General Electric Co. plans to exit the bulk of its lending business, including a $26.5 billion sale of most of its real estate, as Chief Executive Officer Jeffrey Immelt refocuses the company on its industrial roots.
In the broadest restructuring since the GE Capital unit destabilized GE during the 2008-09 financial crisis, the company said it will keep only those operations that support its manufacturing arms and dispose of its middle-market lending business and all consumer platforms. GE Capital, the largest lender to the middle market, won Mergers & Acquisitions M&A Mid-Market Lender of the Year Award for 2014 after it added a second mid-market lending unit and increased loans made for private equity platform acquisitions by 55 percent.
“During this time of transition, GE Capital remains dedicated to its customers and will continue to honor its commitments. I’m confident we will be even better positioned to serve the needs of our customers going forward. We have built a powerful business over the years resulting in an incredibly valuable franchise and I’m looking forward to the next chapter,” says David Brackett, CEO of GE Antares, a unit of GE Capital.
The shares surged 6.8 percent to $27.48 at 7:31 a.m. in New York before regular trading as GEauthorized a stock buyback of as much as $50 billion. GE said it would take after-tax charges of about $16 billion in 2015’s first quarter, with about $12 billion of that to be non-cash.
“The business model for large, wholesale-funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward,” GE said in a statement.
By 2018, “high-value industrials” will generate more than 90 percent of earnings, up from 58 percent last year, according to GE, whose product lines include jet engines, oilfield equipment and diesel locomotives. GE Capital will be formally merged into GE as part of the shift.
The financing divisions being retained are GE Capital Aviation Services, Energy Financial Services and Healthcare Equipment Finance.
Ending net investment in GE Capital -- a balance-sheet gauge that excludes non-interest-bearing liabilities and cash -- will fall to $90 billion from $363 billion as of Dec. 31 once the disposals are completed, the company said.
The company said it is working with the Financial Stability Oversight Council to get below the threshold to be designated a systemically important financial institution. In a statement, Immelt saidGE has “a constructive relationship” with regulators.
GE Capital had a $499 billion loan portfolio at the end of 2014. The unit, one of the country’s largest non-bank financial companies, has business lines spanning real estate, consumer and commercial lending, and aircraft and energy financing.
The real estate transaction announced Friday is an agreement with Blackstone Group LP and Wells Fargo & Co. valued at about $23 billion, and GE said it’s in talks with buyers for other commercial property that will boost the value of the asset disposals to $26.5 billion.
Blackstone units will acquire U.S. holdings, mainly office buildings in Southern California, Seattle and Chicago, for $3.3 billion, along with a $4.6 billion portfolio of commercial mortgages, mainly in the U.S. The firm also agreed to buy European assets including office, industrial and retail properties, for 1.9 billion euros ($2 billion) and commercial mortgages in Mexico and Australia for $4.2 billion.
Wells Fargo will buy performing mortgages on commercial real estate valued at $9 billion in the U.S., U.K. and Canada, according to a statement by the companies Friday.
GE held an initial public offering last year for its North American consumer business, now known as Synchrony Financial, and plans to spin off the rest to shareholders this year. It has also sold real estate, including several floors of New York’s 30 Rockefeller Plaza building, where GE has offices.
--With assistance from Hui-yong Yu in Seattle.
--Additional reporting by Allison Collins.