Latest / Bloomberg Intelligence / Bloomberg's Clough: GE Shedding 'Too Big To Fail' Label (Audio)

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Bloomberg's Clough: GE Shedding 'Too Big To Fail' Label (Audio) · Bloomberg Intelligence

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  Speaker 1: You're listening to taking stock with pim Box and katholeen
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  Speaker 1: As on Bloomberg Radio. General Electric GE isn't too big
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  Speaker 1: to fail anymore. All it took was the most sweeping
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  Speaker 1: transformation in the companies one hundred twenty four year history.
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  Speaker 1: The f s o C, the Financial Stability Oversight Council,
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  Speaker 1: released GE from its designation as a city, a systemically
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  Speaker 1: important financial institution, it said Wednesday, no longer poses a
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  Speaker 1: threat to US financial stability. Seems superior relief not only
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  Speaker 1: to financial regulators but also to investors. Joining us now
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  Speaker 1: to discuss this story why it is so important in
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  Speaker 1: where GE is now and where It's going is Rick Cluff.
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  Speaker 1: He's industrial reporter at Bloomberg News. GE, of course is
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  Speaker 1: one of the companies he varies very very closely, and
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  Speaker 1: he's joining us here in studio. Rick. Welcome, Thank you.
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  Speaker 1: So uh GE Capital long gone, right, I mean that
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  Speaker 1: that God started trimmed down even during the crisis almost
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  Speaker 1: What has g E been doing to finally reach the
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  Speaker 1: point where you can say, don't don't worry about us anymore.
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  Speaker 1: We're not doing too much banking and finance kind of
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  Speaker 1: stuff anymore, well even doing a whole lot, and G
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  Speaker 1: Capital isn't technically gone. What they're keeping are a couple
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  Speaker 1: of businesses that will support their manufacturing businesses. So for instance,
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  Speaker 1: they're going to continue doing aircraft leasing because they also
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  Speaker 1: make jet engines. So they're keeping a few things, but
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  Speaker 1: they've they've sold off the bulk of of G Capital,
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  Speaker 1: I mean, the whole range of businesses like vehicle fleet
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  Speaker 1: financing and uh, commercial real estate, you name it. Um,
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  Speaker 1: But they've been doing this. They've sold almost two hundred
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  Speaker 1: billion dollars facets in in about fifteen months. So give
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  Speaker 1: us if you could just roughly like figures of how
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  Speaker 1: big capital was and what it is now. And of
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  Speaker 1: course you point out in one of your stories, Hey,
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  Speaker 1: big victory for Jeff mL you know, the guy who's
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  Speaker 1: been trying to fill jack walts, you know, uh shoes
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  Speaker 1: for so long. Uh he was the one who build
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  Speaker 1: up all this financing, this G capital behemoth. Jeff very
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  Speaker 1: quickly said, oh no more. But what what what? What?
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  Speaker 1: What size is it? What is it now? Well? You
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  Speaker 1: know it. It used to be actually about half of
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  Speaker 1: of g I mean, um, about half of their earnings,
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  Speaker 1: about half of their sales came from from finance. And
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  Speaker 1: they announced this plan a little over a year ago
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  Speaker 1: and and have said that that they want to shrink
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  Speaker 1: it down to about ten percent of their their earnings
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  Speaker 1: and they're they're just about there. So how profitable is
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  Speaker 1: this line of business because a ten percent it's still
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  Speaker 1: a substantial part of what g E is doing. Is
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  Speaker 1: it so much that it brings in revenues and is
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  Speaker 1: a source of of earnings growth or is it more
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  Speaker 1: that it keeps the cost down for GE by having
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  Speaker 1: an arm that does some of this very important financing
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  Speaker 1: for a couple of it's very important divisions. Well, you know,
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  Speaker 1: and it's not really about profitability. Um, it's not the
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  Speaker 1: G Capital wasn't profitable. It was that it was volatile,
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  Speaker 1: and so it was it was after the financial crisis
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  Speaker 1: that a lot of in ssters really became vocal wanting
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  Speaker 1: them to uh to basically decide what they're doing with
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  Speaker 1: that and to to shrink it. And so they said
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  Speaker 1: for a number of years that they were going to
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  Speaker 1: shrink it down, but it was only uh in April
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  Speaker 1: of two thousand and fifteen that they announced a specific
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  Speaker 1: plan and said that that they're going to get rid
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  Speaker 1: of almost all of it. And now by having businesses
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  Speaker 1: finance businesses that that support their their manufacturing ones, there's
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  Speaker 1: uh more kind of synergy and and so so I
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  Speaker 1: think investors know what they're dealing with a little better.
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  Speaker 1: And in fact, your story also points out that selling
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  Speaker 1: off the bulk of the GE Capital units has been
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  Speaker 1: a really important reason why some big activist type investors
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  Speaker 1: have taken large stakes in g Yeah, yeah, that's true.
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  Speaker 1: Nelson peltz Um was the big name that came in
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  Speaker 1: last year, and he said that that that was a
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  Speaker 1: big reason why I think that that they were taking
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  Speaker 1: a look at ge earlier in the year, and and uh,
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  Speaker 1: you know, it was one it was after that that
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  Speaker 1: plan was announced that that they were actually afraid that
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  Speaker 1: maybe they had missed their chance to get in. But
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  Speaker 1: they're they're really they still saw a lot of upside
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  Speaker 1: and then they still have a pretty substantial steak. But
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  Speaker 1: but yeah, a lot of investors, um, activists and otherwise
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  Speaker 1: are are are looking at GE now because of the
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  Speaker 1: changes that they've made. So gees share price uh up
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  Speaker 1: about sixty five cents today, three dollars and cents. When
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  Speaker 1: I look at the line chart on my Bloomberg, you
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  Speaker 1: can see that it's really been stuck in a range
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  Speaker 1: over the what the past several months. I mean, it
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  Speaker 1: doesn't it doesn't get much above what thirty two dollars
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  Speaker 1: to share doesn't know what's is Jeff Emil ever going
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  Speaker 1: to be able to bust this out of the range
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  Speaker 1: to the upside and get back even to the levels
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  Speaker 1: he had years ago before the crisis. Well, you know,
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  Speaker 1: I think a lot of people will kind of give
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  Speaker 1: him a break on that, because there there's some recognition
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  Speaker 1: that maybe the it was a bit the values were
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  Speaker 1: a bit inflated at the time he took over, and
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  Speaker 1: and so um, so it was naturally going to come
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  Speaker 1: down a bit. But but actually I think there there
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  Speaker 1: really is a recognition recently that of the changes he's
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  Speaker 1: making and in the share prices starting to reflect that.
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  Speaker 1: There's some analysts that think it could double by the
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  Speaker 1: end of the decade. Oh you're that investors large and small,
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  Speaker 1: that would be nice double by the end of the decade.
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  Speaker 1: Rick Cloth, thank you so much for joining us. He
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  Speaker 1: covers ge. He's an industrial reporter for Bloomberg News. I'm
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  Speaker 1: Kathleen Hayes, my co host Pim Fox is on vacation,
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