GE Sheds Financial Unit and Returns to Industrial Roots

General Electric is leaving the lending business, a major source of both profit and risk, as it continues to whittle its focus down to an industrial core.

The company said Friday that it will sell most of its GE Capital assets over the next two years. It said it has been tougher to generate acceptable returns on the businesses and that market conditions are favorable for a sale. GE also plans to buy back as much as $50 billion of its own stock.

That helped push shares of the Fairfield, Connecticut, company up to their highest price in several years in Friday morning trading.

In addition to the GE Capital sale, the company will sell most of its GE Capital Real Estate to funds managed by the investment firm Blackstone. Wells Fargo will buy a portion of the loans at closing. The company plans to sell additional commercial real estate assets that will bring the total value of the deal to around $26.5 billion.

The once broadly diverse conglomerate has been steadily shedding businesses as it focuses more on building industrial machines like aircraft engines, medical imaging equipment and selling big, complex products like power generators and oil and gas equipment.

Last September, it announced the sale of its appliance division to the Swedish appliance maker Electrolux for $3.3 billion. Before that deal, it spun off its consumer credit card business into a new company, Synchrony Financial. In recent years it also has sold NBC Universal and its insurance operations.

An extended run of low-interest rates has made GE's latest divestiture more feasible for the company.

"We see a very attractive market for selling our assets," GE Capital Chairman and CEO Keith Sherin, Chairman told investors during a Friday morning conference call. "Bottom line, we think the timing's right to execute this strategic shift."

The financial division generates almost half of the company's profit, but is also is a huge regulatory burden and has caused some anxiety for investors. Heavy exposure to commercial and residential mortgages through its finance division threatened GE's existence during the financial crisis.

Company officials noted that GE Capital's return on equity slipped from 13.1 percent in the final quarter of 2008 to 8.6 percent in the fourth quarter of last year.

Shedding these businesses will lead to a more focused company with improved risk, Chairman and CEO Jeff Immelt told analysts.

GE is already in talks with regulators about removing its tag as a "Systemically Important Financial Institution," which comes with a myriad of requirements not asked of an almost purely industrial entity.

The 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 $16 billion in after-tax charges in the first quarter.
But the company also said it expects to return $90 billion back to shareholders through the buyback, its dividend and the Synchrony split.

Shares of GE soared more than 7 percent, or $1.91, to $27.64 Friday in midday trading, while broader indexes were largely flat.