Former GE CEO Welch Advises Immelt to Manipulate Earnings

Jack Welch was on CNBC this morning criticizing Immelt, claiming that he had a "credibility issue." Welch asserts that Immelt promised to deliver strong earnings three weeks ago and he didn't deliver on that promise. I believe what Welch is saying is that Immelt should have used some fancy accounting tricks to artificially boost earnings in order to satisfy Wall Street analysts, just like Welch did when he was CEO. Ever wonder how GE beat earnings by a penny for many years under Welch's reign and achieved spectacular returns? It under-reserved insurance reserves for years, thus artificially boosting earnings. Welch conveniently retired, taking an egregious retirement package which became public during divorce proceedings from his second wife who he left for a much younger woman. Immelt then had to boost reserves to an adequate level in order to sell the insurance arm, basically wiping out most of the earnings gains from Jack Welch's last five years in office.

Although GE's earnings were a disappointment, and Immelt should've been more conservative when giving guidance, he did the right thing by reporting lousy earnings. I'm not a huge fan of GE in particular, but I actually believe that Immelt is a much better CEO than Welch ever was. Welch was lucky, and crafty. In my opinion, he is also mostly responsible for the absurd CEO packages awarded to CEOs for doing mediocre work. When GE was picking a successor for Welch, Welch made certain all three contenders for his job received enormous retention bonuses at GE, thus forcing other companies who wanted to hire the losers to offer absurd guarantees. Who was one of those contenders? Our friend Robert Nardinelli, who was recently forced out of Home Depot with $200 million in pay that he felt he deserved. Shareholders and the board disagreed. Maybe it is Immelt who should be giving Welch some much-needed advice: Get a hobby and stop telling me how to do my job.

Goldman's Blankfein Says End to Credit Crisis is Near..

Blankfein claims we are in the third or fourth quarter of the credit crisis, although he hedges by saying that the fourth quarter of most sports events tends to be the longest. Separately, yet totally related, Goldman punted $500 million of Chrysler bonds for $.63. So, let me get this straight, the credit crisis is almost over, yet GS is puking bonds at $.63. That's a mighty big discount if this credit crisis is really just a mark-to-market phenomenon and not indicative of future defaults. In Blankfein's defense, it is his job as CEO to try restore confidence at a meeting of GS shareholders. Furthermore, I'm certain that every dealer involved in the bond syndication of this deal knew it was a turkey at the time, but the capital markets shut down abruptly before they could offload any of the bonds.

Just how big of a turkey this deal would turn out to be didn't start to dawn on anyone until, oh I don't know, maybe three days after the deal closed. Was it the $2.7 billion in losses that Chrysler reported immediately following the buyout that gave it away? Or maybe it was the move by Cerberus, the PE firm who took Chrysler private, to hire Robert Nardinelli, a non-car-industry executive to run Chrysler? Robert Nardinelli, for those who don't recall, is the genius who was sacked from Home Depot after six years of below average performance (the stock declined while rival Lowe's rose significantly), because he wouldn't take a pay cut. I guess no CEO can be expected to live off of less than $200 million. At any rate, if I were GS, I'd be looking to hit the next bid behind that $.63...