With GE Capital Wind-Down, Regulators Notch a Big Win
By Kevin Wack and Rob Blackwell
It took five years after passing a massive regulatory reform bill, but policymakers finally succeeded Friday in forcing a large financial company to break itself up. General Electric Chief Executive Jeffrey Immelt announced plans to sell most of the assets in the company’s financial arm, GE Capital, over the next 18-24 months. Once that process is finished, less than 10% of GE’s operating earnings are expected to come from its finance arm, down from 57% in 2007, as the company refocuses on its industrial roots. Immelt said one of his goals was to have regulators remove the “systemically important financial institution” label they slapped on GE after passage of the Dodd-Frank Act. Treasury Secretary Jack Lew, who chairs the Financial Stability Oversight Council, told lawmakers last month that any SIFI designation can be removed if a company no longer poses a potential threat to the economy. Another factor in GE’s decision was the recent performance of its spun-off consumer finance arm, Synchrony Financial. Synchrony’s stock price has risen by more than 30% since its initial public offering last summer. GE now seems to believe that many of its other financial assets may also be worth more if they’re owned by someone else. Under the plan announced Friday, GE expects about $35 billion in capital to be returned to the parent company by 2018. Karen Shaw Petrou, managing principal at Federal Financial Analytics, said Friday that GE, with its mix of financial and industrial businesses on a massive scale, is one-of-a-kind. Other SIFIs are either banks or insurance companies like MetLife, Prudential and AIG. “GE was unique before the crisis, through it, and now,” Petrou said. She added that it would have been “very expensive” for General Electric to continue operating as a SIFI, based on the supervision plans laid out by the Federal Reserve Board.