REMINDER: ANYONE WHO EXPECTS GE TO RETURN TO ITS WELCHIAN GLORY DAYS IS KIDDING HIMSELF
Geoff Colvin’s survey of Jeff Immelt’s tenure as CEO of General Electric gives me a chance to climb back on one of my favorite hobby horses. Of course GE’s stock under Immelt hasn’t generated the same sort of returns it did under Jack Welch. It couldn’t possibly have. Reason: Welch put up his big numbers by cooking the books. In particular, he generated phantom earnings growth at GE for years by systematically under-reserving at the company’s reinsurance unit. When GE sold the business to Swiss Re in 2006, Immelt had the unhappy task of un-cooking the books-by adding in an extra $10 billion of reserves back into the business. Without reinsurance as a source of potential earnings creativity (which was used up, in any event), Immelt was left with a hulking industrial monolith that will never again show the kind of earnings growth Jack Welch conjured up for it out of thin air. It’s amazing to think the stock ever traded at 30 times earnings. Why Colvin neglects to mention any of this is a weird sort of tribute to the Cult of Jack that still persists. . . .
4 Responses to “REMINDER: ANYONE WHO EXPECTS GE TO RETURN TO ITS WELCHIAN GLORY DAYS IS KIDDING HIMSELF”
Jeff Immelt, 10 years report card is a fair rating from Geoff Colvin. It is true that if GE CEO Immelt does not change his way, he will join Obama administration while I excel at GE
GE and AIG both had earnings consistency that has no parallel in nature. It always amazed me that the market accorded high multiples to companies that absolutely had to be faking it.
It always bothered me that GE was always so perfect with earnings when they were so heavily into financial services. You had to ask yourself, was Jack Welch really that good a manager or was there something else.
Warren Buffet made mistakes, but not Jack Welch.
Why, oh why isn’t somebody suing Welch to recover the undeserved compensation he received? This is the whole problem with management stock options; they provide a very perverse set of incentives contrary to the interest of both good management and good corporate governance. I see this over and over and over again. The managers of T.Rowe Price have reaped gargantuan amounts of money that quite simply doesn’t belong to them.
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