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Feds Investigate GE Over $15B Charge As Company Slides To Loss In 4Q

The General Electric logo appears above a trading post on the floor of the New York Stock Exchange. (Richard Drew/AP)
The General Electric logo appears above a trading post on the floor of the New York Stock Exchange. (Richard Drew/AP)
This article is more than 2 years old.

General Electric is being investigated by federal regulators for a $15 billion hit taken to cover miscalculations made within an insurance unit.

The Boston-based company revealed last week that it would take a $6.2 billion charge in its fourth quarter after a subsidiary, North American Life & Health, underestimated how much it would cost to pay for the care of people who lived longer than projected.

During a conference call Wednesday to discuss its fourth-quarter earnings report, the CEO of GE Transportation said that the company had been notified that the Securities and Exchange Commission is investigating the process that led to the mishap.

"We are cooperating fully with the investigation, which is in very early stages," said Jamie Miller.

The company is attempting to redefine itself under CEO John Flannery and after announcing the issue at North American Life, he hinted at a more radical restructuring for the 126-year-old company.

"There will be a GE in the future. But we will look different than it does today," Flannery said during the earnings call on Wednesday.

GE lost $9.83 billion, or $1.13 per share, for the three months ending on Dec. 31. A year earlier the Boston company earned $3.49 billion, or 39 cents per share.

Earnings, adjusted for onetime gains and costs, came to 27 cents per share. That's a penny below what analysts surveyed by Zacks Investment Research were looking for.

In the quarter, revenue fell to $31.4 billion from $33.09 billion, missing Wall Street's estimate of $32.87 billion.

In the power unit, revenue dropped 15 percent as orders declined 25 percent. While the segment dealt with several charges during the quarter, GE said on Wednesday that the division's performance was well below expectations even when stripping out the charges.

General Electric Co. expects full-year earnings in the range of $1 to $1.07 per share.

"Our first priority is running the company well," Flannery said in the call. "As I mentioned last week, at the same time we're reviewing the best structure of the company to maximize the long-term potential of our businesses and deliver the best value for our customers and employees."

GE has shrunk dramatically since it became entangled in the financial crisis a decade ago, and Flannery has vowed to shed $20 billion in assets over the next year or two. As the company faces turmoil, it has promised to keep jobs in Boston.

Many investors have sought more drastic measures with GE stock losing half of its value over the past decade. The Dow Jones industrial average, which consists of GE and 29 other companies, has more than doubled during the same span.

Breaking up a sprawling company like GE would be extremely complicated, and likely take several years to complete. In the past, GE has spun off its stakes in subsidiaries such as Synchrony Bank in stages, a strategy that it might deploy if it pursues a broader breakup.

With additional reporting from the WBUR Newsroom

This article was originally published on January 24, 2018.

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