General Electric’s new Chief Executive John Flannery on Monday outlined steps that will turn the biggest U.S. industrial conglomerate into a smaller, more focused company, surprising some investors who sold the company’s shares to a five-year low.

Flannery’s plan to shrink GE’s multi-industry array of businesses was a reversal of the deal-driven empire building of his predecessors, Jeff Immelt and Jack Welch, and potentially a milestone in the decline of the conglomerate as a business strategy.

Other companies that once emulated the GE model of spreading bets among diverse industries are now unwinding their portfolios as well, something Immelt also did throughout his 16 years as CEO, even as he made acquisitions.

Flannery said he will pare GE down to three core businesses: power, aviation and healthcare. He will keep Immelt’s strategy of building software to complement GE’s machinery, albeit with a narrower focus and reduced budget.

For investors, Flannery’s decision to cut both the dividend and the 2018 earnings forecast by half added up to a whole that was less than they judged GE be worth last week.

GE shares fell to their lowest level in more than five years as investors worried the years-long overhaul would not pare down enough expenses or generate as much cash as they hoped. They closed off the day’s lows, down 7.2 percent to $19.02.

“They need to cut more cost,” said Scott Davis, an analyst at Melius Research. “GE is still a bloated company with duplicate costs up and down the organization.”

GE stock has effectively been dead money since September 2001, when Immelt took over, posting a negative total return even after reinvesting its juicy dividends. Once the most valuable U.S. publicly traded company, GE now has a market value of $168 billion, less than a fifth of Apple.

“You have pessimism around its portfolio of businesses mixed with a pretty harsh cut in the dividend,” said John Augustine, chief investment officer at Huntington Private Bank. “It took them years to get into this mess and it will take them several years to right the ship and get back into a stronger position.”

‘Soul of the Company’

Flannery, who took over as CEO on Aug. 1, said he was “looking for the soul of the company again” and would focus on “restoring the oxygen of cash and earnings to the company.”

He will cut its board to 12 from 18 members, and bring on three new directors early next year.

GE said it already has shed 25 percent of its corporate staff, meaning 1,500 jobs around the world, including some at its Boston headquarters. It is aiming to reduce overhead cost by $2 billion next year, half of that at its troubled power unit that sells electrical generation equipment.

The transition includes GE getting rid of at least $20 billion of assets through sales, spin-offs or other means.

GE will jettison businesses with “a very dispassionate eye,” Flannery said, keeping only units that offer growth, a leading market position and a large installed base.

GE said it would exit its lighting, transportation, industrial solutions and electrical grid businesses, all of which were widely expected, closing factories around the globe.

But it was vague about other disposals.

It plans to get rid of its 62.5-percent stake in oilfield services company Baker Hughes, only months after making the multi-billion dollar investment. Baker Hughes shares lost 3.2 percent.

Flannery offered no quick fixes for investors. He said power, one of the businesses GE would focus on, was “challenged,” but could be turned around in one to two years.

GE’s Digital unit, on which Immelt bet billions of dollars, would focus on selling apps to customers in its core businesses, Flannery said. He confirmed that the shift meant sales staff were being let go, as Reuters reported last week.

GE also will cut spending on the digital unit to $1.1 billion in 2018 from $1.5 billion in 2017. GE had previously said it would invest $2.1 billion in its digital unit in 2017, but that tally included money not tied to Predix, GE’s industrial-internet platform, GE said.

Flannery said there is “no retreat on the idea” of GE providing both applications and the Predix platform to connect industrial equipment to computers that can make machines run better. However, getting one of its key applications to run on Predix could take two more years.

Flannery added that some of its healthcare IT business, such as software for imaging and hospital staff scheduling, were still critical to the company and not likely to be divested.

Dividend Cut

The dividend cut, to 48 cents from 96 cents next year, is only the third in the company’s 125-year history and the first not during a broader financial crisis. It is expected to save about $4 billion in cash annually.

“This dividend cut will be a major disappointment to GE’s (roughly 40 percent) retail shareholder base,” said RBC Capital Markets analyst Deane Dray.

The cut will be the eighth-biggest dividend cut in history among S&P 500 companies, according to Howard Silverblatt, senior index analyst of S&P Dow Jones Indices. GE also had the biggest cut when it slashed its dividend by $8.87 billion in 2009, Silverblatt said.

GE forecast 2018 adjusted earnings of $1 to $1.07 a share, compared with its earlier estimate of $2 per share. Wall Street was expecting $1.16, according to Thomson Reuters I/B/E/S.

Industrial free cash flow will total just $6 billion to $7 billion next year, up from an estimated $3 billion in 2017, but far below earlier targets of $12 billion for 2017.

GE said the weak power business had largely prompted the dividend cut and lowered earnings forecast. Demand for new power plants will remain slow through 2019, Flannery predicted.

But GE also was to blame, he said.

“We did not manage the (power) business well,” he said. “That’s a fundamental change we need to make and that’s going to take some time. This is not a magic wand.”
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Mexico’s government is preparing a macroeconomic response in case U.S. President Donald Trump makes good on threats to quit the North American Free Trade Agreement (NAFTA), an event which could wreak havoc on the Mexican economy and hurt the peso.

Mexico’s Foreign Minister Luis Videgaray said on Monday the government and central bank were preparing a plan to address the possibility of a future without NAFTA, but gave few details.

The government has said it is examining how it could adjust Mexican legislation to give investors certainty about their investments if the almost 24-year-old NAFTA collapses.

Underpinning some $1.3 trillion in annual trade between the United States, Canada and Mexico, NAFTA has been a central pillar of recent Mexican economic development. Nearly 80 percent of Mexican exports are shipped to the United States.

Trade negotiators from the United States, Mexico and Canada meet in Mexico City this week to continue talks on overhauling the accord, and Videgaray reiterated the government’s position that the expectation was that talks would ultimately succeed.

Mexico would continue to work on diversifying trade, protect foreign investment, review possible changes to tariff barriers, and prepare a macro-economic response from the finance ministry and the central bank, Videgaray added.

“These are the four lines a plan B must include,” he told Mexican radio. “We have to be prepared for all the scenarios and one of the scenarios is that the United States leaves the treaty, and as we have said, that is not the end of the world, the Mexican economy is much bigger than NAFTA.”

Separately, the International Monetary Fund said in a report on Monday that ending NAFTA would bring back World Trade Organization “most-favored nation” tariffs, which would disrupt Mexican-U.S. trade, and could crimp economic growth, dampen capital inflows and raise risk premia.

The IMF suggested that among various policy responses at Mexico’s disposal, “temporary foreign exchange interventions and liquidity provision could help smooth extreme volatility.”

Concerns that Trump could follow through on his threats to dump NAFTA have battered the Mexican peso in recent weeks.

Additionally, Mexico should continue to implement its structural reforms and boost efforts to diversify trading relationships, which would increase competitiveness and help economic growth over the medium-term, the IMF said.

The IMF sees Mexico’s economy growing 1.9 percent next year after projected expansion of 2.1 percent in 2017.
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Promoted as needed relief for the middle class, the Senate Republican tax overhaul would increase taxes for some 13.8 million moderate-income American households, a bipartisan analysis showed Monday.

The assessment by Congress’ nonpartisan Joint Committee on Taxation emerged as the Senate’s tax-writing committee began wading through the measure, working toward the first major revamp of the tax system in some 30 years.

Barging into the carefully calibrated work that House and Senate Republicans have done, President Donald Trump called for a steeper tax cut for wealthy Americans and pressed GOP leaders to add a contentious health care change to the already complex mix.

Trump’s latest tweet injected a dose of uncertainty into the process as the Republicans try to deliver on his top legislative priority. He commended GOP leaders for getting the tax legislation closer to passage in recent weeks and then said, “Cut top rate to 35% w/all of the rest going to middle income cuts?”

That puts him at odds with the House legislation that leaves the top rate at 39.6 percent and the Senate bill as written, with the top rate at 38.5 percent.

Trump also said, “Now how about ending the unfair & highly unpopular individual mandate in (Obama)care and reducing taxes even further?”

Overall, the legislation would deeply cut corporate taxes, double the standard deduction used by most Americans, and limit or repeal completely the federal deduction for state and local property, income and sales taxes. It carries high political stakes for Trump and Republican leaders in Congress, who view passage of tax cuts as critical to the GOP preserving its majorities at the polls next year.

With few votes to spare, Republicans leaders hope to finalize a tax overhaul by Christmas and send the legislation to Trump for his signature.

The key House leader on the effort, Rep. Kevin Brady, said he’s “very confident” that Republicans “do and will have the votes to pass” the measure this week.

Brady, chairman of the House Ways and Means Committee, said he doesn’t expect major changes to the bill as it moves to a final vote in the House. Still, he said Trump’s call for removing the requirement to have health insurance as part of the tax agreement “remains under consideration.”

Trump and the Republicans have promoted the legislation as a boon to the middle class, bringing tax relief to people with moderate incomes and boosting the economy to create new jobs.

“This bill is not a massive tax cut for the wealthy. … This is not a big giveaway to corporations,” Sen. Orrin Hatch, R-Utah, chairman of the Senate Finance Committee, insisted as the panel had its first day of debate on the Senate measure.

Hatch also downplayed the analysis by congressional tax experts showing a tax increase for several million U.S. households under the Senate proposal. Hatch said “a relatively small minority of taxpayers could see a slight increase in their taxes.”

The committee’s senior Democrat, Sen. Ron Wyden of Oregon, said the legislation has become “a massive handout to multinational corporations and a bonanza for tax cheats and powerful political donors.”

Tax increase for some

The analysis found that the Senate measure would increase taxes in 2019 for 13.8 million households earning less than $200,000 a year. That group, about 10 percent of all taxpayers, would face tax increases of $100 to $500 in 2019. There also would be increases greater than $500 for a number of taxpayers, especially those with incomes between $75,000 and $200,000. By 2025, 21.4 million households would have steeper tax bills.

The analysts previously found a similar magnitude of tax increases under the House bill.

A group of more than 400 millionaires and billionaires, including prominent figures such as Ben and Jerry’s founders Ben Cohen and Jerry Greenfield, designer Eileen Fisher and financier George Soros, asked Congress to reject the GOP tax plan and not give cuts to the super-wealthy like themselves.

“We urge you to oppose any legislation that further exacerbates inequality,” they said in a letter made public Monday.

Neither bill includes a repeal of the so-called individual mandate of Barack Obama’s Affordable Care Act, the requirement that Americans get health insurance or face a penalty. Several top Republicans have warned that including the provision would draw opposition and make passage tougher.

Among the biggest differences in the two bills that have emerged: The House bill allows homeowners to deduct up to $10,000 in property taxes while the Senate proposal unveiled by GOP leaders last week eliminates the entire deduction. Both versions would eliminate deductions for state and local income taxes and sales taxes.

Senate Majority Leader Mitch McConnell, R-Ky., asked whether the Senate’s proposed repeal of the property tax deduction could bring higher taxes for some middle-class Americans, acknowledged there would be some taxpayers who end up with higher tax bills.

“Any way you cut it, there is a possibility that some taxpayers would get a higher rate,” McConnell told reporters after a forum in Louisville, Kentucky, with local business owners and employees. “You can’t craft any tax bill that guarantees that every single taxpayer in America gets a tax break. What I’m telling you is the overall majority of taxpayers in every bracket would get relief.”
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Foreign investors walked a red carpet at a state palace Monday eager to hear strategies for reorganizing Venezuela’s billions in debt, but they left minutes later having learned no concrete plans to address the country’s financial crisis.

Vice President Tareck El Aissami, who headed the talks, used much of his time to rail against U.S. President Donald Trump and foreign lenders for leading what the government calls an “economic war” against this oil-rich nation.

But he also tried to assure creditors that debts will continue to be paid, echoing statements by President Nicolas Maduro that Venezuela has made more than $70 billion in debt payments since 2013.

“The state has fully honored its national and international commitments, especially with regard to external debt service,” El Aissami said in a televised broadcast. “Even with great sacrifice, we have paid every penny of our debt service.”

Those few investors who bothered to show up had few expectations for the meeting, which from the start was clouded in confusion.

Maduro invited investors to Caracas a little more than a week ago while announcing his goal of renegotiating a foreign debt that he said has become impossible to repay because of a U.S.-led financial “blockade” of the socialist-run country.

As Venezuela spent heavily on social programs under the late President Hugo Chavez, a time when global oil prices soared, its debt skyrocketed to over $120 billion, about half of which is in the form of dollar-denominated bonds. The drop in crude prices has ravaged the country that sits atop the world’s largest oil reserves, leading to widespread shortages amid triple-digit inflation.

Strained relations between Venezuela and the United States are compounding the situation.

The Trump administration has sanctioned a growing list of Venezuelan officials, including the government’s top two debt negotiators, Economy Minister Simon Zerpa and El Aissami. The vice president is accused of being a major drug trafficker.

Washington has also barred U.S. companies from lending new money to Venezuela because of human rights abuses committed during months of anti-government protests and Maduro’s efforts to squash the opposition.

But in a sign the Trump administration might be willing to soften its stance, the Treasury Department said last week that it would consider allowing Americans to deal in new debt if any restructuring plan was backed by Venezuela’s opposition-controlled congress, whose authority has been steadfastly ignored by Maduro’s government.

Russ Dallen, managing partner of Caracas Capital Markets, said several U.S. investors he represents told him they wouldn’t bother attending. One said he couldn’t get a visa on such short notice and another reported planning to send an intern, citing the lack of information.

“You’d think they’d put it on the table and let you study it if there was some kind of proposal,” Dallen said. “There’s nothing. Just crickets.”

Also Monday, at an informal meeting to discuss Venezuela at the U.N. Security Council, U.S. Ambassador Nikki Haley called Venezuela “an increasingly violent narco-state” that threatens the world.

Venezuela’s U.N. ambassador, Rafael Ramirez, responded by denouncing the session.

“This is a hostile act from the United States and an interference that violates the sovereignty principles of a country that is a member of the United Nations,” he told reporters.

In Brussels earlier in the day, the European Union banned arms sales to Venezuela and set up a system to slap asset freezes and travel restrictions on Venezuelan officials as it seeks to ramp up pressure on Maduro. The weapons ban would stop sales of military equipment that could be used for repression or surveillance of Venezuelans.
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The federal government began its new budget year with an October deficit of $63.2 billion, up sharply from a year ago.

The Treasury Department reported Monday that the October deficit was 37.9 percent higher than the $45.8 billion deficit recorded in October 2016.

Both government receipts and spending were up for the month, with receipts climbing 14.3 percent to $235.3 billion, a record for the month of October. The larger spending figure was up a sizable 11.6 percent to $298.6 billion.

The deficit for the 2017 budget year, which ended on Sept. 30, totaled $666 billion, up 13.7 percent from a 2016 deficit of $586 billion.

Many forecasters believe the deficit will rise higher in the current budget year, reflecting the impact of proposed tax cuts Congress is considering and hurricane relief.

The Congressional Budget Office estimated in June that the deficit for the current budget year, which runs from Oct. 1 to Sept. 30, would fall to $563 billion. However, that estimate did not include money for a tax cut being pushed by the Trump administration and GOP lawmakers. It also did not include increased spending to deal with three devastating hurricanes that have hit the U.S. mainland and territories.

Taking those developments into account, economists at JPMorgan Chase estimate that the deficit in the current budget year could climb to $675 billion, with the deficit in 2019 rising even higher to $909 billion.

Lawmakers passed a budget resolution that would provide for $1.5 trillion in additional deficits over the next decade to reflect the lost revenue from the pending tax cuts. The Trump administration contends the tax cuts will end up generating increased economic activity and will not be that expensive.

For October, the 11.2 percent rise in spending reflected an increase of $4 billion in spending by the Department of Homeland Security, with outlays rising from $4 billion in October 2016 to $8 billion last month, a jump that was attributed to higher spending for hurricane relief.

The 14.3 percent increase in revenues included a $12 billion increase in individual taxes, including payroll taxes for Social Security, compared to October 2016.

The government has run deficits in October for each of the past 64 years.
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President Donald Trump is wrapping up 12-day, five-nation tour of Asia dominated by talks on the North Korea nuclear threat and bolstering trade.

After talks in Manila on Monday with the prime ministers of Australia and Japan, Trump promised to make a “major statement” on North Korea and trade when he returns to Washington this week. But he offered no details.

Trump’s meeting with Australia’s Malcolm Turnbull and Japan’s Shinzo Abe underscored the growing relationship between the three nations in the face of regional security issues. The top concerns include North Korea’s nuclear weapons and ballistic missile programs and countering China’s increasingly assertive maritime territorial claims.

“The key for us is to ensure very close trilateral cooperation so as to bring peace and stability on the ground,” said the Japanese leader, who has been displaying a united front against North Korea with Trump.

“We’ve got the same values and the same focus on ensuring that the North Korean regime comes to its senses and stops its reckless provocation and threats of conflict in our region,” Turnbull said. “Peace and stability have underpinned the prosperity of billions of people over many decades, and we’re going to work together to ensure we maintain it.”

Show of military force

A massive naval drill involving three U.S. aircraft carrier strike groups was underway in western Pacific waters as a show of force.

The U.S. naval vessels and aircraft were joined by elements of the South Korean navy and Japanese Maritime Self Defense Force.

The three leaders met on the sidelines of the Association of Southeast Asian Nations (ASEAN) summit. Trump said “big progress” had been made on trade but he did not offer further details.

​Meeting with Duterte

Earlier Monday, the U.S. leader met with Philippines’ President Rodrigo Duterte, who hosted the ASEAN summit. Trump said the two have “a great relationship” and described their talks as “very successful.”

A joint statement released by the U.S. and Philippines said the two leaders condemned Pyongyang’s “unlawful nuclear weapons and missile development” and urged all nations, including those in the region, “to voice their opposition to these threatening programs and to take steps to downgrade their diplomatic and economic engagement with North Korea.

During a joint appearance, reporters tried to query whether Trump had raised the issue of human rights with Duterte. Duterte, facing strong criticism from human rights groups internationally, replied, “Whoa, whoa. This not a press statement. This is the bilateral meeting.”

White House Press Secretary Sarah Huckabee Sanders later said of the meeting between Trump and Duterte:  “The conversation focused on ISIS, illegal drugs, and trade. Human rights briefly came up in the context of the Philippines’ fight against illegal drugs.”  

Duterte’s spokesman denied that.

“No, that issue was not raised,” Harry Roque said replying to a reporter’s question. “My understanding is he explained at length the Philippine policy on the war against drugs. And from the body language of the U.S. president, he seemed to be in agreement and he made an assurance that President Duterte has a friend in President Trump and he’s been an ally since he was elected into office.”

Sidestepping controversy

Earlier, as regional leaders gathered at a colorful ceremony to open the summit in Manila, Duterte sidestepped the controversy over his war on illegal drugs and its thousands of extrajudicial killings.

In opening remarks before the 17 other leaders at the summit’s plenary session, he called illegal drugs a “menace” that threaten “the very fabric of our society,” without mentioning methods of the response.

“I apologize for setting the tone of my statement in such a manner,” said Duterte. “But I only want to emphasize that our meetings for the next two days present an excellent opportunity for us to engage in meaningful discussions on matters of regional and international importance.”

The communique resulting from the talks is expected to announce that ASEAN will begin official negotiations for a code of conduct for the South China Sea, where several nations have conflicting territorial claims.

A number of countries have concerns about China’s increased militarization of disputed islands it controls.  

Anti-Trump protests

For a second day Monday several thousand militant protesters marched in Manila, clashing with riot police who responded with truncheons, water cannons and sonic alarms to keep the demonstration out of sight of the delegates at the ASEAN Summit, which is surrounded by a security cordon.  

Protesters burned an effigy of Trump on Monday. Some protesters pushed the police, organizer Renato Reyes told VOA News, who said “scores” of protestors had been injured and some had to be treated at an on-site clinic. The protesters shouted for Trump to leave and accused the United States, a former colonizer of the Philippines, of looking for overseas wars.

Local media reported 10 people were injured, including six police officers.

Trump has praised his hosts during the Asia tour, which included stops in Japan, South Korea, China, Vietnam and the Philippines.

 “It was red carpet like nobody, I think, has probably ever seen,” Trump told reporters.

Ralph Jennings and Kenneth Schwartz contributed to this report.
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The next World Economic Forum of world leaders and CEOs in Davos will be chaired by women including International Monetary Fund director Christine Lagarde, Norwegian Prime Minister Erna Solberg and IBM’s chief executive Ginni Rometty.

The seven co-chairs for the four-day event in January were announced in the face of criticism that the conference has in the past lacked female representation.

“Co-chairs… were chosen to reflect global stakeholders,” said a spokeswoman for WEF, adding the co-chairs were all leaders in their fields.

The co-chairs shape the program and lead discussions and panels. The theme of the 48th conference is to “explore the root causes of, and pragmatic solutions for, the manifold political, economic and social fractures facing global society,” WEF said.

WEF, in an annual report this month, found it will take another 217 years before women earn as much as men and have equal representation in the workplace, revealing an economic gap of 58 percent.

It is the second straight year the Swiss non-profit has recorded worsening economic inequality.

A typical representative of the more than 2,500 titans of industry and influence that each January descend upon the Alps has received the unofficial moniker of “Davos Man” — a sign of the further shift in representation and thinking still necessary to balance uneven gender dynamics.

Other co-chairs are Isabelle Kocher, head of French energy conglomerate Engie; Italian physicist and director general of the CERN particle physics research centre Fabiola

Gianotti; founder of the rural cooperative Mann Deshi Bank for women, Chetna Sinha; and International Trade Union Confederation General Secretary Sharan Burrow.

Next year’s event will take place January 23-26, 2018.

 
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The European Union has approved economic sanctions, including an arms embargo on Venezuela.

EU foreign ministers meeting in Brussels announced the measures on Monday in response to regional elections last month, which they say worsened the country’s crisis.

The weapons ban is intended to prevent the government of President Nicolas Maduro from purchasing military equipment that could be used for repression or surveillance.

The sanctions also include setting up a system for asset freezes and travel restriction on some past and present Venezuelan officials close to Maduro.

Spain has long pushed for sanctions on those close to Maduro, but the EU has been divided over whom to target.

In Monday’s statement, ministers said they would focus on security forces, government ministers and institutions accused of human rights violations, and the disrespect of democratic principles or the rule of law.

Last Thursday, the U.S. imposed financial sanctions on 10 current and former Venezuelan officials because of corruption and abuse of power allegations related to Maduro’s crackdown on the opposition.

The EU also stressed that it would not recognize Venezuela’s pro-Maduro Constituent Assembly, whose 545 members took office in August and sidelined the opposition-led National Assembly. The EU said its creation has only served to “further erode democratic and independent institutions.”
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Venezuela’s foreign debt renegotiation committee will meet with creditors at 2 p.m. (1800 GMT) on Monday at the government’s “White Palace” in downtown Caracas, the finance minister said on Saturday.

“Once again, we invite investors to register their participation in this meeting,” Simon Zerpa, who is also the finance boss of state oil company PDVSA but is on a U.S. sanctions list for alleged corruption, said in a Tweet.

Foreign investor sources had said Zerpa and committee head Tareck El Aissami, who is Venezuela’s vice president but also on a U.S. blacklist for alleged drug traffickers, would probably sit out the meeting to allay any fears about meeting them.

But Saturday’s exhortation by Zerpa, and the location of the meeting right opposite the Miraflores presidential palace, appear to indicate the meeting will not be a low-profile affair.

Socialist leader Nicolas Maduro’s move a week ago to summon bondholders for talks about “restructuring” and “refinancing” some $60 billion in bonds has spooked markets worried Venezuela is heading for a default amid U.S. financial sanctions.

President Donald Trump’s measures against the Maduro administration, which it accuses of being a “dictatorship” that has impoverished Venezuela’s 30 million people through corruption and incompetence, effectively bar U.S. banks from rolling over the country’s debt into new bonds.

Venezuela did, however, appear to be honoring its most recent debt payment: a $1.2 billion payment due on a bond from state oil company PDVSA. Two investors told Reuters they had finally received payment, albeit delayed.

It is unclear how widespread investor participation in Monday’s meeting in Caracas will be. U.S.-based creditors are not prohibited from attending the meeting, but are barred from dealings with officials like Zerpa and El Aissami.
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Emirates Airlines agreed to buy 40 Boeing 787-10s in a deal worth more than $15 billion.

The purchase was announced Sunday at the Dubai Air Show by the largest airline in the Middle East.

Deliveries of the wide-body, twin-engine planes are set to begin in 2022.

Boeing’s website says the aircraft typically carries 330 passengers with a range of 11,900 kilometers.  

The manufacturer says the 787 is 25 percent more fuel-efficient than the aircraft it replaces.

Also, Azerbaijan Airlines announced a $1.9 billion deal for more 787s, five to carry passengers and two more to haul freight.
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