Power Failure: The Rise and Fall of an American Icon

by William D. Cohan

GE had raised $15 billion of new equity in about twenty-four hours, a few days after telling investors it would do no such thing.

October 14 turned out to be a momentous day for Wall Street—and for GE. That was when the federal government—the Fed, the Treasury, the New York Federal Reserve Bank, and the FDIC, the Federal Deposit Insurance Corporation—launched a coordinated multibillion-dollar rescue for the country’s biggest banks.

Temporary Liquidity Guarantee Program, or TLGP.

the miracle of fractional banking.

GE, one of the country’s largest financial institutions, was not included in either the TARP or the DGP. To federal regulators it was not a bank.

Being excluded from the DGP, however, posed an existential risk to GE, a fact Jeff and his most senior executives realized immediately after the FDIC announced the program.

The problem became for GE that when the senior debt of its competitors suddenly had a government guarantee, there was no way investors would buy GE’s paper if it didn’t have a guarantee, too.

the argument that GE was too interconnected to fail, the same argument that Wall Street had made so successfully to get its bailout. It turned out that GE Capital (and thus GE) was every bit as essential to the proper functioning of the capital markets, but because it was an unregulated nonbank bank, essentially it had been overlooked in the madness of the unfolding crisis.

Over the next three weeks, Denniston and Rodge Cohen, on behalf of GE, worked with the Treasury and the FDIC to dial GE into the TLGP. Treasury officials worked closely with the FDIC to make it possible for GE to partake of the DGC.

Thanks to Bair, on November 12, GE Capital had access to the DGC—after paying $2 billion in fees to get it—and turned out to be its second-biggest user, after Citigroup, issuing some $131 billion of debt with an FDIC guarantee, none of which required the FDIC to make good on the guarantee.

an intense journey into yourself,”

August 2009, when the SEC finally settled the question of whether GE had manipulated its earnings. As part of the settlement, GE agreed to pay a $50 million fine for allegedly having “misled investors by reporting materially false and misleading results in its financial statements,” including using “improper accounting methods to increase its reported earnings and revenues and [to] avoid reporting negative financial results.” In other words, the SEC was alleging—and GE was agreeing to pay $50 million to settle, after incurring some $200 million in professional fees along the way—the longtime concern that GE was manipulating its earnings to ensure a steadily increasing stream of profits, quarter after quarter (the very assertion that Jack told me not to fall for).

St. Sebastian.

And would GE still be able to maintain its annual $1.24-a-share dividend for shareholders, costing the company more than $13 billion a year? That money could perhaps better be spent elsewhere. Of course, cutting the GE dividend—if he did it—would be another black mark for Jeff, since the company had been paying dividends since 1899 and had cut it only once, in 1938.

also knew how well the industrial side of the business was doing. It turned out that GE’s nonfinancial businesses had record cash flow in 2009.

Michelle Caruso-Cabrera asked whether Jeff’s credibility had been hurt by having had to reverse himself on first-quarter-2008 earnings, the statement he made in September 2008 about GE not needing more equity, and the early-2009 statement about the dividend being safe.

Before March was out, both S&P and Moody’s had stripped GE of its AAA credit rating, forever altering GE’s business model, or at least the one that relied on GE Capital’s ability to arbitrage GE’s access to cheap money and then to lend it out expensively to a hodgepodge of corporate borrowers.

But there was no synergy with the rest of GE.

After all, RCA was a business that GE had started after World War I, then been forced to divest in the 1930s, and that Jack had then bought back in 1986 and made into one of the most successful M&A deals of all time.

The deal GE cut with Comcast was incredibly complex.

And then there was the brutal negotiation with Vivendi, which still owned 20 percent of NBCU and which received around $5.8 billion for its stake, in line with the deal’s overall $30 billion price tag.

“The game here was to keep GE, to keep Connecticut, happy,”

And then GE—and I fault Immelt on this—they never had the intellectual curiosity or the drive to really understand the businesses.”

Comcast agreed to pay GE about $18 billion for its remaining 49 percent stake in the business, including the real estate in 30 Rock.

We bought high and sold low. I can’t win that argument.”

But the fact that Comcast had increased the value of NBCU substantially—to around $100 billion, from the initial headline valuation of $30 billion—irked Jeff.

“The guy just told me that all he gives a shit about is how we talk about him, and he didn’t run an auction. What the hell?” He went on, “And then I was like, ‘Fuck him,’ you know? And I never bad-mouthed him, but at that point I was like, ‘I can’t win with this guy. All he wants us to do is just embellish his image.’ ”

we saw firsthand how these guys ran stuff, and they screwed this company up like you can’t believe and then sold it for a third of what it was worth and then got pissed off because they did it and we kind of exposed them.

As his tenth anniversary as CEO of GE approached, Jeff embarked on a number of new initiatives to modernize GE, many of which the GE “antibodies” (as he called the entrenched forces at the company) rejected.

The problem was that the GGO was quickly viewed within GE as another example of Jeff “not listening” to his most senior executives before deciding to commit the company to a new, expensive global initiative. Many believed GE was already global in its mindset and felt that the GGO added a layer of unwieldy bureaucracy to what was already a plenty complicated company.

But many of his direct reports saw GGO as another of Jeff’s flaws as a leader.

But he was national sales manager, parading, masquerading as a CEO.”

“That guy is a nut job,” she said. “He doesn’t listen to anything. It’s unbelievable.”

“What an asshole. That guy just talked at me the whole time. He didn’t listen to one thing I said. He didn’t react to one thing I said. He doesn’t listen to anybody.” Jack was upset. “I just didn’t understand the person,” he’d tell people about Jeff.

“These businesses are complicated. They’re big. They’re global. And you’re going to put people on top of the businesses who do not have the domain knowledge of those businesses to make these calls.” Krenicki believed GGO would dilute materially the deep technological and commercial expertise that had been built up in individual businesses about GE’s sophisticated customers, such as ExxonMobil and Tokyo Electric, and the nuances and subtleties of the relationships and risk-management processes that the GE executives in the business units had developed over long periods of time.

But Jack told me that Jeff got rid of Krenicki because he threatened Jeff. “Everyone was saying he was good,” Jack said about Krenicki. “Jeff didn’t want anybody around there that had any stature and could fight him. I wanted every fucking smart guy I could get my hands on.”

But one test of leadership often becomes how much dissent a leader can tolerate, or encourage, before jettisoning those who are sowing the seeds of resentment.

Such protection, including the requisite fleet of private jets, had by the twenty-first century become de rigueur among a wide swath of corporate America and the Wall Street crowd. GE, of course, had been among the earliest adopters of the private-jet fleet to ferry around corporate executives quickly, efficiently, securely, and discreetly.

If you want to change big institutions, you’ve got to have incredible persistence and constancy of purpose.

The executives inside the power businesses did not want to be in the construction-management business. It was low margin, and if you screwed up, you could end up owing a ton of money.

“Your energy industrial business is highly complex, technologically intense, and your customers are in emerging markets that can’t pay you, and it’s shrinking,” one of them told me. “That’s your business.”

Suddenly, Jeff was

referring to GE Capital as a “specialty finance division”? This was an utter misrepresentation of the fact that the Federal Reserve had declared it a SIFI and that the business was, in 2013, still the single largest generator of GE’s segment profits, at $8.3 billion. (The next closest was Power and Water, at nearly $5 billion in profit.) The analysts pushed backed on Jeff’s disingenuous use of the term “specialty finance division.”

The Alstom acquisition had been the first shot in a one-two combination that would finally allow Jeff to remake GE into a company whose profitability was less dependent on GE Capital and more reliant on power, medical, jet engines, and other traditional businesses. The second shot would involve greatly reducing GE Capital itself,

which had long been a thorn in his side, even more so after it had become a SIFI during the 2008 financial crisis.

But being a SIFI and having GE Capital regulated by the Federal Reserve meant there was an immense amount of time, energy, and resources that went into complying with the Fed.

For a massive financial services company that had been essentially unregulated for decades to suddenly find itself subject to nearly daily oversight by the Federal Reserve, one of the most powerful financial institutions in the world, was not only a huge culture shock but also required a sea change of behavior in the GE corporate offices in southern Connecticut.

“All of us chafed under the weight of their processes,” Jeff said. He quickly grew frustrated not only by the Fed’s intrusion but also by the shocking annual cost—around $2 billion—of regulatory compliance, given the increased head count, capital, and IT infrastructure required. “We added two thousand people,”

By early 2015, GE had added more than five thousand people to grapple with the new regulatory regime.

“When a cop pulls you over, you don’t tell him he’s stupid. When an examiner tells you that you need to do something different, you don’t tell them they’re idiots. You just do it. That is your new reality.”