"If GE is in trouble, God help us all"

So sayeth Jerry Useem in Joe Nocera's column (Behind the Curtain at G.E.) this morning. Nocera writes:

I called my friend Jerry Useem, who used to cover G.E. for Fortune magazine. Like me — like just about everyone this week — he was stunned by this week’s developments <stock price collapsing, analysts in an uproar, dividend cut...> “The last time G.E. cut its dividend was during the Great Depression,” he pointed out. He was quiet for a minute. Then he added, “If G.E. is in trouble, God help us all.”

Nocera goes on to point out that GE has not been, at its core, the industrial behemoth we have all thought it was. Rather, it has been GE Capital driving performance, and providing 50% of profits in recent years. And GE Capital is hurting very badly. More:

For many years, G.E. was one of the more impenetrable companies for investors. There was a kind of arrogance to its disclosures; even the most diligent analysts didn’t truly understand where its numbers came from. What they did know was that G.E. beat its earnings by a penny or two every quarter. And during the bull market, that’s all that really mattered.

In truth, G.E. delivered on its earnings estimates because of GE Capital, which often sold assets at the end of the quarter to make up for any shortfall. But most reporters and analysts who covered the company focused on G.E.’s industrial units, ignoring the complicated machinery of its finance unit — even though that division generated half the company’s profit.
Last April, however, G.E. missed its earnings estimate by a huge amount, some $700 million. Even worse, it did so after assuring investors just two weeks earlier that it would hit its numbers. What happened in the interim is that Bear Stearns collapsed — and during the market shock that followed, GE Capital was unable to play its usual end-of-the-quarter games.
It was as if the curtain was pulled back, and the Wizard of Oz was revealed. That’s when the stock’s precipitous decline began.

Seems that GE is going down the well-trod path of Bear, Lehman, Fannie, Freddie, Merrill, Citi etc, each of whom regularly sought to assure investors that all was well only to repeatedly be proven wrong - and desperately so.

In a few weeks GE will have an investors day at which they promise complete transparency into their liabilities, asset valuations, real estate exposure, etc. They have a large task ahead. In the article are two conflicting assessments of GE Capital's 'embedded losses':

1. G.E. CFO Keith Sherin says it has $4 billion in embedded losses
2. Nicholas Heymann and Matthew Kelley (analysts at Sterne Agee) think the number is more likely to be $21 billion to $54 billion

Hmmmm. Stay tuned. And let's pray we can still trust GE. If not, "God help us all"