General Electric Co. has launched the bidding process for a $40
billion chunk of its U.S. commercial-lending operation, a crucial
step in its effort to escape regulation by the Federal Reserve.
As part of its continuing effort to sell off the bulk of its
$500 billion financial-services arm, GE Capital, the conglomerate
is seeking buyers for the U.S. portions of its dealer-financing and
corporate-finance businesses, which provide loans for equipment
purchases and truck vendors, as well as leasing and asset-backed
loans for midsize businesses.
GE says the lending units account for slightly more than half
the $74 billion in loans and other assets at its U.S.-based
commercial-lending operation.
GE is working with Credit Suisse Group AG and Goldman Sachs
Group Inc. on the sale. The business units could all go to a single
buyer or could be divided and sold separately, these people
said.
J.P. Morgan Chase & Co. is overseeing all of the sales
processes.
GE has dubbed the effort to sell this chunk of its
commercial-lending business "Project Jupiter." Potential bidders
include Toronto-Dominion Bank, CIT Group Inc., Ally Financial Inc.
and Wells Fargo & Co., according to the people familiar with
the matter. Other large and midsized banks, as well as
private-equity firms are expected to express interest, they
added.
A person familiar with the matter said GE has circulated a
"teaser" outlining the assets for sale, but that a deal for the
dealer-financing and corporate-finance businesses isn't expected
until the second half of the year.
Before GE started paring it down, GE Capital would have ranked
as the country's seventh-largest bank. The company is shrinking it
as it prepares to ask regulators next year to lift its designation
as a "systemically important financial institution." The label,
applied to financial institutions that could threaten the economy
in a collapse, subjects GE Capital and GE to tighter regulation and
tougher capital requirements.
If successful, GE would be the first financial institution to be
de-designated a SIFI.
GE executives last week said they have seen
stronger-than-expected demand for some of the assets being sold
off, such as its sponsor-finance unit, which provides financing for
leveraged buyouts and the private equity industry. A deal for the
sale of that business—the sale of which is dubbed "Project
Atlas"—could be announced as soon as this week.
Other pieces of the commercial-lending unit are likely to be
sold off separately, including its franchise-finance unit, for
operations like fast-food restaurants, and small units that lease
railcars and manage automobile and trucking fleets for commercial
clients.
Since GE announced on April 10 that it planned to sell off the
bulk of GE Capital and largely exit the lending business, it has
been clear that a primary consideration has been escaping the SIFI
designation. To do that, executives in April said they would focus
on slimming down GE Capital's operations in the U.S. before making
a formal application to the Fed in 2016.
"The faster we go and the smaller we get certainly in the
U.S....the earlier we'll be able to address the characteristics
that made us systemic and apply to de-designate," said Jeffrey
Bornstein, GE's chief financial officer, on a conference call with
investors April 10.
GE has been weighed down in the years since the financial crisis
by GE Capital, which in many years accounted for around half the
company's profit but which was a negative for investors focused on
GE's jet engines, power turbines and hospital scanners.
Regulatory limits are also making the business less
profitable.
Chief Executive Jeff Immelt wrote in a letter to investors this
month that GE Capital's returns had fallen below GE's cost of
capital, meaning returns on things like loans for
recreational-vehicle dealerships were no longer reaping the reward
for GE that the same money could have in other areas of the
business.
The company expects to have the bulk of the assets sold in
2016.
Write to Gillian Tan at gillian.tan@wsj.com, Ted Mann at
ted.mann@wsj.com and Dana Mattioli at dana.mattioli@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires