General Electric Pays $1.5B To Resolve Subprime Loan Probe; Share Value Skyrockets

It looks like General Electric Co is on track to have its best day in almost a decade as the company posted stronger-than-expected fourth quarter results on Thursday.  More importantly, this highest-single-day gain also comes perhaps as a result of the company reaching a settlement with the United States Department of Justice over its recent subprime mortgage probe. 

For one, GE announced they reached a $1.5 billion settlement in the subprime probe.  This is the civil penalty GE will pay to finally put an end to the DoJ’s investigation into issues with WMC Mortgage, which was actually shut down ten years ago. In the settlement, though, investors can finally breathe easier knowing that there will be no other penalties or fees assessed to put this matter in the past.  

All that in mind, the numbers pretty much speak for themselves. Accordingly, GE said its adjusted non-GAAP earnings for Q4 came in at 17 cents per share.  While this is down more than 35 percent year-over-year—and about 20 percent shy of Wall Street’s 22 cent forecast—group revenues definitely make up the difference. GE said that revenues increased by 5 percent, to $33.28 billion, which is staunchly ahead of the $32.6 that had been forecast. 

In addition, though, GE said it was also able to generate roughly $10 billion in cash through Q4 because of some strategic dividend cuts and from selling some of its Baker Hughes services group oil stakes. This helped to lancet some of its cash flow problem, which slowed nearly 9 percent this year, to approximately $6.4 billion. 

At the end of the day, though, General Electric CEO Larry Culp comments, “Our strategy is clear:  de-leverage our balance sheet and strengthen our businesses, starting with Power. To do this, we are improving execution, customer focus, and how we set priorities across GE.”

Altogether, then, General Electric shares comped up 16 percent in just the opening hour of trading on Thursday, selling at $10.52 per share. This is the highest value for GE shares since October of 2009. More importantly, this significant bump has helped to negate the last three months of decline. 

Culp goes on to say, “I’m confident in our team, technology, and the global reach of GE’s brand and relationships.  We have more work to do, but I’m encouraged by the changes we’re making to strengthen GE and create value for our shareholders, customers, and employees.”