General Electric announced on Friday that it will shed the bulk of its GE Capital assets.
The company will sell a majority of $US26.5 billion in real estate assets to Blackstone and sell the performing loans from this portfolio to Wells Fargo. GE also said it will retain some of its “vertical” financing units and plans to return a ton of cash to shareholders. You can read more about the company’s plan here.
But along with this news, GE added another wrinkle: the company wants to shed its designation as a “Systemically Important Financial Institution.”
Here’s the relevant part of GE’s announcement:
GE has discussed this plan, aspects of which are subject to regulatory review and approval, with its regulators and staff of the Financial Stability Oversight Council (FSOC). GE will work closely with these bodies to take the actions necessary to de-designate GE Capital as a Systemically Important Financial Institution (SIFI). “We have a constructive relationship with our regulators and will continue to work with them as we go through this process,” Immelt said.
This SIFI designation was formed by regulators in the wake of the financial crisis, and companies with this designation are considered by regulators as companies that could trigger a financial crisis if they faced financial distress.
GE was first designated as a SIFI in the summer of 2013. On its own, GE Capital would be the 7th-largest bank in the US on its own, so it makes some sense that the company would be subject to this additional regulation.
But the company has been reshaping itself over the last couple years and doesn’t think its quite as systemically important anymore.
Earlier this year, GE spun off its personal finance arm, Synchrony Financial, in an initial public offering and the company said that it plans to totally divest this unit by the end of 2015. And now with the divestment of its real estate operations, and the associated loans, the company said it will shed about $US200 billion in ending net investment, or ENI. This brings the company’s total ENI to around $US90 billion, down from more than $US580 in the years leading up to the financial crisis.
In a note to clients on Friday, analysts at Goldman Sachs noted that during the financial crisis, GE’s real estate business saw net income decline 170%.
And now this headache is a step closer to being off the company’s books.