Wednesday, November 18, 2015

GE Conducts Synchrony Share Swap

Yesterday, GE finalized the spinoff of the Synchrony credit-card unit, which completed an important step in the company’s goal to shift their focus towards physical production and completely exit retail banking. Synchrony was a $79 billion business and this was the biggest deal GE entered in their strategy to move away from the financial services business. The franchise finance unit is the last to be sold and is expected to be completed in early 2016. Earlier this month, GE also announced it has agreed to sell the commercial lending/leasing portfolios in Australia and New Zealand. GE will, however, continue its aircraft leasing operations and some financing for the energy and healthcare industries as they support GE’s core industrial businesses.
As the seventh largest bank in the US, GE has been designated as a systematically important financial institution (SIFI) and therefore, has to meet tougher regulatory standards. As a result, the company revamped its strategy to rely more on production of physical products and less on financial engineering. GE announced its plan to divest most of GE Capital on April 10th, 2015 and has been working quickly to in order to avoid having to pass the Fed’s annual “stress tests” regarding SIFI regulations.
While exiting the financial services business will significantly decrease earnings, GE believes this divesture will create more value for shareholders in the future, especially because recently, their industrial business has offered higher returns. These changes in strategy will bring GE back to its roots of industrial innovation.  GE CEO, Jeff Immelt believes this shift towards the production of physical products is also necessary for the American economy. Last year, he said, “Many bought into the idea that America could go from a technology-based, export-oriented powerhouse to a services-led, consumption-based economy — and somehow still expect to prosper.” It makes sense that an increase in exports and the jobs that are supported by these exports, are the keys to increasing economic confidence.

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