Date
17 January 2017
GE wants to return to its industrial roots making jet engines, power turbines and MRI machines. Photo: Bloomberg
GE wants to return to its industrial roots making jet engines, power turbines and MRI machines. Photo: Bloomberg

GE in talks to sell commercial lending unit

General Electric Co. (GE) is selling its US$74 billion lending business as it moves to dismantle what was one of the country’s largest banks.

GE is in talks with Wells Fargo and other bidders, the Wall Street Journal reported Tuesday, citing people familiar with the matter.

The company is selling all or part of GE Capital which lends to mid-size companies.

A deal to sell would hive off another big chunk of financial unit not long after the company said it would get out of banking amid widespread investor discontent and growing regulatory burdens.

General Electric has said it would sell off US$200 billion in assets by its preferred measure, which excludes cash and some other items, over the next two years.

A deal would signal to Wall Street that GE’s exit from banking will happen even more quickly than the company has forecast. It has publicly given itself two years to complete the process.

The move is part of a strategic shift by chief executive Jeff Immelt to address long-standing investor dissatisfaction with the level of credit risk at the 123-year-old company and to return GE to its industrial roots making jet engines, power turbines and MRI machines.

GE relied on GE Capital for about half of its annual profits just a few years ago but has said its returns from GE Capital have fallen below its cost of capital as the company deals with new federal regulations that have restricted the business’s leverage and profitability.

A swift sale of the US lending operation would help GE get out from many of the tough regulations that come with being designated a “systemically important financial institution”, GE chief financial officer Jeff Bornstein said.

It would also help limit a potential exodus of top talent in the wake of GE’s announcement to sell off the businesses, he said.

Bornstein said the company has received substantial interest in the assets it is selling.

“At the moment, it gives us real confidence that we’re going to get a lot if not most of this done domestically in the US in, I think, short order,” he said.

GE also has contacted potential buyers for its US$16 billion private equity lending business, according to some sources.

GE has considered the U.S. commercial lending business the core of the GE Capital operation.

It has assets worth roughly US$74 billion by GE’s preferred metric and is a leading player in middle market banking, providing financing for companies like fast-food franchisees, recreational vehicle dealerships and supermarket chains.

It has more than 260,000 customers and dealers.

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