Jack Welch built it, Jeff Immelt milked it and John Flannery failed to fix it.
Now Larry Culp must figure out what to do with the troubled remnants of GE Capital, the finance arm that nearly sank General Electric Co. a decade ago.
With anxiety over GE running high on Wall Street, Culp, the new chief executive officer, has a lot of work to do. So far GE -- once the quintessential American conglomerate -- just keeps stumbling from bad to worse.
But perhaps Culp’s most formidable challenge is the gaping hole inside the financial unit. A big part of the trouble has to do with GE’s book of long-term care insurance, a vestige of GE Capital that backs policies which pay for things like home health aides and nursing-home stays. Once little more than an afterthought, the portfolio has turned into a money pit that threatens to complicate efforts to turn around GE as worries grow over a funding shortage.
While GE has tried all year to offload the liabilities and Culp said no issue at the finance arm gets more attention, few see any easy answers. The problem is twofold. As medical costs soar and Americans live longer, GE’s assumptions about what it will have to pay out are proving to be too rosy. This year, the firm said it will need an extra $15 billion to cover future claims.
Steep Price
But unloading them on a would-be buyer will likely come at a very steep price. Past deals have suggested transactions of this type are often “prohibitively expensive,” analysts at Evercore Inc. have said.
Insurers including Athene Holding Ltd., backed by private equity firm Apollo Global Management LLC, have expressed interest in GE’s insurance assets, but talks have since cooled under Culp, according to people familiar with the matter. GE has also held talks with Warren Buffett’s Berkshire Hathaway Inc. about absorbing its insurance liabilities, two people said.
“It’s very difficult to sell” these types of policies, said GB Taglioni, North American leader of Boston Consulting’s insurance practice. He declined to talk about GE’s situation specifically. “There have been a lot of sellers and there have been, up until now, very few buyers.”
A GE spokeswoman declined to comment beyond recent filings and public comments, while Athene and Apollo also declined to comment. A Berkshire representative didn’t respond to requests for comment.