April 11, 2015 in Business
Tom Murphy Associated Press
General Electric is leaving the lending business, a major source of both profit and risk, as it continues to whittle its focus down to an industrial core.
The company said Friday it will sell most of its GE Capital assets over the next two years. It said it has been tougher to generate acceptable returns on the businesses and that market conditions are favorable for a sale. GE also plans to buy back as much as $ 50 billion of its own stock.
That helped push shares of the Fairfield, Connecticut, company up to their highest price in several years, closing …
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General Electric is leaving the lending business, a major source of both profit and risk, as it continues to whittle its focus down to an industrial core.
The company said Friday it will sell most of its GE Capital assets over the next two years. It said it has been tougher to generate acceptable returns on the businesses and that market conditions are favorable for a sale. GE also plans to buy back as much as $ 50 billion of its own stock.
That helped push shares of the Fairfield, Connecticut, company up to their highest price in several years, closing Friday at $ 28.51.
In addition to the GE Capital sale, the company will sell most of its GE Capital Real Estate to funds managed by the investment firm Blackstone. Wells Fargo will buy a portion of the loans at closing. The company plans to sell additional commercial real estate assets that will bring the total value of the deal to about $ 26.5 billion.
The once broadly diverse conglomerate has been steadily shedding businesses as it focuses more on building industrial machines like aircraft engines, medical imaging equipment and selling big, complex products like power generators and oil and gas equipment.
Last September, it announced the sale of its appliance division to the Swedish appliance maker Electrolux for $ 3.3 billion. Before that deal, it spun off its consumer credit card business into a new company, Synchrony Financial. In recent years it also has sold NBC Universal and its insurance operations.
"We see a very attractive market for selling our assets," GE Capital Chairman and CEO Keith Sherin told investors Friday. "Bottom line, we think the timing's right to execute this strategic shift."
The financial division generates almost half of the company's profit but also is a huge regulatory burden and has caused some anxiety for investors. Heavy exposure to commercial and residential mortgages through its finance division threatened GE's existence during the financial crisis.
Company officials noted GE Capital's return on equity slipped from 13.1 percent in the final quarter of 2008 to 8.6 percent in the fourth quarter of last year.
Shedding these businesses will lead to a more focused company with improved risk, Chairman and CEO Jeff Immelt said.
GE is in talks with regulators about removing its tag as a "Systemically Important Financial Institution," which comes with requirements not asked of an almost purely industrial entity.
The company will keep parts of its financing business related to its industrial operations, like GE Capital Aviation Services, Energy Financial Services and Healthcare Equipment Finance.
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