- GE Capital is largest of conglomerate’s six units
- Business subject to regulation, economic turmoil
- Still interested in ’high-margin’ originations
If General Electric Co. does decide to reduce its role in financial services, the conglomerate is likely to retain its B-to-B lending business, probably including its leveraged finance operation. The Fairfield, Conn.-based company has previously said it wants to reduce the role of GE Capital Corp., the largest of its six units, because of the risks in retail lending.
Now the conglomerate, a maker of everything from aircraft engines to microwave ovens, is “considering breaking off big chunks of its lending business,” as the Wall Street Journal reported. The company, a blend of financial and industrial operations, is difficult for investors to value.
GE Capital is a sprawling financial organization that not only includes the mid-market lending specialist GE Antares, which provides leveraged loans to financial sponsors, but also offers a range of commercial lending and leasing services, real estate finance, and energy industry services, in addition to a consumer loan portfolio that includes mortgages, car loans, credit cards and other lending products.
A GE spokesman did not reply by deadline to a request for comment.
If anything, GE has been building up its financial services operations recently. In December, GE Capital agreed to buy $7.5 billion of bank deposits from insurer MetLife Inc., mostly a collection of certificates of deposits and money-market funds. At the time, the sale was expected to close in the second quarter. A MetLife spokesman said the deal remains on track.
And in February, GE Capital won a contract to provide consumer credit card services for the retailer Toys R Us. As part of that deal, GE Capital agreed to acquire $900 million in card balances from JPMorgan Chase & Co., which previously had provided card services to Toys R Us.
As a result, financial services have grown to be a larger part of GE’s business. The company reported in April that GE Capital had revenue of $11.4 billion in the first quarter, nearly a third of the parent company’s total $35.2 billion revenue, while its earnings of $1.8 billion were more than half of the company’s $3.03 billion total earnings. GE Capital earnings were up 27 percent from a year earlier, adjusted for a divestiture in the first quarter of 2011.
Of course, that big financial component can be the source of heartburn for investors who want to analyze the company—and to price its shares—on the basis of its industrial operations rather than its financial ones.
GE has already said it wants to reduce its reliance on financial services. Jeffrey Immelt, the chairman and CEO of GE, said at an investor meeting in May, “We’re in the process of making GE Capital smaller, and that will continue.”
But the company’s higher-yielding businesses, such as leveraged loans, are likely to remain focal areas, Immelt said, according to a transcript of his presentation. Although he did not mention GE Antares by name, or discuss commercial lending, Immelt said, “We’re going to have less real estate and consumer as time goes on. And we’re going to continue to originate at high margins.”