GE says SEC investigating charge behind $10 billion loss


(Reuters) – General Electric Co (GE.N) disclosed on Wednesday that U.S. securities regulators had begun probing a multibillion-dollar insurance charge it announced last week, a write-off that produced a $10-billion loss in the latest quarter. The U.S. industrial conglomerate also forecast further weakening of its troubled power business this year as it reported a 5-percent drop in quarterly revenue. The U.S. Securities and Exchange Commission began an investigation in late November of the long-term service agreements that govern GE’s maintenance of power plants, jet engines and other industrial equipment it sells, GE said. The SEC recently expanded the inquiry to include a $6.2 billion charge and $15 billion in provisions for insurance policies that GE announced last week, GE said. GE did not provide further details, but said it is cooperating with the investigation. “It’s very early days,” Chief Financial Officer Jamie Miller said on a conference call with analysts, adding “there’s nothing here I‘m overly concerned about.” STARK DECLINE While the fourth-quarter results contained no other sizeable charges, they threw into stark relief how far the U.S. industrial conglomerate had veered from its outlook less than a year ago, when former Chief Executive Jeff Immelt predicted that sales would rise as much as 5 percent in 2017 and margins would expand by a full percentage point. In fact, GE said, sales fell 1 percent to $122.1 billion in 2017 and operating profit margins contracted by 5.7 percentage points to 5.7 percent. The results also indicated that GE’s painful turnaround, which has sent its stock down 43 percent over the last year, likely has more months to run. Shares were down 0.3 percent at $16.85 in early trading in New York. FILE PHOTO: The General Electric logo is pictured on the General Electric offshore wind turbine plant in Montoir-de-Bretagne, near Saint-Nazaire, western France, November 21, 2016. REUTERS/Stephane Mahe/File Photo The stock had gained earlier, in part on relief that the company reaffirmed its 2018 profit forecast, RBC Capital Markets analyst Deane Dray said in a note to clients. “Some short-covering could be triggered just on the news that GE reaffirmed 2018, but the gravity of its operating challenges — especially at Power — are likely to continue to pressure the stock over the near-term,” he wrote. GE kept unchanged its recent forecast for 2018 earnings of between $1.00 and $1.07 a share, which contrasts markedly with $2 a share that Immelt had promised before being replaced as CEO in August. POWER FAILURE GE’s weakening performance largely reflected deterioration in GE’s power business, where profit fell 88 percent in the quarter. The division, which makes and services electricity generating equipment, attributed the drop to unspecified charges and other factors. GE said the power market remains challenging. Revenue and orders also fell sharply at the power business. The aviation, healthcare and renewable energy divisions reported rising profit, while profits in oil and gas and transportation fell. GE said cash from industrial operating activities totaled $7.8 billion in the quarter, above expectations of about $7 billion, and GE said its ability to generate cash is improving. GE’s loss totaled $10.01 billion in the quarter, compared with a profit of $3.48 billion a year earlier. On a per-share basis, GE reported a loss from continuing operations of $1.15, compared with a profit of 39 cents per share. GE said last week it would book a $11-billion charge in the fourth quarter, including $6.2 billion for reevaluation of insurance assets. The insurance charge was double what GE had warned last year. Total revenue in the quarter fell to $31.40 billion from $33.09 billion. Reporting by Alwyn Scott in New York and Rachit Vats in Bengaluru; Editing by Anil D’Silva and Nick ZieminskiOur Standards:The Thomson Reuters Trust Principles.
Source: Reuters