By Ted Mann, Emily Glazer and Dana Mattioli
General Electric Co. is in talks to sell its biggest lending
operation--a $74 billion unit that makes loans to midsize U.S.
businesses--as the conglomerate moves quickly to dismantle what was
one of the country's largest banks, people familiar with the matter
said.
The company is in talks to sell all or part of the business to
Wells Fargo & Co., the people said. Other bidders are involved
as well, they said. Further details weren't available.
A deal to sell the U.S. commercial lending division would hive
off another big chunk of GE Capital not long after the company said
it would get out of banking amid widespread investor discontent and
growing regulatory burdens.
General Electric has said it would sell off $200 billion in
assets by its preferred measure, which excludes cash and some other
items, over the next two years. A deal would mean it already has
worked out deals to part with about half of that total and would
signal to Wall Street that GE's exit from banking will happen even
more quickly than the company has forecast. The company has
publicly given itself two years to complete the process.
The move is part of a strategic shift by Chief Executive Jeff
Immelt to address long-standing investor dissatisfaction with the
level of credit risk at the 123-year-old company and to return GE
to its industrial roots making jet engines, power turbines and MRI
machines.
GE relied on GE Capital for about half of its annual profits
just a few years ago, but has said its returns from GE Capital have
fallen below its cost of capital as the company deals with new
federal regulations that have restricted the business's leverage
and profitability.
A swift sale of the U.S. lending operation would help GE to get
out from many of the tough regulations that come with being
designated a "systemically important financial institution," GE
Chief Financial Officer Jeff Bornstein said. It would also help
limit a potential exodus of top talent in the wake of GE's
announcement to sell off the businesses, he said.
Mr. Bornstein said the company has received substantial interest
in the assets it is selling. "At the moment it gives us real
confidence that we're going to get a lot if not most of this done
domestically in the U.S. in, I think, short order," he said in an
interview Friday.
GE also has contacted potential buyers for its $16 billion
private-equity lending business, according to some of the
people.
GE has considered the U.S. commercial lending business the core
of the GE Capital operation. It has assets worth roughly $74
billion by GE's preferred metric and is a leading player in middle
market banking, providing financing for companies like fast-food
franchisees, recreational vehicle dealerships and supermarket
chains. It has more than 260,000 customers and dealers, according
to GE.
Mr. Immelt has referred to the business as a combination of GE
Capital's core customer with the heartbeat of the U.S. economy.
Wells Fargo has been growing its middle market lending business.
In 2013, Wells Fargo had $81.7 billion in loans to such companies
up from $74.2 billion in 2012, according to data the bank released
last year. It isn't clear whether Wells is in talks to buy all or
part of the GE business.
Mr. Immelt and his management team decided in February to push
forward with a plan to exit GE Capital, according to people
familiar with the matter. The executives told investors that they
were driven primarily by timing: the market for financial assets is
strong, and it was the right time to try to sell GE's financial
operations and refocus on its industrial operations, which are
expected to produce 90% of the company's profits by 2018.
Earlier this month, GE said it would sell $26.5 billion of its
roughly $35 billion real estate portfolio, consisting of office and
commercial buildings as well as a portfolio of loan assets, to
buyers including Blackstone Group LP and Wells Fargo. J.P. Morgan
and Centerview Partners have provided financial advice to GE. Bank
of America provided advisory services.
GE Capital CEO Keith Sherin is leading the process to sell GE
Capital's remaining businesses amounting to some $165 billion in
assets.
In addition to the U.S. middle market lending business and its
private equity lending operation, GE Capital is also trying to sell
a $31 billion international commercial lending business, a $9
billion vehicle fleet management unit and an international consumer
banking unit that holds $37 billion in assets.
Write to Ted Mann at ted.mann@wsj.com, Emily Glazer at
emily.glazer@wsj.com and Dana Mattioli at dana.mattioli@wsj.com
Access Investor Kit for General Electric Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US3696041033
Access Investor Kit for Wells Fargo & Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US9497461015
Subscribe to WSJ: http://online.wsj.com?mod=djnwires