GE Capital Could Have 'Zero Value,' Says Street

Shares of Boston-based industrial conglomerate General Electric Co. (GE) are sliding further Monday, falling to their lowest level in nearly a decade. Trading down 1.7% at $12.85, GE reflects a 26.4% plummet year-to-date (YTD) and a 56.8% decline over the most recent 12 months as the company struggles to revamp its business, forcing it to slash its dividend by 50% back in November.  (See also: Sell GE on Trump Tariff Headwinds: Deutsche Bank.)

As part of GE's larger restructuring, the company sold off most of GE Capital, its once massive lending arm that peaked in 2008 with some $600 billion in assets ranging from commercial real estate to foreign auto loans, as reported by The Wall Street Journal. While GE hoped to trim down GE Capital to shed light on its businesses such as jet engines and power turbines, analysts are now worried over risks associated with its leftover GE lending unit.

"It is not fully known what residual risks GE retained when it dismantled GE Capital." said Martin Sankey, a senior research analyst at Neuberger Berman, which owns 3.4 million shares of GE in various mutual funds. "The question becomes, does GE Capital have any value at all."

A $15 Billion Surprise

Century-old GE, once the most valuable company in the U.S, and now smaller than 20-year-old on-demand video streaming business Netflix Inc. (NFLX), announced that it would set aside $15 billion over seven years to cover long-term care insurance policies it still guaranteed. The insurance charge was a big surprise to board members, considering the company sold most of the business in 2004 and 2005, reported the WSJ, citing people familiar with the matter.

Bob Spremulli, managing director at TIAA Investments, a major GE shareholder, suggested that the news "leaves uncertainty" regarding the rest of GE Capital. Red flags include the segment's exposure to subprime U.S. mortgages and unusual financial products such $3.1 billion in floating-rate Polish residential mortgages that are mostly denominated in Swiss francs.

Not all are so bearish however. Analysts have highlighted bright spots for GE Capital including its airplane leasing operation, which has approximately $41 billion in assets and accounted for over half of the segment's $9.1 billion in revenue in 2017. (See also: GE Stock to Gain 50%: William Blair.)