CNBC anchors, experts, pundits
give parent company a free pass
Posted Sunday, March 1, 2009
One comment is regularly heard on CNBC.
"GE, parent company of this network."
This disclaimer is apparently ordered by lawyers who are afraid that somehow, the anchors could be accused of stock manipulation when discussing General Electric if 1) they talk too much about it; or 2) viewers aren't reminded every single time that CNBC is part of the fold.
Or maybe there's a better reason: that CNBC anchors and reporters are uncomfortable delivering negative news about their employer.
And the legal rationale gets everyone off the hook.
And even when the GE news is bad, and they're forced to discuss it on some level, they might actually praise the company anyway, as happened Friday with Jim Cramer, Erin Burnett and panelists on "Fast Money" and "The Kudlow Report."
Virtually never does an hourlong segment of programming on CNBC elapse without someone taking a dig at General Motors, how it "builds cars nobody wants," how execs have "run it into the ground," how it'll be "coming back again and again for more aid," etc. There is also plenty of criticism that goes around for the likes of ex-Lehman boss Dick Fuld, ex-Countrywide chief Angelo Mozilo, ex-Citigroup adviser Bob Rubin, and many other bankers and their companies.
Will similar comments be heard on the network about General Electric?
The early indication is: no.
This is not to say that GE's outlook is as bad as that of GM or Bank of America. (This writer is not a financial analyst and has never been trained as one.)
But by many standards, it's in the ballpark.
There are four specific reasons why business reporters and anchors would comment negatively on General Electric if it were any other company.
1. Investors are being wiped out, and this is a massive Dow component. The stock is not much higher than Bank of America, which draws enormous commentary on CNBC. If Wal-Mart, Microsoft or ExxonMobil tumbled to the $8 area, they would be widely discussed on CNBC.
2. GE is very much involved in banking activities. According to its Web site, it has a Consumer Finance division that deals in, among other subjects, "home loans, insurance, personal loans, credit cards, savings and deposits." There is also a GE Commercial Finance division that deals in, according to its Web site, "lending products, growth capital, revolving lines of credit, equipment leasing of every kind, cash flow programs, asset financing, and more." Why are financing activities of Lehman, Countrywide, Merrill, AIG and others — but not those of GE — safe to discuss on CNBC?
3. GE has a strange business model that should draw much greater scrutiny, but is rarely challenged. The same massive company that builds jet engines, washing machines and light bulbs also functions as a bank, and also runs NBC, CNBC, and all kinds of television. Is it really the best accumulation of shareowner value to have the same guys who build turbines also make home loans, choose Tim Russert's successor and pick the "Must See TV" lineup on Thursday nights?
4. CEO Jeff Immelt has experienced at least two credibility lapses in the last year — each of which was mentioned on CNBC, but not nearly in the same way Jim Cramer hammers other CEOs on his "Wall of Shame."
On April 11, 2008, GE earnings missed expectations. The stock fell $4.37, or 12.8%, to $29.81. Volume was an astonishing 366,198,000 shares (normally it was in the 30-to-40-million range). Jeffrey Immelt did take part in a morning interview on CNBC and conceded that Street expectations hadn't been guided low enough, prompting a massive one-day stock hit. He blamed an "extraordinary disruption in the capital markets in March," then he said this in the official statement on GE's Web site:
"Our primary shortfall was a decline in financial services earnings. ... Commercial Finance and GE Money remain in good shape and still earned $2.2 billion in a tough market. Our balance sheet is strong, portfolio quality is stable and we are originating business at high margins."
The other credibility issue occurred Friday, Feb. 27, 2009, when GE cut its dividend. According to a Bloomberg News story by Peter Robison and Rachel Layne, Immelt as recently as Jan. 23, 2009, insisted the dividend — yielding a staggering 10.6% at the time — was safe.
A major flip-flop in one month such as this would typically be grounds for serious criticism on CNBC. Yet in at least three instances on Friday, CNBC personalities praised the company.
Jim Cramer, in his "Stop Trading!" segment, said the dividend cut "was a positive," and "brushed off talk that the move signaled big trouble at the storied industrial conglomerate," according to a CNBC summary.
"I applaud management for doing it," Cramer said.
The reaction was similar on "Fast Money."
"This is the smartest thing they could've done," Karen Finerman said. Another panelist, Jeff Macke, said nothing about GE management, but said Warren Buffett of all people "started this entire sell-off" for buying a stake in GE (and Goldman Sachs) in early autumn at a "ridiculous rate," which Macke said "gets back to my point" — which was not that GE is doing poorly, but "kill the three major credit ratings agencies." Host Dylan Ratigan, to his credit though he made no remarks on GE management, did ask if the stock would dip to $5. "Potentially," Pete Najarian said, gingerly.
If reached for comment, Cramer and Finerman will no doubt say something like this: "I was merely commenting on the effect of the dividend cut on the prospects for the stock, not on the company in general, which for obvious legal reasons I cannot do."
Yet Finerman admitted she wouldn't buy the stock here. It fell 6.5% Friday. The market obviously thinks the stock is in bad shape and punished it, but two very gifted CNBC stock experts are just accentuating the positives.
Investor Debra Brede was asked Friday by Larry Kudlow if she would buy GE stock, and after first saying she wants companies that "pay good dividends," replied, "I sure would. ... I think they're gonna get a good shot in the arm (from) ... the stimulus package."
USA Today wrote an article mentioning Immelt and others in the Jack Welch succession hunt five years after Welch stepped down, Sept. 7, 2006. It said, "Over the last five years GE stock is down 14%. By comparison, the benchmark Standard & Poor's index of large companies is 19% higher." It said Immelt cited rising oil prices as a challenge, and quoted him as blaming stock troubles on Wall Street's disdain for size. "You've got a bit of big-company anti-sentiment," he said, or "the blue-chip blues."
According to Bloomberg, this is what Immelt said on CNBC on Jan. 23, 2009: "I wish my words could end the speculation. The facts of what we’ve done here, I think, should let investors know that we’ve got the cash, and we’ve got the operating model that’s going to secure the dividend in this environment."
This commentary is about media, not investing. CNBCfix is not out to get Immelt or GE. This writer has no position in GE shares, has never had a position in GE shares, has never shorted GE or any other single stock, has never worked for GE, does not know anyone who works for GE and does not know of anyone owning or shorting the stock.
Many — many — good people work there. This site wishes GE, its management and employees nothing but the best.
Jeffrey Immelt has been a very admired and popular person. Time magazine recently declared him one of the "world's most influential people" for 2008, under the "Builders & Titans" category.
But as CEO, the record shows poor stock performance, rationalized not by impressive action, but various excuses ranging from a purported Wall Street anti-big-company sentiment, the price of oil, the turmoil of the Bear Stearns collapse.
Under the typical standards used by CNBC reporters and anchors for evaluating companies and leaders, his reign has been unimpressive at best. Any other company in such a situation would generate extensive negative discussion on CNBC, for its eroded stock price, recent dividend reversal and unique business model that has underperformed.
None of that was heard Friday when anchor Erin Burnett interviewed Art Cashin from the NYSE floor. Cashin, a longtime NYSE pro, said of the dividend cut, perhaps completely honestly, "That's actually thought to be a good thing down here" only because "we'd rather see them keep the (AAA) rating."
Burnett responded, "It is — certainly the market — I think, uh, clearly applauding, right Art, that they're, they're re- checking in with reality..." — all while the screen next to her shows the stock down 5.71 percent on the day.
Shares are down 5%, and the company is being "clearly applauded"?
And the company is being applauded because it is "re-checking in with reality"?
Cramer was applauding, too. Lots of applause going around for a dividend cut.
Despite Cashin's comments, it says only near the bottom of the story accompanying the video clip, "Many analysts suspect the company will lose its 'AAA' rating."
Burnett found a slightly more skeptical observer in Robert Maltbie, managing director of Singular Research, who covers GE and pointed out GE's debt load "is still the same" and its "interest covers to cash flows are still ... looking to be inadequate," but then he had an excuse too for the dividend flip-flop, adding it might not be that GE poorly estimated its prospects, but that "This economy's slowing down faster than they accelerated" (apparently he meant "anticipated").
Maltbie said brightly, "The market's been pricing this in." And that's why the stock fell?
Burnett closed: "Tough message I think for everybody, but nonetheless, gotta say it like it is."
Sure.
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