Some news items today… the stock is getting jerked up and down 2%-5% almost daily at this point. That tell me the people are simply trading this based on news and have very little idea what is actually going on inside the company.
Today’s items:
I’m not sure why they have this level so low especially given the returns in the sector over the past decade. I understand them wanting to “limit risk” in the high yield space but it seems they took on far more risk via underpricing their policies (they are now trying to fix this)
Reuters:
General Electric Co will invest more heavily in junk bonds, private equity and other high-yield investments to boost returns at its ailing insurance business, company executives said on Thursday.
Seeking to calm investors about its insurance liabilities, GE said its insurance investments are too conservative compared with competitors. The change will allow for better returns that help reduce the amount of reserves it must set aside for claims, Anthony Grandolfo, the chief investment officer of GE’s insurance business, told analysts on a conference call.
Asked about increased risk, he said GE was still being prudent. “We’re starting from a point where we think (the portfolio) is quite conservative and we expect to continue to maintain a portfolio that is quite conservative,” said Grandolfo, who was hired as GE’s first dedicated chief investment officer for insurance in October.
Only 2 percent of GE’s insurance assets are currently in non-investment-grade investments – much less than the 12 percent average in the industry, Grandolfo said, citing a Goldman Sachs study. GE plans to gradually increase its level to 8 percent by 2024, he added.
Second, via Reuters GE is seeking $1B (excluding debt) for its JV. I like deal like this because they both add liquidity to the company, eliminate non-core operations and reduce debt:
General Electric Co is exploring a sale of its 50 percent stake in a renewable energy joint venture with Italy’s Enel SpA, the latest deal GE CEO Lawrence Culp is pursuing to pay down debt, according to people familiar with the matter.
Culp has made a new push to shed assets since taking over as CEO in October, culminating in a $21.4 billion deal last month to sell GE’s biopharma business to Danaher Corp.
The joint venture, called EGPNA Renewable Energy Partners, was formed in late 2016 between Enel’s U.S.-based renewables subsidiary, Enel Green Power North America (EGPNA) and GE Energy Financial Services. It could be valued at more than $1 billion, excluding debt, according to the sources.
GE has hired an investment bank to assist it in selling its stake, the sources said. Among the joint venture’s assets are the Cimarron Bend wind farm in Kansas and the Lindahl wind farm in North Dakota.
The sources spoke on condition of anonymity as the information is confidential. A spokeswoman for GE Energy Financial Services declined to comment. Enel did not immediately respond to a request for comment.
GE Energy Financial Services has been selling down its portfolio under a plan to reduce those holdings to about $5 billion by the end of 2019 from $10 billion in 2017. GE sold pieces last year to Starwood Property Trust Inc and Apollo Global Management.
Finally, from Bloomberg, Apollo is steadily picking up assets from GE Finance. I’m fine with this as GE got way over its ski’s in Finance and anything that reduces its footprint and weighting in the company is a good idea:
Zelter’s firm, Apollo Global Management, is slowly picking off pieces of the finance arm that nearly brought down General Electric Co.
Apollo has already bought billions of investments once managed by GE Capital, and it’s been sizing up GE’s insurance and jet-leasing businesses, people familiar with the matter have said. GE’s new leader, Larry Culp, is working to turn around the embattled conglomerate, which expects negative cash flow this year in its industrial businesses.
It’s quite a switch for both GE and Apollo, the buyout giant led by Leon Black. Apollo is trying to rekindle some of GE’s old magic without repeating the company’s mistakes, which led to a 2008 taxpayer bailout. Few think it’ll be easy to recreate GE Capital, which, at its peak, held more than $500 billion in assets, dwarfing Wall Street rivals.
“Apollo can still build a great business, but it’s quite hard to build one of the scale and breadth that GE built,” said John Dionne, a senior lecturer at Harvard Business School and a senior adviser to one of Apollo’s closest competitors, Blackstone Group LP.
The talks with GE aren’t Apollo’s only foray into industrial financing. On Thursday, it agreed to buy a majority stake in Direct ChassisLink, one of the largest companies for chassis leasing and other services to shipping firms, railroads, terminal operators and logistics companies. The price: $2.5 billion, according to a report by Reuters.
Wall Street
It’s part of the reordering of Wall Street following the longest recession in 70 years. No longer do the biggest banks have domain over extending credit. The so-called shadow banking system has filled the gaps where regulators limited deposit-taking institutions, and firms like Apollo have swooped in to take advantage. Regulators employ less oversight on shadow banks, which don’t take customer deposits.
In the meantime, GE Capital has shrunk to about one-fifth its peak size.
Zelter, Apollo’s co-president, is betting Apollo can do GE Capital better than GE could. Apollo’s credit business already manages $193 billion, the most of its private equity rivals. The New York-based firm will benefit from a range of funding sources that GE Capital could only envy. They include investors in its funds, its own employees and Athene Holding Ltd., an insurance company with more than $125 billion in assets and most of its funds invested with Apollo.