General Electric will sell most of its enormous finance arm as it turns its focus more to its industrial heritage and away from a big money generator that has rattled some investors.
The company announced Friday that it would sell off most of GE Capital, a $500bn division that has long accounted for half of the conglomerate’s profits but has also weighed on the company’s share price as investors have worried about the scale of its financial holdings.
The sell-off is a major shift for GE. The conglomerate will now focus around aviation, healthcare, oil and gas and transportation, shifting away from complex financial holdings that wiped billions off its share price during the financial crisis.
The announcement is the latest – and largest – in a series of moves by chief executive Jeff Immelt to tighten GE’s focus after decades of expansion. In 2013, GE sold off its remaining stake in media group NBC Universal to Comcast. It sold its appliances unit to Electrolux last year and it has already trimmed its financial portfolio. “Creating a simpler GE will position us to deliver superior outcomes around our core capabilities,” Immelt said in a letter to shareholders.
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.
In a first move, GE will sell most of its GE Capital Real Estate to funds managed by Blackstone, and Wells Fargo will buy a portion of the performing loans at closing. The company also plans to sell additional commercial real estate assets that will bring the total value of the deal to around $26.5bn.
Following the 2008 financial crisis, Immelt has been scaling back GE Capital. Earlier this year it sold its lending units in Australia and New Zealand for $6.3bn. But with $500bn in assets, GE Capital remains the US’s seventh largest bank. Investors have complained that the regulatory burden of the giant financing arm has dragged down GE’s stock price.
The company said it decided market conditions were favorable to sell most GE Capital assets over the next two years. It noted that while GE Capital has been an important part of the company, “the business model for large, wholesale-funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward”.
GE Capital chairman and CEO Keith Sherin said in a statement that the successful initial public offering of GE’s retail finance business, Synchrony Financial, helped show that the company’s financial assets “can be more valuable to others”.
The Fairfield, Connecticut, company will keep parts of its financing business related to its industrial operations, like GE Capital Aviation Services, Energy Financial Services and Healthcare Equipment Finance. The company says it will record about $16bn in after-tax charges in the first quarter.
GE will also buy back as much as $50bn of its own stock, sending shares up over 8% in early trading and toward a new high for the year.
