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GE pays $ 1.5 billion to permanently liquidate the allegations of subprime loans



GE ( GE ) announced Thursday that adjusted earnings fell more sharply than Wall Street analysts had anticipated. The recent stumble was caused by a $ 872 million loss on GE Power's turbine business.
But GE is finally moving behind its ten year old subprime disaster. The company said it agreed in principle to pay a $ 1.5 billion civil penalty to settle the Justice Department's investigation into WMC Mortgage, the sub-prime lender that closed a decade ago.

Investors expressed relief that GE will not have to pay more than the $ 1

.5 billion previously earmarked for WMC. GE's stock rose 17% to a three-month high on Thursday. GE stock prices were on track for the best day since 2009.

"We can start to leave this episode behind," Chief Executive Officer Larry Culp told analysts about the WMC settlement.

have increased by about 35% this year and hope that the worst is over. Although GE is still worth only a fraction of its all-time high, it will be one of the best stocks in the S & P 500 in 2019.

"We're on the brink of something great," Culp said. "It's a start, but we still have much to do."

Power Problems

GE Power, which produces turbines for natural gas and coal power plants, has been the company's biggest problem for years. The Fossil Fuels business has been impacted by the rapid growth of renewable energy.

Electricity orders dropped by 19% in the fourth quarter, leading to a 25% decline in sales. The company accused "continued execution and operational problems". GE promised to improve its power discipline, project management and execution. GE Power has cut jobs and closed locks.

"The fixation of power will take time," said Culp, adding that the division will fight again in 2019 and the turnaround "in the very early innings" will take place aircraft leasing business for whopping $ 40 billion.

"We have no plans to sell the aircraft leasing unit," said Culp.

Wacky Outlook

As expected, GE's bright spot was the booming aviation business, which benefited from rising engine orders. GE Aviation posted a 24% quarterly gain and an 89% order increase for its LEAP engine program.

Culp expects operating profit margins in the industry to increase in 2019. However, free cash flow is warned against headwinds. Sales and profits are expected to grow slightly this year.

Culp was more optimistic about the longer-term outlook and predicted that cash flow will "grow considerably" in 2020 and 2021.

"2019 is still very much in the works, but the company is getting stronger," Culp said.

JPMorgan Chase analyst, C. Stephen Tusa, Jr., one of Wall Street's largest GE bears, specifically asked executives whether the company would generate free cash flow in 2019 at all. Culp refused a direct answer, but promised more details shortly.

John Inch, an analyst with Gordon Haskett, found the answer alarming.

"Why would you give GE after losing the doubt of purpose so many times over so many years?" Inch told CNN Business.

GE Empire Shrinkage

Culp, the first outsider CEO in GE's history, was hired last year to turn the iconic manufacturer of light bulbs, MRI machines, and jet engines. GE was once the most valuable company in the world and was shaken by years of wrong decisions such as insufficient acquisitions and debt accumulation.
The new CEO quickly sought to repair GE's broken balance sheet. Culp lowered GE's dividend to one cent, accelerated the divorce of oil and gas giant Baker Hughes ( BHGE ) and dismissed further companies.

GE said it sold $ 8 billion in assets in the fourth quarter, bringing sales to $ 15 billion in 2018.

Next Big Business: GE Healthcare, which manufactures MRI machines and other medical devices. Culp said GE could monetize nearly half of the profitable health care industry despite declining the timing of a transaction.

Despite the WMC agreement, GE is still facing legal issues, including SEC and DOJ audits.

When asked if he was confident that "all skeletons were found in the closet," Culp left the door open for more bad news.

"I do not think I would ever say here on my last day We found all the skeletons," Culp said. "I do not have the tendency to take the absolute positions."


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