By Thomas Cullen,
International Business Writer
General Electric Co. made the decision to sell off its consumer lending arm of GE Capital in Australia and New Zealand. The New York Times reported that the unit would be sold to a collection of public and private investors, which include Kohlberg Kravis Roberts & Co, Värde Partners, and Deutsche Bank.
GE Capital previously conducted business in the areas of providing loans, credit cards, and financing for its products that it sells through intermediaries in New Zealand and Australia. General Electric is expected to make $6.26 billion ($A8.2 billion) from the sale. Despite this sale, GE Capital’s Austrailia and New Zealand CEO, Duncan Berry, said that they will still maintain their commercial lending and leasing businesses.
GE has been heavily encouraged by its shareholders to exit most of its involvement in the financial sector, represented by GE Capital. The reasoning for this is that the company almost did not survive the 2008 economic crisis mostly because of its investment in bad commercial and residential loans. Since then, GE has been scaling back GE Capital by selling off the more risky areas of its company for billions of dollars. Despite these structural changes in GE, it has not been able to break the $30 per share ceiling and it is also falling behind its industrial competitors (most of whom do not have a financial wing).
Both GE Capital and its parent company, General Electric, are going through the stages of slimming down its portfolio. The Economic Times quoted Geoff Culbert, the CEO of GE Australia and New Zealand, saying that, “This transaction allows us to focus on our strategy to be the world’s premier infrastructure technology company with a specialty commercial financial services business.”
This trend is not only focused in the Australia/New Zealand region. GE as a whole has trimmed various activities such as appliance manufacturing so that it can focus on the production of heavy industrial, energy, and healthcare products. GE Capital, being a subunit of the company, has followed the consolidation trend by refocusing the companies’ resources into commercial real estate, lending to mid-sized firms, and the purchasing of heavy equipment.
The main goal for GE as a greater corporation is to raise its stock price and to honor the calls from stockholders to rethink the sectors that GE is involved in. The main gripe that investors had is that they were too dependent on the financing and lending areas of their business, which is what got then into serious trouble in 2008.
Today, the company is trying to rely more in its bread and butter, per say, in the industrial, aircraft parts, and medical equipment areas of production. Bloomberg continued by saying that GE management has set a goal of having three quarters of earnings coming from the industrial areas of its business while having the last quarter come from GE Capital. Barbara Noverini, an analyst form Morningstar Inc, said that, “The assets we expect will remain in GE Capital’s portfolio are those that complement the industrial business such aircraft leasing.”
A version of this article appeared in the Tuesday, March 24th print edition.
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