GE Capital will sell off about $275 billion in assets over the next two years in an effort to get rid of its designation as a Systemically Important Financial Institution (SIFI), GE announced on Friday (April 10).
The sales, which include $23 billion in real estate loans to Blackstone and Wells Fargo as well as the 85 percent of Synchrony Financial that GE still owns, will unload all but the roughly $90 billion in GE Capital’s loans that are directly related to its industrial businesses, such as aircraft-engine financing.
Right now, GE Capital’s assets would qualify it as the seventh-largest U.S. bank. But after cutting out more than three-quarters of its finance-business assets, GE expects that more than 90 percent of its earnings will be generated by its industrial businesses by 2018, up from 58 percent in 2014.
GE is hoping that will make the finance business small enough that the Financial Stability Oversight Council (FSOC) will remove its designation as a SIFI. “We have a constructive relationship with our regulators and will continue to work with them as we go through this process,” GE CEO Jeff Immelt said in a prepared statement.
Being designated as a SIFI raises GE’s capital requirements and reduces the profits it can feed back to industrial operations or for dividends or share repurchases. Shareholders also view the finance business as too risky after it came close to taking GE down during the financial crisis.
Details of most of the asset spinouts were not announced on Friday. But Blackstone and Wells Fargo said they will buy about $23 million in real-estate loans, which make up the bulk of GE Capital/Real Estate. Wells Fargo will buy $9 billion in first-mortgage commercial real estate loans in the U.S., Canada and the U.K. Blackstone will buy $3.3 billion in office properties in Southern California, Seattle and Chicago; €1.9 billion in European real estate, mostly in the U.K., France and Spain; and $4.2 billion in mortgage loans in Mexico and Australia. Blackstone will also buy another $4.6 billion in U.S. first-mortgage loans, with Wells Fargo providing the financing.
Other buyers have also expressed interest in another $4 billion in GE Capital’s real estate assets, the company said.
The spinout also includes GE Capital’s previously announced split-off of the 84.6 percent it still owns of its former credit-card unit, now known as Synchrony Financial, after a $2.8 billion IPO in 2014. GE’s Synchrony share is worth about $21.2 billion.