GE’s Pension Time Bomb: $31 Billion Shortfall… And Rising
by Mike Shedlock via MishTalk.com,
ZeroHedge.com
Jun 20, 2017
GE has the largest pension shortfall in the S&P 500. It’s a $31 Billion Balance Sheet Hole That Keeps Growing.
At $31 billion, GE’s pension shortfall is the biggest among S&P 500 companies and 50 percent greater than any other corporation in the U.S. It’s a deficit that has swelled in recent years as Immelt spent more than $45 billion on share buybacks to win over Wall Street and pacify activists like Nelson Peltz.
In the last two years, GE spent little more than $2 billion on total pension contributions, which hasn’t been nearly enough to keep the overall shortfall from widening. (The company also curtailed capital investments.) At the end of last year, its pension had $94 billion in obligations but only $63 billion in assets — a funding ratio of 67 percent.
In addition to the “anemic” free cash flow from its industrial businesses, GE’s pension hole and its indebtedness helped subtract roughly $8 a share from its equity value, based on a sum-of-the-parts analysis by Cowen & Co. That’s equal to $70 billion in market capitalization. To put it another way, the discount amounts to eight years of per-share earnings based on 2016 results.
The company has the largest projected benefit obligation of any S&P 500 member and among the top 10, no one has a lower funding ratio.
Because interest rates are still relatively low, it’s possible for GE to borrow money it needs to cover its shortfall. Verizon Communications Inc. and FedEx Corp. sold bonds this year to do just that.
Default Danger
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