General Electric rebounded on Friday after the CEO had strengthened confidence by buying much of the company's stock and defending analysts as the industry giant.
GE's share rose more than 6% a day earlier on Friday morning after the largest decline since April 2008. GE shares fell 11% on Thursday.
The stock started its downward spiral on Thursday morning after Harry Markopolos, who was known to spot irregularities in Bernie Madoff's investment strategy years before the Ponzi program was uncovered, had released a report accusing GE of fraudulent financial statements ,
Culp, who took over the contested industrial conglomerate last year, bought 252,200 shares for $ 7.93 each, according to a report filed with the SEC on Thursday. The CEO has roughly doubled his holdings of GE shares this week.
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"The company is likely to file for bankruptcy," Markopolos told CNBC's "Squawk on the Street" on Thursday. "WorldCom and Enron took about four months and we'll see how GE is doing."
An American hedge fund, which Markopolos did not call, paid Markopolos to produce the report. Markopolos told CNBC that it would receive a "decent percentage" of the profits the hedge fund would make by betting against GE.
Culp, Danaher's former CEO, said the allegations are false and driven by profit-making sell-off of GE's shares.
"GE will always take any accusation of financial misconduct seriously, but that's market manipulation – plain and simple," he said in a statement. "Mr Markopolos's report contains false facts, and these allegations could have been corrected if he had discussed them with GE prior to the publication of the report."
Leslie Seidman, GE Director and Chairman of the Audit Committee, also resigned on the Markopolos report, which, according to her, "contained many new interpretations and flaws in the actual accounting rules".
"In his own words, he personally will benefit financially from the significant market reaction to his report," she said. "He is a selective leader in widespread regulatory processes and rigorous research without having access to GE's books and records."
Wall Street Pages with GE
Stock analysts did not seem to be convinced that Markopolos had a bullet Nick Heymann, head of global industrial infrastructure at William Blair, said it was hard to believe that GE's financial reporting in fraudulent intent, especially after having carried out several regulatory reviews of its accounts and the company's financial statements for over two years.
"As such, we tend to seek efforts to present GE's current financial condition, assuming that all three alleged cash or material costs of $ 38 billion previously earmarked for capture, at best insincere and in the worst case highly inaccurate, "said Heymann in a note to customers Thursday.
Citi research analyst and CEO Andrew Kaplowitz also supported GE and told clients that the report had "sufficient flaws" and Citi continues to believe in Culp's ability to improve the company's time. Kaplowitz referred to Culp's share purchase on Thursday in the open market, which reflected "the high conviction that the allegations are not incremental unknown challenges."
Interest in a decline in GE's share given a partnership with an unnamed hedge fund, "Kaplowitz said in a statement to customers on Thursday." Overall, we believe some of the allegations were already known and others, well-known Unknown & # 39 ;, which causes us to maintain our belief over a possible overperformance of the stock price over time. "
Jim Corridore, Stock Analyst at CFRA Research, Markopolos and the motives of the anonymous hedge fund highlighted to point out the decline in the
"We are confident that GE's accounting led by Larry Culp will become more open after years of financial uncertainty from Jeff Immelt, when GE's problems arose," Corridore said. GE is seeking to improve its balance sheet and believes that it has sufficient liquidity and access to the capital markets In order to continue its business and restructurings. "was deployed for only a year and installed Culp as his successor. Flannery was named in August 2017 and had taken the reins from Jeff Immelt as GE's shares steadily eroded.
However, some on Wall Street still have questions after the report.
Jay Gelb, Chief Operating Officer and Senior Insurance Equity Barclays research analyst said he was currently unable to say whether the estimation of Markopolos GE's underfunding was reasonable, "although this is certainly relevant."
One focus of Markopolo's report is on the GE care insurance unit, for which the company had to increase its reserves by $ 15 billion last year. Markopolos is reviewing GE's business case documentation in this area, claiming that GE is hiding massive losses that will increase as policyholders grow older. He claims that GE has misrepresented to the regulatory authorities of the device. Regardless, he catches on with accounting issues from GE regarding the Baker Hughes oil and gas business.
According to Andrew Obin of Bank of America, the allegations appear to have a background similar to the ongoing investigations by the US Department of Justice and existing shareholder lawsuits. While the Company's valuation in GE's long-term insurance business is already bearing significant downward pressure given current US interest rates, a "more conservative assumption regarding the discount rate of insurance" is now being made.
Bank of America lowered its price target by $ 1 on Friday, citing continued market pressure on growth and margins in the power business, "execution issues" outside of the power business, and higher-than-expected capital requirements at GE Capital.
– CNBC's Michael Bloom contributed to the coverage.