Madoff whistleblower says GE is 'one recession away from Chapter 11' - CNN

"GE is one recession away from Chapter 11. Their balance sheet is in tatters," Markopolos told Julia Chatterley on CNNi's "First Move" show Friday.

"We'll see how solvent they are at year end, and we'll see if they make it into 2020," he added.

GE shares plunged more than 11% Thursday, their worst drop since 2008, but rebounded Friday along with the broader market, surging nearly 9%. GE's stock is up 17% so far in 2019.

The explosive comments from Markopolos follow the release of a 175-page whistleblower report in which he and his team of investigators accused GE of nearly $40 billion in accounting fraud tied to its insurance business, as well as issues with how it accounts for its stake in oil services firm Baker Hughes (BHGE).

In the report, Markopolos claims that GE (GE) is a bigger fraud than Enron and WorldCom, which both went bankrupt following accounting scandals in the early 2000s.

The company has shot back, saying Thursday the Markopolos claims are "meritless" and disputing his allegations of a looming cash crunch. "GE continues to maintain a strong liquidity position, committed credit lines, and several executable options to monetize assets."

The company also said it "expects to make significant progress" towards reducing its debt by the end of 2020.

As of June 30, GE had nearly $106 billion in debt on its balance sheet-- including liabilities from GE Capital -- and just $71 billion in cash.

Markopolos rose to fame as a whistleblower by correctly predicting that Bernard Madoff's money management firm was a fraud years before it collapsed in 2008.

GE isn't the only one pushing back on his most recent claims. Another firm that specializes in exposing accounting problems, Citron Research, took issue with the Markopolos findings too. The company said in a tweet that the report "was the worst that activist short selling has to offer. Aggressive accounting is not fraud." Citron added that the Markopolos report was "disingenuous all the way through."

And in a separate statement sent to CNN Business Friday, CEO Larry Culp said "GE will always take any allegation of financial misconduct seriously. But this is market manipulation -- pure and simple."

"Mr. Markopolos's report contains false statements of fact, and these claims could have been corrected if he had checked them with GE before publishing the report," he added.

Culp is putting his money where his mouth is. He bought $2 million of GE stock on Thursday, as did several other GE insiders, as a show of confidence in the company's future.

GE has been busy selling assets over the past few years to pay down debt and position itself as a leaner firm. Under the leadership of previous CEOs Jack Welch and Jeffrey Immelt, GE became too bloated. The company, which used to reliably generate solid earnings growth, started to miss Wall Street's forecasts -- causing its stock to plunge.

On Friday Markopolos told Chatterley that he continues to worry about GE's insurance business, adding that the company waited until the last minute to take writedowns.

He noted that other insurance companies, such as Prudential (PRU) and Unum (UNM), have avoided similar problems by adding proper reserves to account for potential losses.

Markopolos also dismissed claims by GE that he will profiting from the fall in the company's stock price because he is working with a firm that is shorting GE stock -- betting that the price will go down so it can make money off of the decline.

He would not name the investment firm, saying simply that he's a "seeker of the truth."

"If I see accounting fraud, I go after it," he said.

Markopolos added that he's had "ongoing discussions" with the Securities and Exchange Commission and the Department of Justice about their investigations into GE's accounting.

GE has said in regulatory filings and during earnings conference calls with analysts that is cooperating with both the SEC and DOJ. The SEC declined to comment about the status of its GE probe. The DOJ was not immediately available for comment.

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https://www.cnn.com/2019/08/16/investing/ge-harry-markopolos-interview/index.html

2019-08-16 18:02:00Z
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Analyst says GE stock recovering because Madoff whistleblower fraud allegations are baseless - CNBC

The allegations by Madoff whistleblower Harry Markopolos of a $38 billion fraud at General Electric are "at best disingenuous" and "at worst highly inaccurate," according to Nick Heymann, co-group head of global industrial infrastructure at the William Blair financial services firm.

"You got the stock on sale yesterday for absolutely no basis. This is why all the insiders are buying," Heymann told CNBC on Friday, one day after GE shares tanked 11% to $8.01 per share, in their worst trading session in more than a decade.

GE stock on Friday regained most of the losses after the troubled conglomerate late Thursday revealed that CEO Larry Culp purchased nearly $2 million worth of shares. The purchase was made after Markopolos called the company "a bigger fraud than Enron."

Culp, who became chairman and CEO of GE last year, said the Markopolos accusations were false and driven by market manipulation. Leslie Seidman, a GE board director and audit committee chair, also pushed back on the Markopolos report, telling CNBC on Thursday that it "does not reflect the GE that I know." She added that the report is "full of misleading, inaccurate and inflammatory statements."

Earlier Thursday, billionaire investor Stanely Druckenmiller told CNBC that he added to his position in GE, which according to SEC filings already totaled 6.2 million shares. Druckenmiller said he believes in Culp's turnaround plans.

In a 175-page report, Markopolos accused GE of issuing fraudulent financial statements to hide the extent of its accounting problems. He told CNBC on Thursday that GE is a bankruptcy waiting to happen. Markopolos, best-known for pointing out irregularities with Bernie Madoff's investment strategy years before the Ponzi scheme was exposed, also said he conducted the research into GE at the behest of a hedge fund, which he refused to name.

"The two noncash charges that [Markopolos] alleges should be currently reflected on GE's balance sheet, which collectively total $18.2 billion, those are not accurate under GAAP accounting," Heymann said. The company is already cooperating with Justice Department and SEC inquiries into its accounting practices.

"If this was announced in 2016 or 2017, it would be a very different, real, substantive pulling back of the covers," argued Heymann. In January 2018, he pointed out, GE's long-term care insurance unit had to boost reserves by $15 billion. Markopolos claims another $18.5 billion of insurance loss reserves are needed.

Admitting he's not knowledgeable enough to say either way whether Markopolos is correct about the $18.5 billion, Heymann said GE could easily afford that amount if it were required.

"The immediate liquidity of the company — unrestricted cash, revolving lines less commercial paper outstanding — is over $60 billion. That's write a check," Heymann said. He added that GE would be getting $21.4 billion in the fall from the BioPharma sale, and could sell its health-care unit for about $46 billion and the rest of Baker Hughes for $5.5 billion. "That gives you a $133 billion of intermediate-term cash liquidity to address an $18.5 billion alleged requirement," Heymann calculated.

"This is the last Molotov cocktail that someone is throwing down the street," Heymann said of the Markopolos report, suggesting it's a desperate attempt to disparage GE for profit.

In a note to William Blair clients, Heymann wrote, "We do not believe GE's financial statements purposely misrepresent the company's current financial condition and future potential liabilities. We find it hard to believe that GE, which has been engaged with several regulatory reviews of its accounting and financial disclosures for over two years, has fraudulently misrepresented its financial reporting."

Heymann was among a number of analysts on Friday who were defending GE following the Markopolos report.

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2019-08-16 15:57:02Z
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GE rebounds after CEO share purchases, Wall Street analysts come to company's defense - CNBC

General Electric bounced back Friday after the CEO shored up confidence by purchasing a bulk of company shares, and analysts defended the industrial giant.

GE's stock was up more than 6% on Friday morning following its biggest drop since April 2008 a day earlier. GE shares had tanked 11% on Thursday.

The stock began its downward spiral Thursday morning after Harry Markopolos, best-known for pointing out irregularities with Bernie Madoff's investment strategy years before the ponzi scheme was exposed, published a report accusing GE of fraudulent financial statements.

Culp, who took over the struggling industrial conglomerate last year, bought 252,200 shares for $7.93 each, according to a Thursday evening filing with the SEC. The CEO has roughly doubled his holding of GE shares this week.

In the 175-page report, Markopolos accused GE of $38 billion in accounting fraud — "bigger than Enron and WorldCom combined." He outlined a "long history" of accounting fraud at GE, dating to as early as 1995, when it was run by Jack Welch.

"It's going to make this company probably file for bankruptcy," Markopolos told CNBC's "Squawk on the Street" Thursday. "WorldCom and Enron lasted about four months. ... we'll see how GE does."

A U.S. hedge fund, that Markopolos wouldn't name, paid Markopolos to conduct the report. Markopolos told CNBC that he was getting a "decent percentage" of profits that the hedge fund would make from betting against GE.

Culp, who is the former CEO of Danaher, said the accusations were false, and driven by incentives to profit off of GE's stock drop.

"GE will always take any allegation of financial misconduct seriously. But this is market manipulation – pure and simple," he said in a statement. "Mr. Markopolos's report contains false statements of fact and these claims could have been corrected if he had checked them with GE before publishing the report."

Leslie Seidman, a GE board director and chair of its audit committee, also pushed back on the Markopolos report, which she said contained "numerous novel interpretations and downright mistakes about the actual accounting requirements."

"In his own words, he stands to personally financially benefit from today's significant market reaction to his report," she said. "He is selectively front-running widely reported regulatory processes and rigorous investigations without the benefit of any access to GE's books and records."

Wall Street sides with GE

Equity analysts didn't seem convinced that Markopolos had a bullet-proof case, either.

Nick Heymann, co-group head of global industrial infrastructure at William Blair, said it was hard to believe that GE had fraudulently misrepresented its financial reporting — especially after engaging with several regulatory reviews of its accounting and financial disclosures for over two years.

"As such, we tend to find the effort to portray GE's current financial condition assuming all three alleged cash or noncash charges totaling ~$38 billion should have been previously recognized is at best disingenuous and at worst highly inaccurate," Heymann said in a note to clients Thursday.

Citi research analyst and managing director Andrew Kaplowitz also backed GE, telling clients that while analysts were "still digesting" it, the report had "sufficient shortcomings" and Citi continues to believe in Culp's ability to improve the company over time. Kaplowitz pointed to Culp's share purchases in the open market Thursday, which reflected "high conviction that the allegations do not represent incremental unknown challenges."

"The 175 page report seems sensationalized and according to press reports the author appears to have a financial interest in a GE stock decline given a partnership with an undisclosed hedge fund," Kaplowitz said in a note to clients Thursday. "Overall, we think that some of the allegations were already known and others 'known unknowns,' which lead us to retain our conviction in the potential for share price outperformance over time."

Jim Corridore, equity analyst at CFRA Research, highlighted Markopolos and the anonymous hedge fund's motives to profit from the stock's decline.

"We have confidence in the increased openness in GE's accounting under Larry Culp's leadership after years of financial opaqueness under Jeff Immelt, when GE's problems were created," Corridore said. "We think GE is moving towards improving its balance sheet and think it has ample liquidity and access to capital markets to continue running its businesses and restructuring."

The struggling industrial conglomerate abruptly removed its former CEO and chairman John Flannery last year after only a year on the job and installed Culp as his successor. Flannery had been appointed in August 2017, taking the reins from Jeff Immelt as GE's stock steadily eroded.

To be sure, some on Wall Street still have questions after the report.

Jay Gelb, managing director and senior insurance equity research analyst at Barclays, said he was not currently in a position to say whether Markopolos's GE shortfall reserve estimate was reasonable, "although it is certainly concerning."

One area of Markopolos' report focuses on is GE's long-term care insurance unit, for which the company had to boost reserves by $15 billion last year. By examining the filings of GE's counterparties in this business, Markopolos alleges that GE is hiding massive losses that will only increase as policyholders grow older. He claims that GE has filed false statements to regulators on the unit. Separately, he goes on to find issues with GE's accounting on its oil and gas business Baker Hughes.

Bank of America Andrew Obin said the allegations appear to cover similar ground as ongoing investigations by the U.S. Securities and Exchange Commission, Department of Justice and existing shareholder lawsuits. While the firm's valuation already assumes meaningful downside in GE's long-term insurance business, given the current levels of U.S. interest rates, they now have a more "conservative assumption around the discount rate of insurance."

Bank of America lowered its price target by $1 on Friday, citing ongoing market pressure on growth and margins in its power business, "execution issues" outside of power, and bigger-than-expected capital requirements at GE Capital.

— CNBC's Michael Bloom contributed reporting. 

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2019-08-16 14:48:06Z
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GE rebounds after CEO share purchases, Wall Street analysts come to company's defense - CNBC

General Electric bounced back Friday after the CEO shored up confidence by purchasing a bulk of company shares, and analysts defended the industrial giant.

GE's stock was up more than 6% on Friday morning following its biggest drop since April 2008 a day earlier. GE shares had tanked 11% on Thursday.

The stock began its downward spiral Thursday morning after Harry Markopolos, best-known for pointing out irregularities with Bernie Madoff's investment strategy years before the ponzi scheme was exposed, published a report accusing GE of fraudulent financial statements.

Culp, who took over the struggling industrial conglomerate last year, bought 252,200 shares for $7.93 each, according to a Thursday evening filing with the SEC. The CEO has roughly doubled his holding of GE shares this week.

In the 175-page report, Markopolos accused GE of $38 billion in accounting fraud — "bigger than Enron and WorldCom combined." He outlined a "long history" of accounting fraud at GE, dating to as early as 1995, when it was run by Jack Welch.

"It's going to make this company probably file for bankruptcy," Markopolos told CNBC's "Squawk on the Street" Thursday. "WorldCom and Enron lasted about four months. ... we'll see how GE does."

A U.S. hedge fund, that Markopolos wouldn't name, paid Markopolos to conduct the report. Markopolos told CNBC that he was getting a "decent percentage" of profits that the hedge fund would make from betting against GE.

Culp, who is the former CEO of Danaher, said the accusations were false, and driven by incentives to profit off of GE's stock drop.

"GE will always take any allegation of financial misconduct seriously. But this is market manipulation – pure and simple," he said in a statement. "Mr. Markopolos's report contains false statements of fact and these claims could have been corrected if he had checked them with GE before publishing the report."

Leslie Seidman, a GE board director and chair of its audit committee, also pushed back on the Markopolos report, which she said contained "numerous novel interpretations and downright mistakes about the actual accounting requirements."

"In his own words, he stands to personally financially benefit from today's significant market reaction to his report," she said. "He is selectively front-running widely reported regulatory processes and rigorous investigations without the benefit of any access to GE's books and records."

Wall Street sides with GE

Equity analysts didn't seem convinced that Markopolos had a bullet-proof case, either.

Nick Heymann, co-group head of global industrial infrastructure at William Blair, said it was hard to believe that GE had fraudulently misrepresented its financial reporting — especially after engaging with several regulatory reviews of its accounting and financial disclosures for over two years.

"As such, we tend to find the effort to portray GE's current financial condition assuming all three alleged cash or noncash charges totaling ~$38 billion should have been previously recognized is at best disingenuous and at worst highly inaccurate," Heymann said in a note to clients Thursday.

Citi research analyst and managing director Andrew Kaplowitz also backed GE, telling clients that while analysts were "still digesting" it, the report had "sufficient shortcomings" and Citi continues to believe in Culp's ability to improve the company over time. Kaplowitz pointed to Culp's share purchases in the open market Thursday, which reflected "high conviction that the allegations do not represent incremental unknown challenges."

"The 175 page report seems sensationalized and according to press reports the author appears to have a financial interest in a GE stock decline given a partnership with an undisclosed hedge fund," Kaplowitz said in a note to clients Thursday. "Overall, we think that some of the allegations were already known and others 'known unknowns,' which lead us to retain our conviction in the potential for share price outperformance over time."

Jim Corridore, equity analyst at CFRA Research, highlighted Markopolos and the anonymous hedge fund's motives to profit from the stock's decline.

"We have confidence in the increased openness in GE's accounting under Larry Culp's leadership after years of financial opaqueness under Jeff Immelt, when GE's problems were created," Corridore said. "We think GE is moving towards improving its balance sheet and think it has ample liquidity and access to capital markets to continue running its businesses and restructuring."

The struggling industrial conglomerate abruptly removed its former CEO and chairman John Flannery last year after only a year on the job and installed Culp as his successor. Flannery had been appointed in August 2017, taking the reins from Jeff Immelt as GE's stock steadily eroded.

To be sure, some on Wall Street still have questions after the report.

Jay Gelb, managing director and senior insurance equity research analyst at Barclays, said he was not currently in a position to say whether Markopolos's GE shortfall reserve estimate was reasonable, "although it is certainly concerning."

One area of Markopolos' report focuses on is GE's long-term care insurance unit, for which the company had to boost reserves by $15 billion last year. By examining the filings of GE's counterparties in this business, Markopolos alleges that GE is hiding massive losses that will only increase as policyholders grow older. He claims that GE has filed false statements to regulators on the unit. Separately, he goes on to find issues with GE's accounting on its oil and gas business Baker Hughes.

Bank of America Andrew Obin said the allegations appear to cover similar ground as ongoing investigations by the U.S. Securities and Exchange Commission, Department of Justice and existing shareholder lawsuits. While the firm's valuation already assumes meaningful downside in GE's long-term insurance business, given the current levels of U.S. interest rates, they now have a more "conservative assumption around the discount rate of insurance."

Bank of America lowered its price target by $1 on Friday, citing ongoing market pressure on growth and margins in its power business, "execution issues" outside of power, and bigger-than-expected capital requirements at GE Capital.

— CNBC's Michael Bloom contributed reporting. 

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2019-08-16 13:38:04Z
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Cathay Pacific CEO resigns amid Hong Kong protests - CNN

The company has been caught in a political firestorm because of the city's pro-democracy demonstrations, and warned earlier this week that it could fire employees who take part in illegal protests. Hundreds of its flights were canceled when protesters overran the airport.

Paul Loo, the airline's chief commercial officer, is also stepping down, the company said in a stock exchange filing on Friday. The resignations are effective Monday.

Hogg's resignation was first reported by Chinese state media.

"Recent events have called into question Cathay Pacific's commitment to flight safety and security and put our reputation and brand under pressure," said Cathay Chairman John Slosar in a statement. "This is regrettable as we have always made safety and security our highest priority."

Slosar did not elaborate further, but the airline has been swept up in numerous controversies related to the demonstrations. On Wednesday, the company said it had terminated two pilots, without disclosing the reason. A well-placed source within the company told CNN the pilots were fired in association with activities related to ongoing protests.

The company source said one of the pilots was charged with rioting in Hong Kong and had been suspended from duty since July 30.

Cathay has also drawn scrutiny from Beijing. China said last week that it would not allow Cathay flights crewed by people who have taken part in "illegal demonstrations, protests and violent attacks" to use its airspace, a rule the airline said it would follow.

China's aviation authority also said earlier this week that it met with Merlin Swire, the billionaire head of Cathay's biggest shareholder, Swire Pacific. Swire Pacific has been among the companies to condemn "illegal activities and violent behavior" in Hong Kong.

Worker participation in the protests is not the only issue that Cathay is grappling with. The political turmoil that has engulfed Asia's premiere financial hub for nearly 11 weeks is also starting to take a toll on Cathay's bottom line.

The airline was forced to cancel more than 150 flights last week amid a day of mass demonstrations and strikes. This week's protests at Hong Kong's international airport led to nearly 1,000 flights being canceled.

Cathay said last week that protests affected its passenger numbers last month, and were continuing to "adversely impact" future bookings.

Cathay's (CPCAY) stock has plummeted nearly 24% since April.

"It has been my honour to lead the Cathay Pacific Group over the last three years," Hogg said in a statement. "I am confident in the future of Hong Kong as the key aviation hub in Asia. However, these have been challenging weeks for the airline and it is right that Paul and I take responsibility as leaders of the company."

Hogg will be replaced as CEO by Augustus Tang, the chief executive of Hong Kong Aircraft Engineering Company, another Swire firm. Loo will be replaced by Ronald Lam, the head of HK Express, a Cathay subsidiary.

CNN's Laura He and Sandi Sidhu contributed to this report.

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2019-08-16 10:25:00Z
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Cathay Pacific CEO resigns amid Hong Kong protests - CNN

The company has been caught in a political firestorm because of the city's pro-democracy demonstrations, and warned earlier this week that it could fire employees who take part in illegal protests. Hundreds of its flights were canceled when protesters overran the airport.

Paul Loo, the airline's chief commercial officer, also resigned, the company said in a stock exchange filing.

Cathay's (CPCAY) stock has plummeted nearly 24% since April.

This is a developing story and will be updated ...

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https://www.cnn.com/2019/08/16/business/cathay-pacific-ceo-rupert-hogg/index.html

2019-08-16 09:24:00Z
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GE denies financial problems in Markopolos allegations - Yahoo Finance

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1. GE denies financial problems in Markopolos allegations  Yahoo Finance
2. GE shares drop after Madoff whistleblower Harry Markopolos calls it a 'bigger fraud than Enron'  CNBC
3. GE Is New Target of Madoff Whistleblower  The Wall Street Journal
4. GE Accused of Masking Financial Problems  Yahoo Finance
5. Harry Markopolos says he can't reveal the hedge fund he's working for in his investigation of GE  CNBC
6. View full coverage on Google News

https://finance.yahoo.com/video/ge-denies-financial-problems-markopolos-132623124.html

2019-08-15 13:26:00Z
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