The shareholders are more worried about the problems being faced by General Electric Company (NYSE:GE) over the legal troubles associated with longterm insurance care of GE Capital.
The industrial conglomerate is facing the rough weather over the risks of GE Capital. Its share prices have slumped last year.
The business of GE Capital was worth $600 billion in the year 2008. Its assets range from Thai auto loans to commercial real estate. The investors were confident in the GE Capital since they don’t have to worry about the financial risks. It has allowed GE to focus on power turbines and jet engines business. GE has divested a considerable stake in GE Capital in 2008 when the business was flourishing.
But things changed later and GE Capital started sinking. Despite offloading a large chunk of GE Capital, GE has announced the shortfall of $15 billion relating to the long term insurance care. As a result, the company has decided not to pay the dividend for the last fall. It also left the investors worried about other liabilities the company has to pay in the future ahead.
According to the Neuberger Berman’s research analyst, Mr. Martin Sankey, it is still not understood what are other residual risks GE has to face despite dismantling GE Capital. The investment company still holds 3.4 million GE shares in a variety of mutual funds. It is doubtful whether GE Capital has any intrinsic value.
GE has offloaded part of the insurance business in 2004 as well as in 2005. But it still needs to service the long term care insurance as per the commitment.
TIAA Investments Managing Director, Mr. Bob Spremulli said the latest disclosure of the insurance charge is surprising. The investment fund holds a considerable stake in GE. The latest news regarding GE Capital is creating an uncertainty for GE.
According to the regulatory filings, the current assets of GE Capital are estimated at $157 billion. However, GE is facing the largest trouble in the form of lawsuits, an investigation by SEC and billions of write offs.
All these factors could bring down the value of GE shares further and cause worry to the investors.