David Einhorn really ripped into GE in his fund's quarterly letter

Closely-followed hedge fund manager David Einhorn, the CEO of Greenlight Capital, blasted General Electric Co. in his fund's first quarter letter.

Earlier this month, GE announced plans to exit most of its $500 billion GE Capital business and sell its $26.5 billion real-estate portfolio. GE also said that it expects a $16 billion after-tax charge in the first quarter of 2015, with about $12 billion of that being non-cash.

Einhorn sees GE's exit as a success of Dodd-Frank financial reform.

"That GE chose to exit and finally own up to its cumulative chicanery rather than face its first Fed-supervised stress test is one of the first real successes of Dodd-Frank," Einhorn wrote.

Here's the excerpt from the letter (emphasis ours):

"Top-down: Valuations are on the high side and earnings are in a precarious spot. Last year's snow slowed the entire economy, setting up the first quarter to be the easiest comparison quarter of the year. It nonetheless hasn't turned out to be a good quarter (despite this year's snow confining itself mostly to New England). At year-end, first quarter earnings were supposed to grow about 5%, but now, they are expected to decline by a similar amount, and this doesn't even include GE's large, anticipated first-quarter charge as it exits most of GE Capital.

"GE's staggering $16 billion after-tax charge will drain another 5-7% from the S&P 500 quarterly earnings. Given that GE is exiting these portfolios after several years of economic and valuation recoveries and still has to take an enormous loss, the gigacharge adds clarity to the multi-decade debate about the integrity of GE's reported results. That GE chose to exit and finally own up to its cumulative chicanery rather than face its first Fed-supervised stress test is one of the first real successes of Dodd-Frank.

"Even if this quarter's S&P earnings will ultimately be somewhat better than -5% (excluding the GE charge) versus the first quarter of 2014 due to "lower and beat", this level of earnings degradation poses a risk to a market trading at a premium multiple of earnings assisted by record high margins. The full year S&P earnings outlook is even worse, as the comparisons become more challenging."

Greenlight Capital fell 1.7% during an "uneventful and unprofitable" first quarter, according to the fund's quarterly investor letter.

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