Digging Into GE's Japan Exit Plan
On May 13, the Wall Street Journal reported that General Electric Company (NYSE: GE) is looking for a buyer for its estimated $5 billion commercial lending arm in Japan, the latest in a series of moves refocused operations back on core industrial manufacturing businesses.
GE CEO Jeffrey Immelt continues to methodically pare down his GE Capital unit from a $500 billion global financial conglomerate, to a much smaller operation geared to support GE's efforts in its key aviation, health care and energy vertical markets.
This latest announcement follows the spin-out of GE's consumer lending operations into Synchrony Financial (NYSE: SFY) last August, and its $26 billion dollar sale of commercial real estate assets to The Blackstone Group and Wells Fargo & Co (NYSE: WFC) in a behind-the-scenes deal engineered by Blackstone's CEO Steve Schwarzman.
Blackstone's commercial mortgage REIT, Blackstone Mortgage Trust (NYSE: BXMT), effectively doubled its assets under management (AUM) with the acquisition of $4.6 billion in global commercial mortgages, Blackstone added to its global real estate portfolio, while Wells acquired the senior debt portion of GE Capital's real estate portfolio.
GE Divestitures – Additional Benefit
GE Capital required a liquidity transfusion from the Federal TLGP during the 2008 financial meltdown. This also led to GE's designation as a "systemically important financial institution" (SIFI), and adherence to strict SIFI compliance requirements.
An additional dividend accruing to GE from selling off the majority of its GE Capital unit assets would be the removal of the SIFI designation, from what was the seventh largest U.S. lending institution.
GE Capital – Japan Commercial Likely Buyers
The GE Capital commercial business unit in Japan primarily finances commercial equipment.
According to the WSJ, the most valuable part of the franchise is the financing of commercial vehicle fleets, with likely buyers including: Japan's largest financial institutions, such as Mitsubishi UFJ Financial Group Inc.'s leasing unit and Sumitomo Mitsui Financial Group Inc.
"GE's Japan commercial lending operation has several divisions, including direct lending to industrial companies purchasing big-ticket equipment like heavy machinery including cranes. It also includes vendor financing, helping manufacturers provide smaller businesses with financing packages for a variety of smaller purchases," according to the Journal.
Tale Of The Tape – 2015 YTD
Despite the financial engineering intended to return GE to its glory days, shares remain essentially flat, up just 1 percent during the past 12 months.
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