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GE Rout Deepens as Latest Stumble Reignites Investor Dread

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General Electric Co.’s slide deepened after a $6.2 billion charge and comments by Chief Executive Officer John Flannery renewed talk of a potential breakup.

This week’s larger-than-expected writedown, tied to an old insurance portfolio, stoked shareholders’ concerns about the scope of the problems plaguing the iconic manufacturer.

(Related: 5 Notes on GE’s $15B in LTCI Reserve Contributions)

GE’s latest stock slide erased a modest rally during the first two weeks of 2018. Last year’s decline was the worst in almost a decade.

“GE’s announcement of a charge in its legacy insurance unit adds to concerns that the worst isn’t over,” Karen Ubelhart, an analyst at Bloomberg Intelligence, said in a note. “Potential for more surprises could erode confidence in the ability of new CEO Flannery, a company veteran, to turn GE around.”

Flannery pledged on a call with Wall Street analysts Tuesday to consider changes such as separating GE’s primary businesses of aviation, power-generation and health care equipment into publicly traded companies. That’s a different tone than he struck just two months ago, when he emphasized to nervous investors that he would focus GE on those three areas instead of splitting the company apart.

The CEO’s goal of boosting shareholder value may be achievable through a breakup, according to Ubelhart, who estimates GE’s component businesses should be worth more than $23 a share, cumulatively. GE fell 4.5% to $17.39 at 1:20 p.m. in New York after tumbling as much as 5.1 percent, the biggest decline in two months.

Questionable Benefit

Others are less bullish. Vertical Research Partners puts a sum-of-the-parts estimate at roughly the current trading price, as does Deutsche Bank. Cowen & Co.’s Gautam Khanna said in November the value could be as low as $11 a share.

Whether GE would even be able to split is unclear. In a note Wednesday, analyst John Inch of Deutsche Bank cited deal hurdles such as pension obligations and debt, saying “notions of GE breaking up ultimately carry low probability and serve as a deflection from GE’s significant underlying problems.”

The uncertainty has cast a pall over the stock and raised questions about how long a turnaround will take.

“Clearly, in the last decade GE has been horrifically run,” David Herro, international equities investment chief at Harris Associates, one of GE’s largest shareholders, said in an interview on Bloomberg TV. While the new executive team led by Flannery is promising, “Ten years of mismanagement takes time to clean up.”

—With assistance from Lukanyo Mnyanda, David Westin, Alix Steel and Esha Dey.

—Read Bernanke: Public Employee Benefits Costs Threaten Sustainability on ThinkAdvisor.

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