With GE Move, a Bounty of Assets Up for Grabs – Wall Street Journal

Updated April 10, 2015 7:30 p.m. ET

The deep freeze in deal making among banks is about to start thawing.

As part of General Electric Co. GE 10.80 % 's plan, announced Friday, to significantly scale back its finance arm, the company will seek buyers for assets worth $ 165 billion, comprising most of its giant commercial-lending and -leasing segment and all its mortgage and other consumer-finance businesses around the world.

The move to shrink GE Capital, the seventh-largest U.S. bank-holding company, represents one of the biggest attempted sales of financial assets and comes after years of sluggish deal making among lenders as they grapple with the aftereffects of the financial crisis.

The sale could have a transformative effect on whoever buys the assets, given their size. In an era of slow loan growth, many banks are eager for any opportunity to buy business rather than build it from scratch.

Should nontraditional lenders pick up some of the assets, it could further boost the so-called shadow-banking sector that has grown in the wake of the financial crisis and test regulators' tolerance for such firms.

The businesses to be sold by GE involve activities like making loans to midsize companies and private-equity firms and financing the purchase of industrial equipment. Though the businesses have largely lost favor with GE investors, they still generate steady interest income and could be of value to banks and other financial companies that covet GE's client base and may be in a better position to capitalize on them.

GE would prefer to sell the assets in large chunks, such as North American assets as a group, but will entertain offers for smaller parts in case big deals don't materialize, a person familiar with the process said. GE estimates selling the assets could generate $ 35 billion of fresh capital, the company told analysts and investors.

On Friday, GE was fielding dozens of inquiries from banks, private-equity firms and others expressing interest in the assets, people familiar with the discussions said. GE Capital Chief Executive Keith Sherin said on a conference call that the company is already in talks for "several" of the assets.

The largest individual piece in the package is GE Capital's U.S. commercial-lending and leasing business, which has $ 74 billion of assets. Should GE fail to find a buyer for the entire collection, that business could be sold either to a large U.S. institution such as Citigroup Inc. C 0.58 % or PNC Financial Services Group Inc., PNC -0.03 % or to a large foreign bank that has a limited U.S. presence, a person familiar with the discussions said.

GE also may consider separately selling smaller parts of that business—for example, ones specializing in making loans to purchase equipment—to business-financing firms like CIT Group Inc. CIT 3.78 % and Ally Financial Inc. ALLY 1.77 % Both already have expressed interest in these units, according to people familiar with the matter. Mitsubishi UFJ Financial Group Inc. MTU -0.46 % 's U.S. unit is also planning to examine the assets up for sale, according to another person familiar with the matter.

Meanwhile, nonbank investment firms may seek to purchase assets such as groups of loans or investments, rather than whole businesses. Buyers that have been in contact with GE already about such deals include Apollo Global Management APO 1.00 % LLC, Blackstone Group BX 2.09 % LP's GSO Capital Partners and BlackRock Inc., BLK -0.56 % one of the people said.

J.P. Morgan Chase JPM 0.37 % & Co., which has been advising the company on its restructuring alongside Centerview Partners, is the sole coordinator on the sale of the assets, which GE has given itself 24 months to complete.

A successful unloading of the assets is far from guaranteed. Two years is a relatively tight time frame to complete mergers and acquisitions, especially in the highly regulated bank industry. And by committing itself to the move publicly, GE is now effectively a forced seller, which could give bidders leverage in negotiations, though competition among bidders will help GE. What's more, for big banks, buying the assets could be a challenge given that regulators have made clear in recent years that they want them to be simpler, less risky and better capitalized—and don't want to see them get bigger through acquisitions.

For private-equity firms, the businesses could be worth less than they are under GE's umbrella, as they wouldn't benefit from the industrial-conglomerate's pristine credit rating. That could diminish the amount private-equity firms' are willing to pay.

GE's ability to pull off a successful sale of the assets will be key to its bid to shower its shareholders with cash. The company said there is the potential to return more than $ 90 billion to its investors through dividends and other means through 2018.

GE had already been in the process of scaling back its banking unit, though Friday's move is the most dramatic step in that direction yet.

Last year, GE began the process of selling its U.S. consumer-finance business, now called Synchrony Financial, SYF 1.49 % in an initial public offering. On Friday, GE said it has also agreed to sell a $ 23 billion real-estate portfolio to Blackstone and Wells Fargo WFC 0.24 % & Co.

—Christina Rexrode contributed to this article.