Thoughts On General Electric And GE Capital

Seeking Alpha

At the time GE management was disposing of most of its financial divisions, it appeared as if management was doing the right thing to limit focus to just industrial operations.

We are now learning that maybe disposing of the financial divisions, at least so quickly, was not the best thing for the future of the company.

Two problems connected with the shrinkage of assets: first, the industrial operations were not generating that much cash; and second, the financial assets left were not that good.

On the front page of the Wall Street Journal, we continue to read about the woes faced by General Electric Corp. (NYSE:GE): “The Long Shadow of GE Capital Looms Over GE.”

Over the past ten years or so, we saw General Electric struggle to get rid of the financial divisions. General Electric was an industrial company, we were told, and not a financial conglomerate. General Electric needed to dump its financial divisions so that it could focus solely on its industrial business.

In the article mentioned above written by Thomas Gryta and Ted Mann, we read that in 2008, just before GE sold off much of GE Capital, GE Capital had well over $600 billion in assets. It controlled a good-size financial institution.

A big problem in disposing of a lot of GE Capital’s assets was that it depleted a large portion of the overall company’s cash flow.

Gryta and Mann mention, “shrinking GE Capital exposed how little cash the industrial operations were generating, forcing the company to slash its dividend last fall.”

Gee, remember the time when the financial divisions of GE were providing more than 50 percent of the annual profits of the whole company.

Of course, it was the good assets in GE Capital that were sold off.

Surprise, surprise! “In January, GE revealed a surprise $15 billion shortfall from a legacy long-term care insurance business, leaving investors worried about other liabilities the company couldn’t unload.”

Well, “General Electric still has about $157 billion in assets, including a large airplane-leasing business. In addition to legacy insurance policies, it has exposure to subprime U. S. mortgages and unusual financial products, regulatory filings show, including $3.1 billion in floating rate Polish residential mortgages that are mostly denominated in Swiss francs. GE acquired a bank in Poland in 2008 and sold everything but the mortgages in 2016.”

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