Simon Black has two good articles tonight. From Black at sovereignman.com:
Earlier this month, General Electric took a $6.2 billion charge to its insurance unit for the fourth quarter. And the company said it will set aside another $15 billion over seven years to bolster reserves at GE Capital.
The charge had to do with long-term care policies (to pay for nursing homes and other late-life care) GE holds on its books.
So, one of the oldest and most highly-regarded companies in America just made a small, $21 billion miscalculation. Oops.
Keep in mind, GE’s entire market cap is only $140 billion.
The insurance charge, along with costs tied to the US tax plan, led GE to a $9.64 billion loss in the fourth quarter.
Then last week, GE announced the Securities and Exchange Commission (SEC) was investigating the company’s accounting practices (specifically how the company books revenue from long-term service contracts on things like power-plant repairs and jet-engine maintenance).
But this isn’t GE’s first run in with the SEC…
The company’s accounting practices have long been considered a “black box.” The New York Times even published a story in 2009 comparing the company to Enron – the energy giant brought down by fraudulent accounting.
And is all started with GE’s legendary former CEO Jack Welch.
Welch would regularly beat Wall Street’s earnings estimates by a penny or two. And he was named manager of the century by Fortune Magazine for his ability to pump GE’s stock.
And while Welch is lauded for his “six sigma” management, it seems his real talent was using GE’s many divisions to move assets around and goose earnings to hit short-term numbers.
The creative accounting caught up with GE in 2009, when the company paid $50 million to settle SEC allegations it had used improper accounting methods to boost numbers in 2002 and 2003.
To continue reading: GE just signaled the next crisis and nobody’s paying attention