As big stories in the document imaging industry go, here’s a big one for you. Last Friday General Electric (GE) announced that it is selling the majority of its GE Capital banking business in an effort to simplify the company and focus on its best-performing segments.
That news was preceded by an announcement on Thursday of the sale of GE’s real estate assets for $26.5 billion with $23 billion of that coming from Wells Fargo bank and private equity firm Blackstone.
Reportedly, GE, valued at $259 billion, has been selling off its media, financial, and appliances assets and doubling down on its industrial manufacturing business to simplify and boost the stock price, which is reportedly down 16% since 2000.
According to an article in US Today, “The financial side of the business has been weighing on the stock due to risks in the business exposed during the financial crisis, as well as the greater regulatory burden it has carried since the mortgage meltdown.”
US Today also reported that as part of the exit, GE will seek to get rid of GE Capital’s designation as a Systemically Important Financial Institution (SIFI), a title that places it under enhanced government scrutiny.
In addition to real estate, GE is selling most of its commercial lending business, its leasing segment, and all consumer platforms, including all U.S. and international banking assets.
GE claims that the new organization will focus on energy manufacturing, including deep-water oil-drilling equipment; power-generation and water technologies, and its aviation business, which makes military and commercial engines. GE will also retain its health care business, including data management.
However, GE is hanging onto some financing capabilities, including aircraft-leasing operations and lending to energy and health care customers.
In a statement, GE Chairman and CEO Jeff Immelt said, “GE Capital has solid businesses and a great team. However, the business model for large, wholesale-funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward.”
Under the plan, GE expects more than 90% of its earnings will be generated by its industrial businesses by 2018, up from 58% in 2014. According to Immelt, those businesses offer higher returns.
GE Capital, meanwhile, will make up 10% of the company’s revenues by 2018, down from 46% in 2001.
Meanwhile, the Wall Street Journal observed, “In cutting loose its banking business, General Electric Co. isn’t just shedding a profitable lending operation. It’s also losing a rich source of tax breaks.”
The Journal says that GE has long used the financial operations of GE Capital to hold down its overall tax rate, a strategy that has allowed the conglomerate to pay taxes at a lower rate than its peers. The impact has been significant enough that GE discusses it in its securities filings and was deterred for a long time from seriously considering a spinoff.
“But the company will lose access to some of those tax efficiencies as it sells off the bulk of GE Capital’s business over the next two years. An early hit will come from the decision to repatriate $36 billion in GE Capital profit that it had been sheltering overseas—a move that will bring a $6 billion tax bill—but the full impact will be broader,” said the Journal article.
The pressing issue now for GE Capital employees and the dealer community who relies on GE is what’s next? And that safe to say, is a bit of a mystery for all involved right now although it continues to be business as usual for GE Capital in what is most assuredly a most unusual environment since the announcement.
Coincidentally, on Tuesday I interviewed GE Capital’s General Manager Glen Clark for a leasing and financing article I’m writing for the June issue of ENX. He addressed the latest news as best as he could at the beginning of our interview.
“GE is selling the majority of its businesses and the office imaging business is one of those that have been targeted for sale. We are committed to our current customers and continue to be committed to our current customers and new customers. We have a market-leading franchise. We have some talented professionals working for us and a valuable customer base so we fully expect to be sold to a business or buyer in the marketplace who’s interested and invested in the financial services industry and can offer a good environment for growth. This can be a very positive thing as it works through.”
For further speculation on how this news might affect the office technology dealer community, see Tom Callinan’s article in this week’s issue of ENX/The Week in Imaging.
