General Electric now considers most of its banking operations to be something it would be better off without, and wants to unload them on a much faster schedule, The Wall Street Journal reported on Wednesday (March 11).
That would mean GE Capital — which as a standalone bank would currently qualify as the seventh-largest U.S. bank — could eventually be slimmed down to an operation that would primarily finance customers of GE’s industrial operations, which include manufacturing jet engines and power turbines. Much of GE Capital’s current business consists of financing for retailers such as supermarket chains and fast-food franchisees.
“GE Capital must enhance our industrial competitiveness, not detract from it,” CEO Jeff Immelt wrote in a shareholder letter that will be published Monday with GE’s annual report, according to the WSJ. “We see a significant advantage in our ability to bring financial solutions to industries like aviation, energy and health care. But make no mistake, the ultimate size of GE Capital will be based on competitiveness, returns and the impact of regulation on the company.”
Analysts say shareholders view the finance business — which is expected to provide 25 percent of GE’s profit in 2016 — as too risky after it came close to taking GE down during the financial crisis, when GE Capital produced half of GE’s profits. Since then, financial regulation has stepped up dramatically, and GE Capital has been designated by regulators as a Systemically Important Financial Institution (SIFI), which raises its capital requirements and reduces the profits it can feed back to industrial operations or for dividends or share repurchases.
One solution to that problem is to slim GE Capital down so it’s no longer big enough to qualify as a SIFI. GE has been doing that in large ways and small — for example, last year it began spinning off its private-label credit card business into a separate company called Synchrony Financial, and in February the government of Hungary said it would buy Budapest Bank from GE Capital for up to $700 million. But regulators will also have to give approval for a much faster breakup of GE Capital.