% on Thursday, General Electric Co. shares bounced back with a gain of nearly 10% on Friday as Wall Street analysts defended the industrial conglomerate against allegations by a prominent financial examiner and reiterated their faith in the chief executive officer.

Harry Markopolos, who was involved in exposing the frauds of investment manager Bernie Madoff, said in a report Thursday that GE would need to raise its insurance reserves immediately by $18.5 billion in cash — plus an additional non-cash charge of $10.5 billion when new accounting rules take effect. He also claimed that GE is hiding a loss of more than $9 billion on its holdings in Baker Hughes.

Markopolos said that GE’S cash situation is “far worse than disclosed in their 2018” annual report.

On Friday, William Blair analyst Nicholas Heymann questioned whether the whistleblower report is “the last Molotov cocktail” and said he does not believe that GE’S financial statements purposely misrepresented the company’s financial condition and potential liabilities.

Heymann wrote that Markopolos’ report was “at best disingenuous and at worst highly inaccurate.”

Citi analyst Andrew Kaplowitz said there were “sufficient shortcomings” in Markopolos’ report, and he still believes in CEO Larry Culp’s ability to improve the company. Some of the report’s allegations were already known, and others are “known unknowns,” the analyst said, adding that the Baker Hughes write-off was expected.

Culp bought $2 million of GE stock on Thursday, a move that reflected “high conviction that the allegations do not represent incremental unknown challenges,” Citi’s Kaplowitz said.