GE Issues New Rebuttal to Whistleblower's Claims About Finances -- Update
August 19 2019 - 3:07PM
Dow Jones News
By Micah Maidenberg
General Electric Co. pushed back further on Monday against
claims by Harry Markopolos that the company hasn't been forthright
about its finances.
In a new investor update, the company said it believes the
current reserves for its long-term-care insurance business are well
supported by its portfolio of investments. GE also defended the
accounting for its oil-and-gas business.
Last Thursday, Mr. Markopolos, who raised red flags about Bernie
Madoff's Ponzi scheme, accused GE of masking its financial problems
and filing inaccurate or fraudulent information with
regulators.
GE Chief Executive Larry Culp said then the allegations from Mr.
Markopolos amounted to market manipulation, adding his report
contained false statements and was motivated by personal profit.
Mr. Markopolos on Thursday dismissed GE's criticism of his
motivation and methods.
Shares of GE dropped 11% after Mr. Markopolos, who was working
with an undisclosed hedge fund, went public with his report. The
stock rebounded 9.7% on Friday, but was off 1.6% at $8.65 a share
on Monday afternoon.
On Monday, GE focused its rebuttal on its long-term-care
business and Baker Hughes, its oil-and-gas unit. The message was
sent by Steve Winoker, the company's vice president for investor
communications.
The company said it has "been up front and transparent about the
long-term liabilities," and there are "a lot of viewpoints in the
market regarding the risks and financial obligations across the
entire [long-term-care] industry."
It said that as a reinsurer, it isn't responsible for 100% of
every risk in that business. GE also said the "adverse differences"
between its policies and those from other companies are
significantly overstated.
Mr. Markopolos's group estimated, in their report, that GE will
need to increase its insurance reserves by $18.5 billion in cash
and take a $10.5 billion charge because of an accounting change in
2021.
GE said Monday it wouldn't need to make a cash contribution of
$29 billion to the long-term-care insurance business.
"Our future liabilities depend on variables that will play out
over decades, not years, and are dictated by rigorous testing
processes, sound actuarial analysis, and the application of
regulatory and accounting rules," the company said.
GE also said Monday it is required to report financial
information about its Baker Hughes business as part of its own
results. The company said when it reduces its investment in Baker
Hughes and is no longer the controlling owner, it expects to record
a noncash charge.
"This will not impact GE's cash needs and liquidity, and the
sale of our remaining stake will also generate additional cash that
can be used for deleveraging," the note on Monday said.
GE also said that consolidating Baker Hughes into its business
doesn't skew investor perceptions of its cash flows.
Mr. Markopolos didn't immediately reply to a request for
comment.
Write to Micah Maidenberg at micah.maidenberg@wsj.com
(END) Dow Jones Newswires
August 19, 2019 14:52 ET (18:52 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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