The M&A Scene
GE Capital Sale Expected to Shake Up Middle-Market Lending
A step-by-step look at GE Capital's breakup plan and its likely aftermath, including recent comments by bankers who may be looking to buy various parts.
With around $500 billion in assets, General Electric Capital is the nation's seventh-largest bank holding company — sandwiched between No. 6 Morgan Stanley and No. 8 U.S. Bancorp. The firm's unwinding — which began with last year's spin-off of GE Capital's consumer finance unit, and accelerated with the announcement that GE plans to sell most of the rest of the division — augurs a shake-up of numerous U.S. lending segments.
GE spent years trying to find a buyer for its consumer finance business before deciding to spin it off as a separate company last July. So far, GE's strategy has paid off; the industrial giant still owns about 85% of Synchrony, and shares in the consumer lender have risen by about 35% since its initial public offering.
A majority of Synchrony's business consists of private-label credit card loans, and the firm has been seeking to maintain its relationships with large retailers. The company has also been looking to build a deposit base through Synchrony Bank as a way of replacing the low-cost funding it previously obtained as a result of GE's strong credit rating.
General Electric's decision to sell off most of the rest of its finance arm, announced April 10, was driven in large part by regulatory considerations. The move is expected to allow GE to escape the burdens associated with being designated as a systemically important financial institution.
Wells Fargo, along with the private-equity giant Blackstone Group, is buying the majority of GE Capital's commercial real estate loans. In a deal also announced April 10, Wells agreed to buy $9 billion of loans in loans in the United States, United Kingdom and Canada. The San Francisco bank will also help Blackstone finance its purchase of a $4.6 billion commercial mortgage portfolio.
GE Chief Financial Officer Jeff Bornstein said on an earnings call this month that the company has received an "incredible" amount of interest from potential buyers of other parts of GE Capital. The inquiries, he said, have come from both banks and nonbanks, both in the United States and overseas. "Our goal is to monetize these assets, these platforms as fast as we can," Bornstein said.
GE Capital's $74 billion commercial lending group includes GE Sponsor Finance, which lends to private-equity backed companies; GE Corporate Finance; GE Equipment Finance; and other businesses. Some of these businesses are likely to be sold to separate buyers. Wells Fargo and Mitsubishi UFJ Financial Group are reportedly among the interested parties.
Wells Chief Financial Officer John Shrewsberry acknowledged interest in acquiring additional parts of GE Capital, beyond the commercial real estate portfolio, though he did not comment on any particular lines of business that GE is looking to sell. "There is opportunity there. I can't really be specific about it," Shrewsberry said in an April 14 conference call. "But we will definitely be working closely together to see if there are other ways that we can help them."
Minneapolis-based U.S. Bancorp is also among the banks sniffing around GE Capital. Chief Executive Officer Richard Davis said that GE Capital's leasing business is of particular interest, but other business lines that overlap with U.S. Bancorp's existing franchise might also be attractive. "My appetite is definitely higher based on the lack of alternatives on how to deploy both the deposit growth we have and the capital that we are starting now to build," Davis said during an April 15 earnings call.
At the same time, Davis said he would need to be convinced that any loans being acquired were sufficiently underwritten. "And if we can't get that level of comfort, I'll pass all day long," he said, "because I really don't need to introduce anybody else's problems into our otherwise high credit quality."
GE Capital has long been TCF Financial's main competition in inventory finance, CEO William Cooper said during an April 21 earnings call. He told analysts he'd look at the opportunity, but added that the disruption could also help TCF grab customers.
Key Corp. Chief Executive Beth Mooney made the same argument. "GE, I would say, has been a strong competitor in the market," she said during an April 16 earnings call. "We see them in many of our businesses, and we think these kinds of situations offer great opportunities for our team, as markets get disrupted."
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