New GE CEO Has An Uphill Battle, Needs To Shrink Power

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. General Electric shocking up markets today, ousting John Flannery after just a year of his tenure there as chief executive and replacing him with the renowned turnaround experts, shares surging the most in nine years, up more than twelve The question is what is this new CEO going to do and will it be enough to fix a situation that seems to be growing increasingly urgent. Karen, youveil Heart joining us

now senior industrials analysts for Bloomberg Intelligence. Karen, thank you so much for being here. It seems like this move is almost one of desperation, saying we need to fix something, and we need to fix something fast. I think it is. I don't think this was a plan. You know, a plan. They put Larry on the board, Larry cop on the board. I think you know as a part partially credibility, partially because he's a great operating guy, and they and they's

a new CEO. The new CEO. Yeah, um and uh, I think this was as they just had to get something done quickly. And he's a very good operator. He's a lot of credibility on the street because of his history. And I just felt I just think they gave up on what if you got to if let's say, Larry Cop called Karen you will heart and said, tell me, based on your experience covering GE, what do you think is the most important thing I should focus on right now? Well,

clearly it's it's Power. But um, I was a little disturbed. Um that he that Flannery was going to make Power the largest business in GE with an operating margin goal of ten percent. You know that is not a solid plan. Um, and I think, uh, you know, a ten percent operating margin company, you need a much higher you know, that's not going to please shareholders. Um. Larry Culp came in, dannaher was at ten percent, it was but don margin money left. I mean, uh, you know, so I said

that is not going to be enough. He's got to shrink Power quickly. Um, I think he's got to sell off pieces of powers and and that's what his iterative process. Dana her business systems does get down to the granular level. And I think he's gonna look at that not as one business, but as many businesses. Try to stop the bleeding as much as he can there. I think he may rethink some of those assets sales like healthcare. Uh, you know, and because that is a good business that

they were getting rid of because they needed cash. Um, I think he'll be able to pull cash out of the different businesses. There's a lot of fategy and and uh, Danna her Business Systems help solve some of those problems. So one thing that we were talking about earlier, so that even though you're seeing that rally in GES shares, you're not seeing a commensurate rally in the company's bonds. And they have a lot of them. They have more

than a hundred and twelve billion dollars of debt. Uh, you're not seeing the same pop. I'm just wondering a much smaller General Electric, how will they right size their debt portfolio right now? That's massive, h That's that's uh, you know, that's a good question. He's got to generate uh, you know cash to be able to you know, retire it, and that's going to be his number one priority. I think, uh,

you take that. His number one priority is going to be dealing with the massive amount of debt while also shrinking the company and making sure that it revives it. Yes, and and the rate I mean, I'm not I'm not, I'm not the credit guy, of course, but but the rating was always vulnerable and now they just took twenty three billion dollars in the good will, you know, wrote down the asset value of the company quite substantially. So

that should have some implications too. Although that's a good thing, I think. Is is it a job that Larry Couple find a little easy because he is not a ge veteran. I think the fresh look it will make it easier for him to take, you know, take some you know, bigger actions. One of the negatives against Flannery was, yes, he was a fresh um you know, uh new CEO, but he was ge generated, if you will, And so

this gives him a chance. I think the one thing that's most interesting is he was a builder of business, right and now he's got to be a deconstructor of a very large business. So, um, it's gonna be a different kind of challenge. I think one thing I'm struck by is that g E is tasked with the shrinking dramatically and quickly at a time when they're increasing trade

tensions between the U S and China. How does that affect the valuations that they're going to be able to realize when they do try to go and sell quickly. That that's a good question, um. I think a lot of their businesses, like the healthcare business for example, a lot of the businesses are producing local you know, they're operating locally. Um. And you haven't really seen multiples come down that much in M and A so um so far with the trade tension. So I don't wouldn't put

that on the top of the list of concerns. The potential liabilities that g E still faces because of payouts having to do with pensions and so on. What can you tell us there the long the pension? You know, hey, they're gonna lucky a little bit on the pension because interest rates are going up and and and they already have lowered the pension somewhat as a result of that. In some cash they put in. They're putting six billion dollars into it. That's gonna be less of a problem.

I think the concern is what else is in that black hole, like the long term liability that no one expected, right yeah, So I think that's the concern, Like what else is in that ge credit? Um? I think pension. They're chipping away at it, and they're gonna get lucky with were interest rates are going and are expected to go just twenty seconds. I'm just wondering, how does it affect g E that they're going to basically have forced sales? Does that reduce the prices that people will be willing

to offer them? I well, you know, so far what they've sold, they actually did a little bit better than expected on almost all of them. Um. It's a hot market for for for M and A. So UM, I don't think they'll they'll do something in desperation. He's a methodical guy. It's going to be interesting because he has to move fast, but he also doesn't want to make, you know, mistakes. It's it's it's not an easy challenge.

I mean, right now the pop is you know, everyone's excited about him, but it's gonna be an uphill battle for him to well. Inteed, looking at the shares of General Electric, they are higher right now by more than twelve percent. Our thanks to Karen uble Hart, Senior Analyst for Machinery and All Things ge at Bloomberg Intelligence. Last week was dominated by the Brett Kavanaught hearings, where he addressed some allegations of sexual misconduct when he was in

high school. Joining us now Aspreneurs Senior editor of the National View, also a Bloomberg opinion columnist. I am so glad that you're with us for MESH, because you've been supporting Brett Kavanaugh, and we've had people on who have sort of been very critical of his performance last week. What was your impression, not of the allegations of sexual misconduct, but of his actual comportment in front of the Senate

Judiciary Committee. I think he acted like somebody who believes he's innocent and is genuinely outraged by the allegations against him, and showed the kind of righteous indignation um that somebody in that situation would expect. The thing is guilty. People also often have the same affect, uh, And we can't really infer something one way or the other from just the way he comported himself well, but but putting aside the sexual allegations altogether, I guess that there's one question.

Especially because he brought up, you know, sort of very partisan comments about the Democratic plot against him, and because he was cutting off senators, people are saying that that shows a lack of respective procedure that's sort of important for the judicial system. So I guess I'm wondering what

your senses of that. Yes, so people have been saying, you know, he lacks a usual temperament and even saying that he's he disqualified himself for the job just by his behavior, and I think that, Look, he's been on the he's been on an important court for more than a decade now, and the judicial temperament that one is seeking is the is the temperament of a person as a judge, not as a quasi defendant, which is what

he is in this instance. You know, Look, judges are asked to recuse themselves when their personal interests are on the line. This is the case where he is being a two very very serious offenses, and I think it would be foolish to expect him to be sort of weighing the charges against him the way a judge would be weighing the charges against somebody else. Do you believe that, if confirmed, Judge Kavanaugh would make a good Justice of

the Supreme Court? I do. I think he is extremely well qualified, has been a solid judge on the d C circuit um. You know. I the real question in my mind has been, uh, whether we would get evidence which suggested that he was guilty of some of these very serious offenses that have been charged against him. If that were the case, then I would say he would

be disqualified. But hey, I don't think that that evidence has materialized, and be I think absent such evidence, UM, he is an extraordinarily well qualified nominee to Supreme Court. You believe that Merrick Garland would have made a good Justice of the Supreme Court? I do. I think that he would have been at you know, perfectly well qualified nominee um easily um of the same caliber as Stephen Brier and Sonya Soto mayor uh and so forth, and and would have very likely voted with them the vast

majority of the time. So given that, do you in any way sort of begrudge the political nature of what these hearings have become because of that situation. I certainly understand many of the passions that Senate Democrats have brought to this, which are not limited to anger over the Garland situation, but also to their genuine belief in many cases in Kavanaugh's guilt of these charges, and their passionate

over issues like Roe v. Wade. Um. When it comes to specifically the Garlands situation, I think, look, a Senate Senate Democrats are perfectly within their rights if they wish to not move ahead on the Kavanaugh nomination, if they wish to vote him down, um, if they wish to refuse to meet him the way that Republicans refused to

meet even with Merrick Garland. Uh. But of course, you know, if you believe that what the way they're acting with respect of these charges is unjustified, I think it's very different to assassinate a man's character. Um. That didn't happen with Judge Garland, which is a good thing. Uh. And I do believe that there has been some reckless behavior

with respect to Judge Kavanaugh. Hold on a second reckless behavior, I want to home in on that, because what exactly are you talking about considering the fact that it seemed like it was only that a Washington Post reporter reached out to Christine Forward, that she came forward with her story, and otherwise there was sort of she asked for for privacy. She didn't want these made public, these allegations. Well, there are a couple of things. First of all, so how

did the Washington Post get tipped off in the first place? Two? Reach out? Uh? And you know, if you listen to um, not just the Post, but the Intercept reporter, um it, he's ruled out pretty much everybody but a Democratic congresswoman Anna su. But beyond that, you've got Democratic senators who are saying um and said in advance and okay, let me let me back up a second. I think it would have been I think it was wrong for people

to pre judge on either side of this issue. And some Republicans said, before they heard either of them, they were still with Kavanaugh, And some Democratic senators said, before they heard either of them, they believed he was guilty. That's what Senator Blumenthall said, for example. So Senator her

own No basically said the higher male sex should shut up, right. Okay, So this is incredibly emotionally charged on all sides, both from a political perspective as well as just an emotional perspective. I'm wondering from from your point of view as a judicial expert, someone who's been following the courts for your lifetime, I'm just wondering how this whole process will affect the credibility of the Supreme Court going forward. Well, it is certainly not the kind of thing that is going to

raise public esteem for the courts. And I suspect that there's not a single justice as the Supreme Court from Sonya Soto, mayor on the left, to Clarence Thomas on the right, who looked at the spectacle in the Senate over the last week and said, you know, we really need to bring cameras into our courtroom. Um. But the emotions of the moment do often passed. So there were a lot of emotions on both sides surrounding the Clarence

Thomas confirmation. You admittedly those less serious charges at that time, and basically that didn't affect the long run, uh public sentiment towards the court. Um. So we we I think we have to get a little bit of distance from these events before we figure that out. All right, We're gonna leave it there, but thanks very much for being

with us. Remesh Panuru is a senior editor at The National Review and a Bloomberg opinion columnist, speaking on the ongoing h I Guess investigation into Brett Kavanaugh and the allegations of sexual assault and the potential for Brett Kavanaugh's nomination to the Supreme Court to go to the full Senate for a vote. We are awaiting comments from President Trump, who will be speaking about the renegotiated NAFTA agreements in the Rose Garden at the White House, which will occur momentarily.

In the meantime, I want to bring in Josh Glue. He is White House editor for Bloomberg. Josh, what are we expecting to hear from President Trump right now? Well, we're I think we're expecting to uh hear about what a great achievement this was. You know, he's been putting

this up. It's a He's gotten a lot of criticism for his stance on NAFTA, and there were a lot of doubts that anything would come through, and he's going to portray this as a huge victory, even though really money of the revisions they're actually making are quite modest. So it's unclear what this means for him politically, but he's gonna try and make the most of it for sure. Josh. Part of the deal has to do with Canada's dairy

market for US farmers. Correct. That's right. That's been a major sticking point the negotiations for uh for some time. And President Trump, on his typical stump piece of stump speeches, will go out and talk about that that uh, you know, American product, American dairy products in Canada more expensive due to tariffs, uh and calling it very unfair. You know, he is. The farmers are really a group that's been you know, stuck in the middle of all this his

trade policy. Um, and they've been targeted by China with the retaliatory tariffs, and uh, he really needed to do something here to reach out to people who are really his core constituency. All right, So, Josh, what I would love to hear from you is what the shakeout is From the analysts that have been passing through the details since they were released of this renegotiated agreement. Do people think that it will increase production even at the margins

in the US and will increase wages. Do they think that it will shift more production elsewhere? What's the what's sort of the breakdown here? Well, I actually I think the jury is still out on that. We Uh it's a bit early to say, and I think you're it's right now, You're gonna have to tease apart what we're what's uh, what's an analysis and what's more of a political thing, because right now in Washington, the President is going to put as as the heart of political spin

on it as he can. Um, these are these are things he's been you know, Democrats have tried to break him over the coals on these and uh, even many people in his own party have been unsupportive of the stance. So uh, it's likely that, as with most or any disruption to a trade agreement, they are gonna be winners and losers. And um, we're gonna have to see how that shakes out. But the analysis that I've seen so far is not that he has achieved some major victory

here for the for for U. S. Exporters, Josh. Just to continue the political theme, this pact or treaty would have to be approved by the US Congress. That's right, And um, you know it's unclear the I think most of Congress wanted some kind of deep you know, I don't I don't know if left to Congress that there would have been much of a disruption to so UM, I don't know that there's going to be a huge

bar for that to happen. But we'll see you never it's if there's one thing that's unpredictable here, it's which way Congress is going to go on any given issue right now. You know, one question is how much political capital was spent or exhausted during this process. What is the relationship between the US and Canada emerging from this renegotiation.

That's a great question, and it's really hard to handicap because yes, there this was a cause for a pretty significant rift between UM, President Trump and Prime Minister Trudeau in Canada and on you usual one, right, this is a longtime ally of the United States neighbor. Uh. You know, there's never really been any major UH issue with Canada,

and suddenly it became quite heated and a little bit nasty. UM. If you you know, if you think about this in the larger context of how Trump deals with other leaders in general. UM, you know, on the one hand and and other politicians quite frankly, you know, he when he is in some sort of negotiation, he will go all

out insult them, you know, a bare knuckle fight. But then he'll turn around and say like, oh, I love Justin Trudeau or you know he haven't done that yet, but um he does that with uh President She of China. He's done it with political foes where they were at each other's other's throats during a campaign and then afterwards they've amended fences and work together. Know, so, um, he plays it both ways, and it's hard to know how lasting any grudge will be. Well, Josh Galu, thanks very

much for being with us. Just I know you're going to be listening to the president's comments. We are awaiting President Donald Trump walking out into the Rose Garden in Washington, d C. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. I'm on

Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.