Mark McHugh

Can You say ‘Fiduciary’?

In Open Thread, stocks finance, Uncategorized on Sunday, March 8, 2009 at 3:59 pm

immeltcapture

It seems that corporate America is in need of a vocabulary lesson:

From West’s Encyclopedia of American Law via Answers.com

Fiduciary (fidōō′shē-erē) n.

An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit……

…..A fiduciary relationship extends to every possible case in which one side places confidence in the other and such confidence is accepted; this causes dependence by the one individual and influence by the other……

I can’t link to an SEC or Finra or NYSE web page that clearly defines the CEO’s fiduciary obligations to shareholders (because I can’t find them, or they don’t exist), but I’m pretty sure that when you say your dividend is good to go, then cut it a month later you’ve breached the trust the shareholders have placed in you.

more…….

Background

Here’s the money quote from http://www.gereports.com/ge-dividend-plan-remains-unchanged/

On Sept. 25, GE stated that its Board of Directors had approved management’s plan to maintain GE’s quarterly dividend of $0.31 per share, totaling $1.24 per share annually, through the end of 2009. That plan is unchanged.

Then…..

General Electric CEO Jeffrey Immelt in an  interview with the Wall Street Journal’s Alan Murray (posted Feb 5, 2009):(I still haven’t figured out how to embed video, so click on Jeffy’s picture above for the full video)

From the interview:

Murray: I think last year, just about all your cash flow went to pay dividends..(Immelt shakes head)…..No?.. so…but explain why it’s so important to you to not cut the dividend, when you’ve see your earnings cut by…

Immelt:You know, again, I think the company has 60 billion dollars of cash on the balance sheet.  Think about…we run, like, a hundred billion industrial company. It has margin rates of close to, let’s say 17-18 percent that only take 2 billion dollars of capital, you know, 2 billion dollars of P and E (???).  So, we have the best cash flowing set of industrial businesses in the world.  We’re strong, visible, service revenues…things like that.  So, I think it’s just a question of, ya know, we’ve got the cash flow to pay the dividend, uh,  and it’s just a question of capital allocation, and ya know, judgments around what we think’s in the best interest of investors, and ya know, again, we’ve come out where we’ve come out.

Murray: You don’t think it should fluctuate with the levels of earnings?

Immelt: Look, I…I just think, ya know, the decision we made for 2009 was to position it in a way we’ve positioned it and, ya know, we’ve got the cash………

So the dividend’s a cinch and you’re flush with cash ($60 Billion I think you said), huh?

Strange things afoot at Yahoo finance…..

First of all, I have no interest in GE stock, long or short,  but their disgraceful coverage (or lack thereof) of the unfolding financial crisis has raised my ire.  Upon further investigation, I learned that GE is going to be either the biggest banckruptcy or the biggest bailout in the history of the world.  When GE reported 4th quarter earnings, I took a look at the key statistics at Yahoo finance, which prompted me to write the ground-breaking post GE will change ticker to HFS (which still hasn’t been nominated for any awards).  The information I posted came straight from yahoo, GE had only $12.3B in cash, along with over half a Trillion in debt ($1.6 million in debt per employee).  The very next day the WSJ video posted at The Big Picture, I challenged the $60B in cash in the comments section.  Now, sometime between then and now yahoo, ya know, revised how much cash they say GE has to $48.19B (which by the way, is still not $60B).  That number seems to have been carried over from the “cash and cash equivalents” column from the balance sheet, so some $35B in “equivalents”, now count as cash.  Now, you’d think the Wayback Machine would be scouring yahoo finance pretty regularly, right?  Wrong.  Trust me, they changed it.

February 27 – GE announces 67% dividend cut

GE waited until a Friday afternoon when the four horsemen of the Apocalypse were out on manuevers to announce the cut.  Elizabeth Trotta did a nice recap of the day here.  I thought the timing was weaslely.

March 4 – “We don’t need to raise capital”

http://www.nbcwashington.com/news/business/GE_Says_No_Need_To_Raise_Capital_in_Near_Term.html

March 9 – I guess they did this just for fun……..

GE Capital Hires Banks to Sell Government-Backed Debt (Update5)

my favorite part (from the article):

Citigroup Inc., Credit Suisse Group AG, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley are arranging the sale……

The usual suspects are going to help GE issue $8B in government-backed debt.  So, just to keep this straight in my own head…This swimmin’ in cash industrial giant who “doesn’t need capital”  is selling another $8B in debt (and it’s going to be backed by the Government????), even after cutting the dividend that they said they would keep.

And. please don’t forget…….

GE chairman and CEO Jeffrey Immelt is a Class B Director of the New York Federal Reserve.  Class B Directors are elected by member banks to represent the public (you can’t make this stuff up).  As Richard Daughty (Mogambo Guru) would say, We are so totally freaking doomed……

Conclusion:

I may be the last person alive on planet earth who still recalls the word “Fiduciary”, and although I would never use this word to describe Jeffrey Immelt, there is another doosh sounding word I would.  Imagination at work, doesn’t really begin to describe it.

Previously:

A great article by James Quinn that everyone should read.

http://seekingalpha.com/article/106445-general-electric-genuine-risk-of-collapse?source=commenter

By me:

https://acrossthestreetnet.wordpress.com/2009/01/28/erin-burnett-shithead-of-the-week/

https://acrossthestreetnet.wordpress.com/2009/02/04/ge-will-change-ticker-hfs/

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