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GE’s $100 Billion Wipeout Heralds Reckoning for an American Icon

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General Electric
  • GE’s $100 Billion Wipeout Heralds Reckoning for an American Icon

Few under the age of 30 might remember, but General Electric Co. was once a model of corporate greatness.

Back in 1999, when Steve Jobs was still fiddling with iMacs, Fortune magazine proclaimed Jack Welch, then GE’s chief executive officer, the best manager of the 20th Century.

Few people — of whatever age — would lavish such praise on the manufacturer these days.

GE, that paragon of modern management, has fallen so far that it’s scarcely recognizable. The old GE is dead, undone by an unfortunate mix of missteps and bad luck. The new one now confronts some of the most daunting challenges in the company’s 125-year history.

The numbers tell the story: This year alone, roughly $100 billion has been wiped off GE’s stock market value. With mounting cash-flow problems at the once-mighty company, even the dividend is at risk of being cut. The last time GE chopped the payout was in the Great Recession — and before that, the Great Depression.

And yet the hit to the collective psyche of generations of investors and managers is incalculable. For decades, GE-think infiltrated boardrooms around the world. Six Sigma quality control, strict performance metrics, management boot camps — all that and more informed the MBAs of the 1970s, ’80s, ’90s and into this century. GE, in turn, seeded corporate America with its executives.

Anxious Investors

Now, John Flannery, GE’s new CEO, is struggling to win back the trust of anxious investors. He’s set to detail his turnaround plans on Monday — and has said he’ll consider every option.

“There’s nothing less than the fate of a once great, great company on the line,” said Thomas O’Boyle, the author of “At Any Cost: Jack Welch, General Electric, and the Pursuit of Profit.” “Some of the fundamental notions about its status as a conglomerate and whether it can succeed in a world of increasing complexity are really being challenged right now.”

In hindsight, the seeds of this struggle were planted decades ago. Welch expanded and reshaped GE with hundreds of acquisitions and demanded every GE unit be No. 1 or No. 2 in its industry. He also culled low-performers ruthlessly, earning the nickname Neutron Jack. By the time he retired, in 2001, GE’s market value had soared from less than $20 billion to almost $400 billion.

But all that maneuvering, plus GE’s increasingly complex financial operations, obscured the underlying performance and put the company in peril during the 2008 financial crisis. Welch’s successor, Jeffrey Immelt, soon embarked on a plan to undo much of the House that Jack Built. He would sell NBC and most of the finance operations — two of the businesses that defined Welch’s tenure — along with units such as plastics and home-appliances.

The moves narrowed GE’s focus, yet it remains a collection of somewhat disparate manufacturing businesses, ranging from jet engines to oilfield equipment.

Out of Favor

Unfortunately for GE, that industrial conglomerate model has fallen sharply out of favor on Wall Street. And the rise of activist investors like Nelson Peltz has encouraged companies to try to boost their stock prices however they can, rather than focus on the long term. GE recently welcomed one of Peltz’s partners at Trian Fund Management to the board.

“The reckoning had to come,” said Jack De Gan, chief investment officer of Harbor Advisory, which has been a GE shareholder for more than 20 years before selling most of the shares in the past few weeks.

GE’s leaders have long defended the multi-business strategy by pointing to the benefits of sharing technology across product lines — jet engines, for instance, have a lot in common with gas turbines. In an interview with Bloomberg in June, Flannery dismissed concerns about conglomerates, saying investors care more about outcomes.

“They want growth, they want visibility, they want predictability, they want margin rate,” Flannery said. “And there are a multitude of models to produce that.”

$20 Billion

The new CEO has already said he’ll divest at least $20 billion of assets. He’s coming under pressure to do even more.

“Anything less than a sweeping plan to ‘de-conglomerate’ the portfolio would be viewed as disappointing,” Deane Dray, an analyst with RBC Capital Markets, said this week in a note to clients. The potential moves include unloading its transportation, oil, health-care and lighting operations.

To be sure, GE’s issues run deeper than the composition of the company. One of its biggest divisions, power-generation, is in the early stages of a deep market slump — just two years after bulking up with the $10 billion acquisition of Alstom SA’s energy business. GE’s cash flow is light, potentially putting the dividend in jeopardy and driving investors away from the stock.

Flannery has spoken of the need to change GE’s culture and instill a sense of accountability. He’s reined in excessive spending — on corporate cars and planes, on the new Boston headquarters — and replaced top executives.

But the sudden changes, combined with Flannery’s relative lack of public reassurances, have spooked investors. In the days after Flannery’s first quarterly earnings as CEO, when he called GE’s performance “completely unacceptable,” the stock fell and fell. And fell some more, closing at the lowest level in five years on Nov. 2.

The shares slid less than 1 percent to $19.99 on Thursday, bringing the 2017 loss to 37 percent.

“You think about a company like Kodak. Will GE become that?” said Vijay Govindarajan, a professor at Dartmouth University’s Tuck School of Business who served as GE’s professor-in-residence in 2008 and 2009.

Some investors may be throwing in the towel, but Govindarajan isn’t giving up. “I will put my bet that GE will weather this and come back,” he said.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Crude Oil

Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Crude Oil - Investors King

Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm Oil - Investors King

Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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