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Ramifications of GE exiting the finance market
General Electric is exiting from its finance business by shedding GE Capital. Separately, GE is repatriating back $35 billion of its foreign earnings, which will cost it $6 billion in taxes back home in the US
 
On 10th April, General Electric (GE), the venerable company founded by the Light Bulb inventor Thomas Alva Edison, announced that it was exiting finance business, by shedding GE Capital.
 
While the official reason GE gave for this is that Investors don't like conglomerates, there has been much speculation about the true reason for GE to shed GE Capital. 
 
First off, a brief look back at the history of GE's acquisitions in the last 30 years. During Jack Welch's 20-year stint at GE, close to 80% of his acquisitions were finance companies. The reasoning given was that finance companies earned more per employee and therefore made GE look more profitable. 
 
GE also announced one of the largest stock buybacks in history, planning to buy up $80 billion. Little wonder that the stock zoomed up by 10%! 
 
So why is GE getting out of such a lucrative market? Is the investor bubble about to burst again? Or is the real reason due to the fact that Dodd-Frank act requires GE Capital to maintain higher reserves since it was deemed a systemic unit, meaning its failure can have far reaching consequences? 
 
If GE does not provide the financing to highly burdened developing countries (HBDC is a new acronym for the Third World) to buy their aircraft engines or nuclear reactors, who will? 
 
Is this a one-off phenomenon or will automakers such as Ford and General Motors follow suit? After all, GM has just emerged from Chapter 11 and Ford came perilously close to going bankrupt and neither can afford to take a hit from their financing arms.
 
Yahoo News has a different take on GE and thinks that GE has been under-owned by institutional investors and that will change now. GE's dividend is currently around 3% and it would be interesting to see if this gets raised too, which will be good news for the long suffering investor.
 
In another unexpected move, GE is repatriating back $35 billion of its foreign earnings, which will cost GE $6 billion in taxes back home. 
 
President Barack Obama has been criticising US companies for shifting their operations overseas to avoid paying taxes in the country and perhaps, GE felt that it was a patriotic thing to do.
 
GE has bought back stock several times in the past to shore up its stock price, only to see it fall further. Let us hope that history does not repeat itself, in this case.

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COMMENTS

Navin

2 years ago

Very informative and precise.

Aditya G

2 years ago

Tough to say why GE is exiting this market, but Immelt has always known to be a smart & astute manager, albeit low profile (especially when compared to his predecessor). Whatever the share price, the implications of this move, on itself and the broader credit/finance market, will be known over the next decade or so.

Cheers,
Aditya

Integrated energy policy being developed: NITI Aayog

While the country's installed power generation capacity is around 250,000 MW from all sources, the government has set a target of generating 175,000 MW from renewable sources by 2022, including 100,000 MW from solar power

 

The NITI Aayog will soon come out with an integrated policy that would be the blueprint to help meet the country's massive demand for energy, it was announced on Monday.
 
"We will have a national energy policy. We are in discussions with our colleagues in different ministries," NITI Aayog vice chairman Arvind Panagariya told reporters here.
 
The various related ministries like power, coal and oil would be consulted while framing the policy, he added.
 
While the country's installed power generation capacity is around 250,000 MW from all sources, the government has set a target of generating 175,000 MW from renewable sources by 2022, including 100,000 MW from solar power.
 
"An integrated energy policy for the country is not a utopia. For this we will consult all statkeholders as also take note of India's energy future," said Petroleum Minister Dharmendra Pradhan, who also addressed media persons on the subject.

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Australian newspapers launch survival campaign

Newspaper advertising revenue has fallen dramatically for years and with digital ads worth only a small fraction of print ones, publishers feel they need to be proactive in promoting the medium

 

Australia's biggest media companies are joining forces to save their printed newspapers from extinction as increased online media has caused circulation and advertising to plummet in recent years.
 
APN News and Media, Fairfax, News Corp, and Seven West have launched a "Influential by Nature" pro-newspaper campaign to convince advertisers to continue the circulation of the print editions, Xinhua news agency reported.
 
Newspaper advertising revenue has fallen dramatically for years and with digital ads worth only a small fraction of print ones, publishers feel they need to be proactive in promoting the medium.
 
In 2014, newspapers lost A$127 million ($96 million) in ad revenue compared to 2013 with newspapers in city areas losing the most -- down 16 percent year-on-year, latest figures revealed.
 
This year, Goldman Sachs estimated that print's share of the Australian advertising market will crash from about 20 percent to 1.2 percent by 2025.
 
The media companies say newspapers are better influencers than other media because they are "local, topical and relevant". 
 

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