GE opens its kimono and gets kicked where the sun don't shine

General Electric Company (GE) took a calculated risk Thursday when it invested six hours in discussing the performance and prospects of its finance unit, GE Capital. As I posted, the move was risky and with its stock down 1.8 percent Thursday and seven percent more today, it's not obvious that the move generated a short-term payoff for GE shareholders.

I would give GE a B for at least trying to be more open about GE Capital. GE management must have concluded that its stock had no chance of rising as long as investors viewed its finance unit as a black box full of toxic waste. GE did a good job of providing details about what was on GE Capital's books. But analysts concluded that its economic assumptions -- and therefore its earnings forecast -- were overly rosy.

And today, they lowered their forecasts for GE earnings based on what they thought were more realistic assumptions. Credit Suisse expects GE Capital to earn $2 billion rather than the $5 billion that GE said it will earn. And Credit Suisse lowered its GE target price to $11 from $13 and its 2009 earnings estimate by 13 percent to $1.05 from $1.20. UBS rates GE at Neutral and warned of "substantial remaining risk" – including a $38 billion leveraged loan portfolio – and said 2010 could be even worse than 2009 for GE Capital.

Over the longer run, GE's openness could help it generate some credibility with analysts -- but in the short run those lowered earnings estimates have got to hurt.

Peter Cohan is president ofPeter S. Cohan & Associates. He also teaches management at Babson College. His eighth book isYou Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns GE shares.

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