US conglomerate GE’s chairman and chief executive, Jeff Immelt, announced that the company is putting its financing unit, GE Capital, up for sale today (10 April). The sprawling financial business is likely to be sold in pieces, said a spokesperson, and the process is anticipated to take up to 24 months.
Explaining the decision in a letter published on the firm’s website, Immelt identified both push and pull factors. He pointed to the positive environment for financial services sales citing the initial public offering of Synchrony Financial and other successful sales of GE’s financial businesses – it sold its Australian and New Zealand commercial finance business last month. Immelt also referred to the more difficult regulatory environment for financial institutions. As a wholesale funded entity, it is becoming more difficult for GE Capital to compete with banks, he said in an interview on CNBC.
In tandem with the sale announcement, it was revealed that GE has agreed to sell the bulk of its real estate assets worth around $26.5 billion. Of that total, Blackstone and Wells Fargo have bought the majority for around $23 billion with another buyer taking around $4 billion of assets, according to a source familiar with the situation.
The asset manager and the US bank are set to divide the assets behind the $23 billion deal between them. Of the credit assets, Wells Fargo is set to buy performing first mortgage commercial real estate loans valued at $9 billion in Canada, the US and the UK. BREDS, Blackstone’s real estate debt fund, will buy performing first mortgage loans in Mexico and Australia for $4.2 billion. While BXMT, Blackstone’s listed real estate investment trust, will buy a $4.6 billion portfolio of mainly US first mortgage loans. Wells Fargo will finance the purchase by BXMT.
On the equity side, Blackstone’s US and European funds will buy $3.3 billion and €1.9 billion of assets from GE.
Initial closes on the sales are expected over the course of the second and third quarters of this year.
Last month, GE announced that it would sell its consumer finance business in Australia and New Zealand to a consortium comprised of alternative investment firms Värde Partners and KKR along with Deutsche Bank.
Immelt said that GE could offer better value to shareholders as an industrial company with the financing side stripped out. But it will retain its aviation, healthcare and energy vertical financing businesses which will not be included in the sale.
Cash raised from the sale will be invested in a $50 billion share buyback scheme that was recently approved by the GE board. That buyback is part of a plan to return $90 billion to shareholders.
GE Capital generated net income of $7 billion in 2014. It has operations in more than 40 countries and assets totalled $499 billion at the end of 2014. Business lines include corporate finance, equipment finance, retail credit and commercial real estate finance, as well as the aviation, healthcare and energy finance business units that are not included in the sale.