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That's quite a stretch to blame everything on GE's Power division. I've been following GE for a while and the problems at GE go back many years. At the heart of

That's quite a stretch to blame everything on GE's Power division. I've been following GE for a while and the problems at GE go back many years. At the heart of the problem isn't its Power division (which is bleeding money) but GE's Capital division, which has a lot of liabilities still from the 2008 recession, its opaque finances, and its massive pension liabilities. The Alstrom acquisition (cost GE $10B) and being late to the wind turbine game can't explain $193B loss in market cap. It was basically really badly managed by Immelt for a decade. GE used tens of billions to do stock buybacks rather than pay down its liabilities. The clean energy transition is just one of many problems for GE and isn't even its most urgent. Companies like GE make bad decisions like that all the time but it takes a series of bad steps and mismanagement to push a conglomerate like GE to the brink. That said, I still think GE has a lot of very valuable assets that generate a lot of cash flow and things are starting to turn around. The massive amount of cash it got from offloading its biopharma division will give it a bit more runway so it doesn't have to sell its best assets (aviation, healthcare, etc.) to finances its bad debts. Edit: Full disclosure -- the reason I know about GE's issues is because I've a long position on GE. So please read my comment with the view that I'm biased. Otherwise, I wouldn't be going long on GE.

Scoundreller 7y ago
> GE used tens of billions to do stock buybacks rather than pay down its liabilities. Is this such a bad plan if equity funding is expensive but debt funding is cheap? If you can secure a loan against your assets at 3% and buy back preferred or common shares paying 5%, then it can make sense. It’s one way to avoid a dividend cut while decreasing dividend expenses. You can always issue the shares again later.
- hangonhn 7y ago
  At a high level, I don't disagree with the idea as a whole but the problem with a plan like that is when you're facing a liquidity shortage, your shares may not be worth a lot. The problem with leveraging debt is that it can also compound and magnify your problems. Especially in the case of GE, the huge debt caused its debt rating to go down and that made the cost of borrowing higher, thus compounding the problem. If GE had paid down its debts, its book value would have gone up and eventually that would drive up its share prices (eventually... in a rational market).
karmakaze 7y ago
That makes more sense. I couldn't see how mis-estimating by about factor of 2 could account for $193B: > 25 GW to 30 GW range "for the foreseeable future," less than half the amount it once expected.

Scoundreller 7y ago

> GE used tens of billions to do stock buybacks rather than pay down its liabilities. Is this such a bad plan if equity funding is expensive but debt funding is cheap? If you can secure a loan against your assets at 3% and buy back preferred or common shares paying 5%, then it can make sense. It’s one way to avoid a dividend cut while decreasing dividend expenses. You can always issue the shares again later.

hangonhn 7y ago
At a high level, I don't disagree with the idea as a whole but the problem with a plan like that is when you're facing a liquidity shortage, your shares may not be worth a lot. The problem with leveraging debt is that it can also compound and magnify your problems. Especially in the case of GE, the huge debt caused its debt rating to go down and that made the cost of borrowing higher, thus compounding the problem. If GE had paid down its debts, its book value would have gone up and eventually that would drive up its share prices (eventually... in a rational market).

karmakaze 7y ago

That makes more sense. I couldn't see how mis-estimating by about factor of 2 could account for $193B: > 25 GW to 30 GW range "for the foreseeable future," less than half the amount it once expected.