In this article from NYT, General Electric's plans to reorganize as a result of the 2008 financial crisis is discussed. The company - regarded as a financial institution that is too big to fail - plans to sell off most of its finance arm over the next two years, thus redefining the company as it seeks transformation from the financial crisis. This has been an ongoing process and is one of several moves the company has made since it was so greatly impacted from the crisis.
This change could release GE from on of it's greatest burdens: the regulatory requirements that come along with the company being regarded as an institution that is too big to fail. Investor's are happy about the move, and GE's shares actually went up 7% on Friday as a result. A lot of the article outlines GE's steps in making this transition, and the rate at which it will occur. The vibe I got from the article is that this is a good move from the company (based on its current situation), and shareholders could greatly benefit.
Knowing what we know about institutions being too big to fail and GE's attempt to escape this burden, what are your thoughts on this change for GE in its post-crisis aftermath?
Since stock increased by 7%, I think GE is making a positive change that can in fact increase market value of the company. 7% may not seem like a lot but if you are a huge corporation such as GE that equates to hundreds of millions in Stock value. However I wouldn't rule out failure or bankruptcy just cause of sheer size.
ReplyDeleteThis looks like a good move by GE to me. This article reminded me of an idea in the book "Good to Great" by Jim Collins that I read for Principles of Management. The "Hedgehog Concept" states that companies should only do 1) what they can be great at, 2) Can make money at, and 3) Have a passion for doing. According to Collins, "hedgehog companies" know how to do one thing and are great at it rather than doing many things but not consistently. GE seems to be applying this concept by selling off the financial branch and sticking to its manufacturing roots. Not only will this be good for the GE's business, but it will be good for the economy as a whole by reducing the size of this "too big to fail" company's influence.
ReplyDeleteIt seems like GE made a wise decision since the result of selling their finance arms lead to a 7% increase in stocks. Like Philip said, 7% change in stocks for a large company like GE is a large market value change. Also like Phil stated, GE still has the possibility for bankruptcy during future financial crisis. As we learned in the last crisis, a company can never be "too large to fail".
ReplyDeleteI think the most important thing this did for GE was eliminate potential risk. Another financial crisis could have possibly led to a need for additional funds. Since GE Capital is a smaller portion of the total pot now, the subtraction of risk and focus on their current assets as Kate said will probably be beneficial for GE
ReplyDeleteA 7% increase in stock for a company like GE is absolutely monstrous. Apparently from the shareholders point of view, this seems like a good call. And if this move is something that GE feels will help shield them from future financial crises, then it seems like a step right direction to me.
ReplyDeleteI agree with all of the comments made above, the fact that the shareholders responded so positively and immediately is a good sign for GE. I think it is also very encouraging that companies as large as GE are attempting to learn from the financial crisis and minimize risk if another one was to occur. When major companies were bailed out during the financial crisis there was complaint that it set a poor standard and showed these companies that they would not be allowed to fail. GE, however, instead of relying on the fact that they may be bailed out, is taking the opposite approach and restructuring.
ReplyDeleteI also have to agree with the comments made above that a 7% increase in GE's shares is a great sign that investors believe that GE is making the correct decision to help itself both in the present as well as preventing themselves from having the same issues they faced during the previous financial crisis. I have to agree with previous statements that I believe that no company is "too big to fail" especially after looking at our previous financial crisis.
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