GE stock slumps as regulators probe accounting
General Electric shares sank to their lowest level since March of 2009, at the height of the financial crisis, after the troubled conglomerate disclosed on Tuesday that the Department of Justice is investigating its accounting practices. The Securities and Exchange is also widening a previously disclosed probe into its accounting.
The federal scrutiny comes at a delicate time for new CEO H. Lawrence Culp. Earlier this month, he became the first outsider in GE's 126-year year to lead the company, with a directive to stanch the bleeding amid shrinking sales and profits.
Both agencies are examining a $22 billion charge GE took to write down the value of its power division, along with "other areas that we have previously reported are part of the SEC's investigation," GE Chief Financial Officer Jamie Miller said in a conference call to discuss the company's latest earnings. GE, based in Boston, is cooperating with the probes, she said.
The Wall Street Journal reported that the Justice Department review is a criminal probe. A spokesperson for the agency declined to comment, while a GE representative didn't immediately respond to a request for comment.
GE's stock price fell nearly 11 percent, to $9.88, in afternoon trade. The shares are down roughly 43 percent this year.
Dividend slashed
GE on Tuesday announced it's slashing its dividend to just 1 cent, from 12 cents. The company also confirmed the $22 billion impairment charge for its power division tied to a 2015 purchase of French gas turbine maker Alstom and unveiled plans to split the unit into two divisions.
Culp took over on Oct. 1 after the board ousted previous CEO John Flannery just 14 months into his tenure. It's the latest chapter in a stunning fall from grace by an American corporate icon, a business that at the turn of the 21st century was the world's most valuable public company and whose stock once seen as a safe bet for millions of average investors.
GE said in February that the SEC was looking at the power division's accounting and remaining liabilities from insurance divisions it sold that were tied to a previous $6.2 billion charge.
GE is already negotiating with the civil division of the Department of Justice over an investigation of possible violations related to GE Capital's former WMC Mortgage unit, which sold subprime mortgages in 2006 and 2007, the company said in an SEC filing. The company set aside a $1.5 billion reserve earlier this year related to the WMC investigation.
GE in 2009 paid a $50 million civil fine to settle claims it manipulated earnings. That agreement helped settle a violation that helped the company keep its nine-year stint of meeting or beating analysts' quarterly estimates that began in 1995, the SEC said at the time. The company also settled with the SEC in 2004 over disclosure of the retirement package for CEO Jack Welch, who retired in 2001.
Under Welch, GE had a reputation among analysts for meeting per-share profit forecasts no matter what the conditions, an aggressive method of financial reporting critics called "smoothing."
