By Ted Mann
General Electric Co. began the process of splitting off a big
chunk of its giant lending arm, a move that will create a new,
stand-alone credit card company and refocus the conglomerate on its
industrial operations.
Thursday morning, GE filed for an initial public offering of a
unit that provides financing plans and private-label credit cards
for North American retailers. GE has named the new company
Synchrony Financial and plans to sell about 20% of it to the
public. The rest will be distributed to GE shareholders next
year.
The retail-finance unit provides store-branded credit cards and
financing for consumers at major retailers including Wal-Mart
Stores Inc., Amazon.com Inc., J.C. Penney Co and Gap Inc. All told,
it financed $93.9 billion in sales last year, with net earnings of
$2.0 billion, down from $2.1 billion in 2012, according to the
filing.
The results underscore the dilemma facing Chief Executive Jeff
Immelt: Investors don't like GE's heavy exposure to banking and
want those operations slimmed down, but they still bring in nearly
half of the company's profit and a lot of cash. GE is splitting the
difference by carving out the retail-finance business and
refocusing GE Capital, GE's financial wing, on loans to medium-size
companies.
Mr. Immelt has staked his efforts to raise GE's share price,
which has lagged stubbornly below $30 since the recession, on the
effort to shrink GE's dependence on the financial segment of its
business. His goal is to reduce GE Capital's contribution to the
company's earnings to 30% of total earnings by the end of 2015.
The finance unit has been expanding, extending operations with
14 new corporate partners, including new credit offerings and
payment operations in 2013. It could have a value of up to $20
billion, analysts from Bernstein Research said last year.
The GE unit had $57 billion in receivables, compared with $66
billion for Discover Financial Services, another big card company,
and it has 62 million active accounts.
GE is picking a good time to sell shares. Investors are showing
more enthusiasm for consumer-finance companies, which were walloped
during the recession. Shares in Discover, for example, are up more
than 80% in the past two years.
IPO investors have shown an appetite for consumer lending
operations. Auto lender Santander Consumer USA Holdings Inc.
increased the size of its IPO earlier this year, though its shares
recently fell below their offering price.
Lauren Pollock and Ben Fox Rubin contributed to this
article.
Write to Ted Mann at ted.mann@wsj.com
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