GE to sell off GE Capital assets

GE has released details of its plan to streamline its operations by reducing the size of its financial businesses through the sale of most GE Capital assets and by focusing on continued investment and growth in its world-class industrial businesses.

Parent company GE says that while GE Capital has been an important part of its history, the business model for large, wholesale-funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward.

GE’s board of directors has now decided that market conditions are favorable to pursue disposition of most GE Capital assets over the next 24 months except the financing “verticals” that relate to GE’s industrial businesses.

These vertical financing businesses – GE Capital Aviation Services, Energy Financial Services and Healthcare Equipment Finance –relate directly to GE’s core industrial businesses. Together they account for about $90 billion in ending net investments (ENI) excluding liquidity – about $40 billion in the US – with expected returns in excess of their cost of capital.

The assets targeted for disposition, in addition to real estate, are most of the commercial lending and leasing segment, and all consumer platforms, including all US and international banking assets.

These businesses represent roughly $200 billion in ENI. Since 2008, GE has reduced GE Capital’s ENI from $538 billion to $363 billion at the end of 2014. The separation of the company’s retail finance business, Synchrony Financial, which is targeted by the end of 2015, and other recently announced dispositions, account for another $75 billion in ENI reduction (the Synchrony separation is subject to regulatory approval).

“This is a major step in our strategy to focus GE around its competitive advantages,” GE chairman and CEO Jeff Immelt said. “GE today is a premier industrial and technology company with businesses in essential infrastructure industries. These businesses are leaders in technology, the industrial Internet and advanced manufacturing. They are well-positioned in growth markets and are delivering superior customer outcomes, while achieving higher margins. They will be paired with a smaller GE Capital, whose businesses are aligned with GE’s industrial growth.”

GE Capital chairman and CEO Keith Sherin said: “GE Capital’s businesses are excellent, and this is a great market for selling financial assets. Our people are world-class. We are confident these businesses will thrive elsewhere.”

As part of the execution of this new plan, GE has announced an agreement to sell the bulk of the assets of GE Capital real estate to funds managed by Blackstone. Wells Fargo will acquire a portion of the performing loans at closing. The company also has letters of intent with other buyers for an additional $4 billion of commercial real estate assets. In total, these transactions are valued at approximately $26.5 billion.

Under the plan, GE expects that by 2018 more than 90% of its earnings will be generated by its high-return industrial businesses, up from 58% in 2014.