Shares of General Electric took a notable tumble early this week after the industrial conglomerate made cuts to its dividend—down to a single cent—and then said federal regulators opened a new criminal probe over its accounting practices in light of GE’s plans to restructure under Larry Culp, the new Chief Executive.
More specifically, the stock dropped nearly 8 percent, to $10.29, which brings its value down about half of the gains made over the past 12 months. Additionally, executives revealed that the Justice Department did, in fact, open this investigation, which will look at the company’s most recent accounting practices in addition to the present Securities and Exchange Commission. Furthermore, GE also noted that the SEC has expanded the scope of its present inquiry.
Both the SEC and the US Department of Justice are looking a $22 billion charge the company had put in the books in Q3, a charge which is tied to acquisitions with their power unit and a $6 billion charge for insurance reserves shortfalls in Q1. This is according to GE chief of finance, Jamie Miller.
It just so happens that GE reported a Q3 net loss of $22.8 billion because of this charge. And Culp took the company over on 1 October, after GE had let go of its former CEO and after they had warned of missing cash flow and earnings targets.
In an interview, Tuesday, Culp said, “It is tough for an industrial company to play offense to compete and win with a balance sheet in the condition that ours is in. That is a long-term issue that we need to address—and we are going to address it in every way possible with a real sense of urgency.”
Dividend cuts are pretty rare in today’s market, mostly because the US economy is strong. Most companies have great liquidity (from tax cuts, of course) and, thus, show excellent dividends. So for GE to have dividend cuts, it is definitely not ideal. Still, despite the issues, though, Culp continues to assert that GE retains strong assets and, also, quite a persistent workforce that is committed to seeing the company turn around.
Culp notes, “I feel good about the group that we have here and we’re committed to building a stronger General Electric.”