Someone posted this on the Yahoo finance message board for GE yesterday.
It's sad to see what has happened to this once great company, one that will never be great again. Let's re-hash it, shall we?
For 100 years, GE was a steady successful conglomerate. Not super showy, the businesses weren't flashy, but the business was steady & they paid out a steady dividend.
Enter Jack Welch ‘The Fraud’ Jack turned GE into a bank. A risky bank. The profits started pouring in. But Jack The Fraud didn't stop there. He invented "GE Myth". The first part of the "GE Myth" had him talking about how GE's businesses in general were "super businesses". He grabbed hold of "six sigma", some catch phrase some consultant probably told him about, & he sold GE's previously mundane business units as "uber" businesses.
All of a sudden GE wasn't just making appliances and light bulbs. They were MAKING APPLIANCES & LIGHT BULBS WITH SIX SIGMA! Jack The Fraud convinced the investing community that GE's mundane businesses were superior to other mundane businesses.
The other part of the "GE Myth" was talking up GE's management. Not just Jack the Wonder CEO, but his entire team! The phrase "deep bench" was invented. It was all over CNBC & the rest of the financial media. GE & their "deep bench" of "uber" managers. Their were regular executives at other companies but at GE, they were super execs, able to bend steel in their bare hands. No company could compete with this.
Normally, when a company transforms itself into a bank, which is what Jack the Fraud did, the PE multiple of its stock would go down. Banks carry a lower PE multiple for a reason. They are inherently riskier. Their assets are paper assets & the value of that paper can literally evaporate in an instant.
(see Bear Stearns, Lehman Brothers, all the banks that went under in the S&L crisis in the early 90s)
But Jack The Fraud convinced the market that GE's other businesses were "uber" businesses and contributing "a lot" to GE's success. But they weren't. It was mainly the risky finance unit, which provided almost all the growth during the Jack The Fraud years. The "uber" business perception coupled with the phony "deep bench" narrative combined to form the "GE Myth" that justified GE having a PE multiple normally associated with industrial companies, even though GE was mostly a bank and most of its growth was from its finance unit.
Jack The Fraud boosted profits with the risky finance unit and managed to have GE hang onto its industrial PE multiple. This translated into a big rise in the stock price.
Welch the Fraud retired and took nearly $300 million with him in retirement benefits. Immelt of the "deep bench" took over. What a disaster. First you had the Great Recession of 2008-9. To be honest, that wasn't Immelt's fault. GE almost went under back then, saved in part by an infusion from Warren Buffett.
But the phony myth of GE had been revealed. The finance unit went down in flames. It was a massively risky business and earned massive profits for many years but when the Great Recession hit, the risk was revealed and the entire company just about went under. After that, nothing was the same for GE. The finance unit never recovered.
GE Is STILL trying to clean up the finance unit to this day, a unit which has been and continues to be essentially worthless on its books. THAT is the legacy of Jack The Fraud. And Immelt? This clown was out of his league from day one. He bought into Baker Hughes when oil was at the tippy-top of the market, $140 per barrel. Um, that didn't work out well.
Next Immelt bought, for BILLIONS, a French business that made coal-fired generators (?!). Because everyone knew that coal was the future. I mean, what?! Immelt seems to have been talked into a "digitization" business for GE, whatever that meant. I think it sounded like a cool buzz word to him (that vague nebulous business was immediately closed down when Immelt left).
Welch was shrewd in that he knew he was pulling a fast one by making GE into a risky bank to juice its profits. It was wrong and it was deceptive but Welch knew EXACTLY what he was doing. Immelt on the other hand was just a dumb man. A dumb man with nice hair and good PR. Immelt was eventually kicked out, with $160 million jin retirement on top of the gazillions he was paid as CEO, but the damage had been done.
And what's worse is that all through this wrecking of GE you had a board of 18 member, EIGHTEEN MEMBERS, go along with it.
The dirty secret of the American corporate world is that there is very little incentive for management to truly CARE. Not when they are being paid so much money, such obscene money, that they can literally do anything because one year of pay, just one year, gives them more money than most make in several lifetimes.
If they fail miserably, if the company goes under in one year, they still walk away with a fortune. There's no losing.
. all this pre pandemic. GE is cutting cap. exped.
(and it isn't over yet)
