General Electric Co. plummeted again as a report from Deutsche Bank questioned whether the manufacturing behemoth’s latest problems will force it to raise capital by selling shares or further cutting its dividend.
The company is facing a “cash squeeze” and growing debt pressures, particularly after disclosing a substantial charge related to an old insurance business, Deutsche Bank analyst John Inch said Friday in a note. There’s a high probability of “additional unforeseen cash events” that could undermine the lending unit’s already-poor financial position, he said.
“Ongoing liquidity pressures and significant remaining GE Capital risks may make an equity capital raise unavoidable,” Inch said. Given the possibility of additional share declines, GE may need to take such action “sooner while its stock is still elevated.”
GE pushed back against the argument. The Boston-based company has no plans to raise new capital and has already taken steps to shore up its cash position, said spokeswoman Jennifer Erickson. GE, which will report earnings Jan. 24, said this week that industrial cash flow for 2017 will be above its earlier estimate.
The company could also reduce its dividend again, Inch said, after cutting the shareholder payout in half in November.
GE fell 3.3% to $16.21 late Friday morning after a decline of as much as 4.5%. The shares were on pace for the worst weekly decline since the depths of the recession in March 2009.
A larger-than-expected, $6.2 billion charge and comments by CEO John Flannery about the possible need to break the company apart reignited investors’ fears this week after the year began with a modest rally. GE was the biggest loser by far in the Dow Jones Industrial Average last year as it struggled with weak demand for many of its industrial products, from gas turbines to locomotives to oilfield equipment.
GE also said this week that it would set aside $15 billion in the coming years to pad the reserves on an insurance portfolio largely focused on long-term care policies. The latest disclosures suggest the value of the GE Capital business may be negative, Jeff Sprague, an analyst with Vertical Research Partners, said Friday in a note.
By Richard Clough and Esha Dey