With A $6B Charge Comes New Thoughts About GE's Future

Richard Drew, AP File Photo
​FILE - In this June 12, 2017, file photo, the General Electric logo appears above a trading post on the floor of the New York Stock Exchange. General Electric says it will take a $6.2 billion after-tax charge in the fourth quarter tied to its review and reserve testing of GE Capital’s run-off insurance portfolio. GE Capital will also suspend its dividend to GE for the foreseeable future.

BOSTON (AP) — After a decade breaking off substantial pieces of the multinational conglomerate in bid to a return to its industrial roots, a more comprehensive reshaping of General Electric Co. may be on the way.

CEO John Flannery, who was put in charge of reviving the company last summer, revealed significant issues at GE Capital Tuesday which will lead to a $6.2 billion after-tax charge in the fourth quarter.

The problems were revealed after review and reserve testing of GE Capital's runoff insurance portfolio. GE Capital will also suspend its dividend to GE for the foreseeable future.

"At a time when we are moving forward as a company, a charge of this magnitude from a legacy insurance portfolio in runoff for more than a decade is deeply disappointing," Flannery said.

Flannery said almost immediately upon taking the top job at GE that everything was on the table, but that GE would focus on three divisions: energy, aviation and health care.

Flannery has emphasized that each business must deliver and that more direct links between performance and reward were critical.

"It's a kind of thing that could result in many, many different permutations including separately traded assets really in any one of our units if that's what made sense," Flannery said.

The CEO has already vowed to shed business units worth more than $20 billion over the next year or two.

At the heart of the issue revealed Tuesday at GE Capital is the level of premiums being paid to offset costs for aging policy holders. The company, after a deeper dive, found that the premiums being paid would not offset claims.

That led to the charge and the suspension of dividends.

GE Capital plans to make statutory reserve contributions of about $15 billion over seven years. It will contribute about $3 billion in 2018's first quarter and approximately $2 billion annually from 2019 through 2024.

Flannery reiterated that the focus of the Boston company remains on making GE Capital "smaller and more focused."

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