GE Capital Downsizing on Track as GE Bulks up Infrastructure
GE Capital, the financial services unit of General Electric Company (GE) recently announced that it expects the sale of its GE Money Bank AB (Nordics) consumer finance business to Spain’s Banco Santander, S.A. (SAN), to close in the fourth quarter of 2014.
Spain’s biggest bank agreed to acquire GE Capital's consumer finance business in Sweden, Norway and Denmark, for about $953 million. The transaction, announced in late June, is making good headway in terms of regulatory approvals.
GE Capital anticipates that the timing of the close, and the related gains, will lower third quarter 2014 earnings by about 2 cents per share, with the fourth quarter 2014 earnings increasing by an equivalent amount. Full-year outlook for General Electric or GE Capital remains unchanged.
This transaction is a part of the conglomerate’s long-term strategy to shrink its financial arm, GE Capital, while aligning its portfolio toward core industrial operations. At its height, GE Capital accounted for just under half of the revenues. In the second quarter, GE Capital contributed about 43% of the company’s profits.
The company now aims to downsize its financial business so that it accounts for just 25% of its profits by 2016, with the remaining 75% coming from the industrial segment.
To further stimulate its shift away from the financial business, and boost its industrial operations, General Electric spun off its private-label credit-card business under the name Synchrony Financial (SYF) in late July this year. Earlier this month, the corporate also sold its appliance business to Electrolux AB for $3.3 billion.
In its aggressive restructuring stance, General Electric has been pursuing acquisition targets that promise robust synergies and are immediately accretive. The Synchrony divestiture came on the heels of General Electric’s successful bid to acquire the energy assets of French conglomerate Alstom for $13.5 billion.
GE has also ventured into the lucrative oil & gas equipment business via acquisitions, investing roughly $10 billion as it bought Lufkin, John Wood, Wellstream, and Dresser Inc. However, it recently passed on Dresser-Rand Group Inc. (DRC), refusing to outbid Siemens.
The conglomerate, as it sheds its financial assets on one hand and strengthens its core industrial operations on the other, looks poised to spur long-term growth.
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