* New board nominations may drive positive change -analysts
* Accountancy issues point to financial problems
* Shares recover initial fall to rise 1.3 pct (Adds analysts' comment, details from CEO letter; updates shares)
By Arunima Banerjee and Ankit Ajmera
Feb 26 (Reuters) - General Electric Co nominated top aviation and industrial executives and an accounting expert to its board on Monday as it battled new challenges to its share price and the restructuring of one of the largest industrial conglomerates in the United States.
The Boston-based multinational said on Friday it was facing potential legal action by the U.S. Department of Justice in connection with subprime mortgages. It also said a restatement of its 2016 and 2017 results would likely lower reported earnings.
The naming of Thomas Horton and Lawrence Culp Jr. - top executives known for turning around American Airlines and Danaher Corp - was warmly greeted by investors, helping GE shares recover from an initial battering to rise 1.3 percent.
Some analysts termed it the first positive news for the company in over a year.
"The GE Board nominations are a solid start in a necessary cultural transformation, in our view, and we hold Larry Culp, former CEO of Danaher, in high regard," JP Morgan analyst Stephen Tusa said.
"Color we have gotten on Horton is positive." .
GE, which racked up a $10 billion loss in the fourth quarter, was the worst-performing stock on the Dow Jones Industrial Average last year. It had fallen another 3.7 percent on Monday morning to touch a more than seven-year low.
The accounting issues and difficulties with long-term care contracts, which resulted in a $6 billion charge on GE's insurance businesses last year, drew criticism from billionaire U.S. investor Warren Buffett.
"I would say the accounting at GE has not been a model at all in recent years, but you can make mistakes," Buffett, who sold his stake in GE last year, told CNBC.
"Long-term care has probably been the biggest single element in mis-reserving in insurance throughout the industry... But I was staggered by the amount of it (at GE)."
Chief Executive John Flannery has promised to revamp GE into a leaner company, announcing major job cuts late last year. He sought to assuage investors in a letter that said "significant changes" in GE leadership teams were under way.
"How the Company is being portrayed in certain quarters is overwrought and, in most cases, does not reflect the reality of GE that our customers and employees are seeing around the world," Flannery said. (invent.ge/2FwpRKh)
GE said several of its long-standing directors including Qualcomm Chief Executive Steve Mollenkopf and former head of the U.S. Securities and Exchange Commission Mary Schapiro would not be standing for reelection.
Nine of the company's directors will stand for re-election including activist investor Trian Fund Management's Edward Garden, who was appointed to GE's board in October.
Hedge fund manager Nelson Peltz's Trian invested $2.5 billion in GE in 2015 and has pressed the company to cut costs and focus on sectors where it is a market leader, such as power plants, jet engines and medical devices.
The third of the new directors named on Monday was Leslie Seidman, a former JPMorgan Vice President and chairman of the Financial Accounting Standards Board nicknamed "Loophole Leslie" by opponents for her bank-friendly approach to regulation after the 2008 financial crash.
Horton, also a director at Walmart, was chief financial officer at AT&T Inc when it combined with fellow telecoms Cingular and SBC in 2005, and is currently at the forefront of merger negotiations between chipmakers Broadcom Ltd and Qualcomm Inc.
Culp Jr. is known for transforming Danaher Corp from an industrial manufacturer into a science and technology firm.
GE's stock fell 45 percent last year and is down another 17 percent so far in 2018.
Writing by Patrick Graham and Ankit Ajmera; editing by Saumyadeb Chakrabarty