General Electric Co. insiders were convinced: There must be a mole. How else did Stephen Tusa know?
With the conglomerate in crisis, the JPMorgan Chase & Co. research analyst had an uncanny knack, time and again, for uncovering deep problems before they were public. For years, his research had zeroed in on issues both broad, like management credibility, and detailed, like a flawed fan blade inside GE's turbines, that kept proving prescient.
His reports, often lengthy and skeptical, warned JPMorgan clients to dump the stock, and seemed to be gaining more influence with each new volume.
Inside GE and its boardroom , as a succession of management teams tried to wrap their arms around problems that kept spooking investors, Mr. Tusa's calls became a source of speculation.
The board and advisers would scrutinize Mr. Tusa's reports. GE even launched a hunt for leakers, a board member questioned JPMorgan about the research and the bank conducted an internal review, people familiar with the matter said.
As GE's profits and stock price shriveled, erasing some $200 billion of market value in 2017 and 2018, Mr. Tusa's dour attitude won more influence among investors. One former senior GE executive said Mr. Tusa's reports were painful to read, but were thorough and largely correct. "I tip my hat," this executive said. "At the end of the day, our problem is not Steve Tusa."
It seems that every decade Wall Street anoints another star analyst. There was Mary Meeker and her coverage of internet stocks during the 1990s dot-com bubble . More recently, Meredith Whitney gained fame for her warnings on Citigroup and other banks during the 2008 financial crisis . Today, few analysts can claim the name recognition and influence that 44-year-old Mr. Tusa has built around GE.
Wall Street research has long come under fire over perceptions of cozy relationships with companies , especially when it comes to big investment-banking clients like GE. Mr. Tusa has been an outlier—which he's quick to point out—and moved the stock in the process.
Over the past two years, Mr. Tusa has cut his price target on GE 10 times, to $5 from $27. Each time he's done so, the stock has underperformed the S&P 500 that day, by an average of more than 3 percentage points. When he upgraded the stock last December to a lukewarm "neutral ," the stock rallied 7%, as people hoped he was calling the bottom.
That hope was short-lived. Before U.S. markets opened April 8, JPMorgan issued an alert that Mr. Tusa was downgrading GE again. The report—over 100 pages—highlighted GE's challenges and risks but the thrust was that the stock price had gotten ahead of reality. GE's stock slid 5% as the broader market rose.
With the stock beaten up and Mr. Tusa remaining negative, his opinion remains at odds with new GE leaders who are promising a long turnaround. Some people who credit the analyst for correctly seeing the decline of the company are beginning to question if he's too committed to his negative view.
The bearish turn on GE was a decade in the making.
As an analyst, Mr. Tusa has followed GE since 2001. A formative event was when another conglomerate, Tyco International Ltd., collapsed under the weight of an accounting fraud in 2002. The scheme was missed by analysts, and it taught Mr. Tusa to have a healthy skepticism around the companies he covered, according a person close to the analyst.
In those years, GE struggled to find the regular growth delivered in the decade before. It spent billions of dollars on acquisitions and share repurchases, and continued its reliance on the financial-services business that would almost destroy the entire company in the financial crisis.
In 2008, Mr. Tusa's downgrade to "neutral" eerily described the internal problems that would contribute to GE's collapse a decade later. "It would appear as though accountability for hitting targets is the top priority, and some managers might be chasing earnings," he wrote. "We also think the high bar for success in such a competitive environment could create a scenario in which bad news is not tolerated, making necessary communication with senior level managers a challenge until it's too late to fix."
Studies have found analysts to be more positive when they are issuing opinions on larger companies, when they cover many companies, and when the companies generate high-investment banking fees. Mr. Tusa has managed to buck all those trends, said Mark A. Chen, a finance professor at Georgia State University who has studied the investment-research industry.
Mr. Tusa covers 21 industrial companies and JPMorgan has collected an estimated $370 million in banking fees from GE since 2010, according to Dealogic, the most the conglomerate has paid to any investment bank over that period.
Prof. Chen found those biases are so prevalent that investors have baked them into their reactions: A negative call, like Mr. Tusa's, by an analyst under those circumstances tends to move the stock more. "Clearly this analyst broke the mold in analyst optimism," Prof. Chen said.
A prime example: In 2015, as JPMorgan's bankers advised the conglomerate on selling much of its financial-services business, Mr. Tusa had to halt publishing but he continued to do research. Upon returning in May 2016, he surprised investors with an "underweight" rating, JPMorgan's version of a "sell" rating.
At the time, GE's problems hadn't yet emerged and the stock was trading close to $30. In the two years that followed, GE slashed its dividend twice, changed its CEO twice and decided to break itself apart, selling off major units. Shares trade around $10 today.
Despite the success of his "underweight" call, Mr. Tusa was constantly questioning the rating in the first year when the stock stayed near $30, said people close to the analyst.
"He had a lot of nervousness around that," said Paul DeGaetano, CEO of a cosmetics company, who has known Mr. Tusa since they played ice hockey three decades ago. Friends and acquaintances in the finance industry criticized his aggressive stance in that first year. "It doesn't surprise me that he would be the ringleader of this sort of thing," he said.
A sampling of Mr. Tusa's commentary on General Electric
* May 12, 2016, in research note resuming "underweight" rating, shares at $30.34: "In the end, we are sticking to what the numbers say, and on this basis for now, we take the non-consensus, negative side of the trade."
* June 12, 2017, to CNBC on the retirement of CEO Jeffrey Immelt, shares at $29: "[I]t doesn't really change the on-the-ground fundamental reality that the stock is still overvalued based on the cash-generating power of these assets."
* Oct. 20, 2017, to CNBC, shares at $23: "[T]here is no way these guys are going to be able to maintain their dividend."
* Jan. 8, 2018, in a research note, shares at $18.54: "Unlike simple value stories, the liabilities and financial complexity are a significant hurdle."
* April 20, 2018, to CNBC, shares at $14.81: "[I]t looks like they should have really cut guidance and we continue to believe there is downside to the numbers as we look out to the rest of the year.
* Dec. 13, 2018, in research note upgrading stock to "neutral," shares at $6.45: "We are still negative, but with the stock within ~10% of our price target, the range of outcomes is more balanced now."
* April 8, 2019, in research note downgrading stock to "underweight," shares at $10.01: "Bulls appear to be overlooking the risk in a potential recession, where we see a legitimate case for a substantially lower equity value than $5 if they don't raise more cash."
Charles Stephen Tusa Jr. grew up in Greenwich, Conn., one of the country's wealthiest towns, home to hedge-fund managers and private-equity partners. As a child, he used to ride bikes with Ian and Shep Murray, who went on to found preppy clothier Vineyard Vines. He attended the elite Brunswick School, following the footsteps of his father Charlie, a founding partner of a prominent law firm in town.
A political science major at Dickinson College in Pennsylvania, Mr. Tusa has said he learned finance on the job after joining JPMorgan in 1998. It wasn't his first career choice. His dream was to play center for the New York Rangers and Wall Street hasn't tamed his devotion to ice hockey. In 2014, as the Rangers were making a run in the playoffs, Mr. Tusa grew a mullet. He still laces up his skates regularly with multiple leagues, getting in more than 20 games over the winter. On days when GE is dropping major news, he has worked from the bench.
In an outdoor league in New Canaan, Conn., Mr. Tusa has a reputation for taunting and rooting for teams to lose, even when his team isn't playing, Mr. DeGaetano said. The rest of the league tends to reciprocate when Mr. Tusa is on the ice, he added.
"Steve is probably one that takes it too seriously," Mr. DeGaetano said. Last year, upon winning a playoff spot, Mr. Tusa celebrated by jumping on the team's goalie, causing them both to fall and breaking Mr. Tusa's leg.
For most of the last decade, Mr. Tusa has hosted an elaborate annual beer pong tournament. After the national anthems of both the U.S. and Canada are played, 100 mostly middle-aged men vie for an imitation Stanley Cup made out of an old beer keg with a metal bowl bolted to the top; winners' names are written on duct tape.
Mr. Tusa hasn't ever won and is often among the worst players, according to attendees, but that doesn't stop him from verbally thrashing opponents.
He carries a similar pugnacious and blunt style to work. While he is publicly cordial, many of his peers and clients say privately he is arrogant, takes personal shots and gloats about his research.
Mr. Tusa has his own share of losses. For example, Mr. Tusa has recommended shares of Pentair PLC, a water treatment company whose shares have fallen more than 20% over the past year. Mr. Tusa has owned up to other bad calls and acknowledged he was wrong in research reports.
And, regardless of the swagger, he wasn't the only analyst to sound the alarm on GE: then Deutsche Bank analyst John Inch downgraded the stock to "sell" in May 2017. The move was a year after Mr. Tusa's call, but still before the company's spiraling descent.
At GE, there has long been a suspicion that Mr. Tusa had a network of contacts inside the company that fed him information, according to former executives and people familiar with the board. The detailed knowledge of the company in his research notes was seen by some as being suspiciously accurate.
GE conducted a search for leaks and Ed Garden, a GE director and co-founder of activist investor Trian Fund Management, discussed the issue with JPMorgan, according to people familiar with the matter. JPMorgan executives reviewed Mr. Tusa's work and found nothing the bank was concerned about, the people said.
In looking for leaks, no one was above suspicion, even board members were commanded to keep their mouths shut, the people said, and GE took extra steps to keep any developments under wraps.
In September 2018, Mr. Tusa issued a note about problems occurring with GE's newest power-plant turbines , accusing the company of minimizing the issue. The flaws weren't yet public, and Mr. Tusa's note prompted GE to publish a blog post on the same day that addressed the problem.
Less than two weeks later, GE disclosed the power division was struggling more than its board and investors realized and replaced CEO John Flannery.
People close to GE say they now believe Mr. Tusa got the information on the turbine defects by talking to utility customers who were getting briefings from GE on the emerging problem.
Mr. Tusa also has a reputation for tough questions, something that many research analysts will often avoid. Analysts at many investment banks depend on gaining access to executives to set up meetings for clients.