Skeletons keep tumbling out of General Electric Co.’s closet.
The industrial conglomerate on Tuesday said it would take a $6.2 billion after-tax charge in the fourth quarter related to shortfalls in a legacy insurance business within its GE Capital division. GE will also make statutory reserve contributions of $15 billion over seven years to help cover elevated claims.
The magnitude of the charges announced on Tuesday is a nasty surprise and a sharp rebuke to GE investors who had hoped the worst was behind the company. It’s been a near-constant onslaught of bad news, from the dramatic reduction in GE’s 2017 guidance in October, to the slashing of its dividend in November and now this.
The latest insurance charge — related to holdover assets from a business GE divested between 2004 and 2006 — begs the question of whether more could still be coming. If the previous management could miss the challenges in the company’s power business, its cash-flow shortfalls and GE Capital liabilities, what else did they underestimate and at what point do shareholders decide to hold those departed executives accountable?
GE fell as much as 4.1% on Tuesday morning, erasing a decent chunk of its gains so far in 2018. While this latest batch of bad news is largely confined to GE Capital, details about the insurance charges have ramifications for the company’s broader challenges and turnaround efforts.