The Register Citizen (Torrington, CT)
Housing crash still haunts GE
Mortgages from 2005-07 under investigation
General Electric is bracing for possible U.S. Department of Justice sanctions over the actions of the former U.S. mortgage unit of GE Capital.
In its annual report Friday, GE said it may record up to an additional $500 million in losses as a result of its former U.S. mortgage lending unit WMC, which has been under DOJ investigation for potential violations of the Financial Institutions Reform, Recovery and Enforcement Act.
GE reported a $6.2 billion loss last year, the last under CEO Jeff Immelt, who was replaced in August by John Flannery, former head of GE Healthcare. In Flannery’s first months on the job, GE absorbed a $10 billion charge against fourthquarter earnings to account for increased reserves to cover greaterthan-expected losses from its former insurance operations.
Speaking last week in New York City at an investment conference sponsored by Citi, GE’s chief financial officer, Jamie Miller, said GE retained two outside auditors to inspect the books of its former insurance operations, and that she put the WMC reserves on her “watch list.” Miller also confirmed the conglomerate is still looking to sell elements of GE Capital, after Immelt’s fire sale of major portions of the unit over two years to Wells Fargo, Blackstone Group and other opportunistic investors, even as he laid the foundation for GE’s headquarters move to Boston from Fairfield.
“WMC — I think we’ve got right on the balance sheet,” Miller said at the Citi conference. “It’s just hard to estimate right now. And then ... we’ve got some indemnities that sit in our discontinued operations from some of the businesses we’ve sold, a little bit of indemnities on some litigation, some tax matters, things like that. But again, we’ve got reserves in a couple of places on that and feel OK.”
GE sold WMC in 2007 for $117 million, The DOJ investigation is centered on subprime mortgage loans originated between 2005 and 2007. As of December, GE faced five lawsuits involving claims WMC misrepresented information related to mortgage loans included in six securities sold to investors.
The DOJ probe is one of several recent legal challenges for GE, including four investor lawsuits filed since last November claiming senior executives misled investors, and a probe by the Securities & Exchange Commission into how GE records revenue for long-term service agreements, as well as for reserves for running off its book of insurance business over the long term through the expiration of policies.
Separately Monday, GE added to its board Westport resident Leslie Seidman, the former chair of the Financial Accounting Standards Board. FASB has its main office a few blocks from GE Capital’s Norwalk headquarters, where the Financial Accounting Foundation subsidiary sets U.S. accounting principles used by public companies.