As the first definitive step to reduce credit risks and focus
on core industrial businesses,
General Electric Company
) has recently filed an initial public offering (IPO) of its
North American consumer lending unit. The IPO is expected to be
closed by late 2014. Subsequently, GE Capital Retail Finance will
operate under the name "Synchrony Financial" and will trade on
the New York Stock Exchange under the symbol SYF.
General Electric is currently contemplating to completely exit
the Retail Finance business through a split-off transaction in
2015. This might also include the divestiture or disposal of all
or the remaining interests in the business.
The North American consumer lending business includes store
credit cards for retail giants like
Wal-Mart Stores Inc.
J. C. Penney Company Inc.
). General Electric will sell 20% of this business through the
IPO. The remaining shares of the unit will be distributed to the
shareholders of the parent company in a tax-free transaction.
Post-recession, General Electric has been steadily dismantling
its real estate and home loans to strengthen the balance sheet of
GE Capital. Ending net investment or ENI (excluding cash and cash
equivalents) for GE Capital, a measure of its balance sheet,
dropped to $380 billion at year-end 2013 from $556 billion in
2008. With the divestiture, General Electric anticipates to
reduce it further to around $300 billion.
The new entity will operate as a standalone company valued at
about $16 billion to $18 billion, competing with other players in
the industry such as
Discover Financial Services
American Express Co.
Capital One Financial Corp.
Strategic Shift in Business
With the spin-off, General Electric intends to focus more on its
industrial business. The company expects GE Capital profit to
drop to $7 billion in 2014 and to $5 billion in 2015.
The gradual rebalancing of GE Capital's debt portfolio has
further reduced credit-default swaps tied to debt to 69.9 basis
points - the lowest level since Jan 2008. As credit-default swaps
typically decline with an improvement in investor confidence, it
signifies that GE Capital is more creditworthy to derivative
traders at present than it was before. This further offers a
lucrative option to exit the market on a high.
The spin-off will realign the corporate strategy of the company
to a manufacturing-based entity with a diligent focus on
big-ticket items such as medical equipment and scanners.
General Electric is one of the largest and the most diversified
technology and financial services corporations in the world. With
products and services ranging from aircraft engines, power
generation, water processing, and security technology to medical
imaging, business and consumer financing, media content, and
industrial products, the company serves over 100 million
customers worldwide. Its segments include Power & Water, Oil
& Gas, Energy Management, Aviation, Healthcare,
Transportation, Home & Business Solutions, and GE Capital.
General Electric currently has a Zacks Rank #4 (Sell).
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