GE On $38bn Bended Knees

Proshare

Friday, August 16, 2019   /  07.15PM / OpEd  /  Editorialised Report - Harry Markopolos  / Header Image Credit: Forbes

 

After a one year review of the statement of financial position of iconic industrial behemoth, General Electric (‘GE’), Harry Markopolos, the investigator that unpeeled the accounting and financial problems of Enron in 2001, alleges in a 175 page report (download the report here) that energy giant, GE, is possibly in a worse financial position today than the erstwhile Enron was roughly two decades ago.


 

A Litany of Bad Numbers

According to Markopolos after a year-long investigation into GE financials, a number of issues appear relevant:


  • GE may have engaged in creative accounting to the tune of $38bn in the last year by not recognizing some cash and non-cash charge offs
  • The $38bn potential accounting adjustments is equivalent to 40% of its recent market value of  $76.1bn (almost $600bn in 2000) at a recent market price of $8.75 as at 16 August 2019
  • The stock’s price has dropped by 15% since the release of Markopolo’s report in the week (the worse loss performance in 11 years)
  • The company’s management may have fudged figures in
  • The company’s $115bn debt pile has weakened financial stability (and maybe business continuity)
  • The $22bn 2015 acquisition of French power firm Alstom caused an accounting hit and forced the company to cut dividend payouts
  • A long-term care loss of $29bn may have been tucked tidily away in the recesses of the conglomerates financial records
  • The problem with GE’s books is alleged by Markopolos to stem from understated insurance liabilities. Wrong statement of cash position, and misleading accounting of its equity position in Baker Hughes Oilfield Service operations ( a situation allowing GE to allegedly keep an investment loss of $9.1bn off its books in FYE 2018)


 

Preparing for Another Enron?

Potentially the company’s problems look far worse than that of Rupert Murdock’s Enron, but GE’s problems, unlike Enron’s, appear to be the result of dodgy gambles on the direction of the global power market. A number of clear errors include, but may not be limited to, the following:


  • Wrong expectations about conventional energy demands (hence the purchase of France’s Alstom)
  • Wrong perception and projections concerning the alternative global energy market
  • A dud move into the train transportation business and a few other enterprise missteps as the company delved into businesses for which it had at best marginal competence 

 

 

Chart 1 GE Market Price Movement July 2018-August 2019

Proshare Nigeria Pvt. Ltd.

Source: Bloomberg Markets


 

Quiet Before The Storm

At the close of trading on Friday 16 August 2019 GE’s stock price halted its downward spiral when chief executive, Larry Culp, bought $2m worth of the stock, the move was to perhaps demonstrate the confidence GE’s management has in the company regardless of its debt mountain and huge charge offs for poor investment decisions in the global power/energy sector.

Wall Street analysts are, for now, still rooting for the company despite Markopolo’s allegations. According to officials of GE, the alleged cash and non-cash undisclosed potential charge-offs of $38bn was ‘ridiculous’ and that the company believes the accusation was disingenuous. Nevertheless, GE appears to be condemned for now to a global deathwatch-list of institutional and retail investors who will wait till the company’s quarterly results for Q3 2019 are released before taking major sell off decisions.


 

Download PDF Copy of Report  


 

Third Party Comments

1.               General Electric shares tank following accusation of 'bigger fraud than Enron' – Guardian

2.         General Electric Has a Credibility Problem Bloomberg

3.             GE Fraud Claim Doesn’t Have to Be True to Hurt – WSJ

4.              Analyst says GE stock recovering because Madoff whistleblower fraud allegations are baseless – CNBC 

 

Proshare Nigeria Pvt. Ltd.


Proshare’s Investigative Reports

1.              Heritage Bank: Of Moral Hazards And The Unravelling Of A Deposit Money InstitutionJune 17, 2019

2.             Beyond The Noise: MTN’s Post Listing Reactions, Gaps in Rules and Lessons LearntMay 25, 2019

3.             JUMIA’s IPO and Q1 2019 Result; Understanding The Numbers and Ignoring the ‘Noise’May 17, 2019

4.             Memo to The Market: The Oando Corporate Journey – At The Regulators Gate - November 22, 2017

 

Proshare Nigeria Pvt. Ltd. 


Related News on Frauds & Scandals

1.       SEC Wins Jury Trial Against Broker Charged With Insider Trading

2.      ASIC Consults On New Guidance For Companies On Whistleblower Policies

3.      NDIC 2018 Annual Report – N15.15bn Lost To Fraud Incidences In 2018

4.      Financial Reporting Council of Nigeria Revokes “Rule 4”

5.      DFSA Fines Two Abraaj Group Companies A Total Of $315m For Deceiving Investors And The Regulator

6.      SEC Continues Verification of Dantata Investors

7.      SEC Awards Overseas Whistleblower $500,000 - Whistleblower Office Hits A Major Milestone

8.     Anti-Corruption Compliance: A Guide for Mid-Sized Companies in Emerging Markets

9.      SEC Commences Verification of Claims of Unpaid Investors of Dantata Success and Profitable Company

10.  Guide To Nigerian Online Financial Scams

11.   Court of Appeal Concludes That “An Unregistered NOTAP Agreement Is Not Void”

12.  Governance: Who Guards The Guardians?

13.  Federal Reserve Announces Termination Of Enforcement Action Against JPMorgan Chase From January 2013

14.  SEC Awards $4.5m To Whistleblower Whose Internal Reporting Led To Successful Case and Related Action

15.   Criminal Investigation Initiated Into Bank Shares Fraud Allegations


 

Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

READ MORE:
Related News
SCROLL TO TOP