By Ted Mann, Emily Glazer and Dana Mattioli
Wells Fargo & Co. is in talks to buy all or part of General
Electric Co.'s biggest lending operation, a move that could help
the San Francisco bank extend its lead in helping to finance
midsize businesses.
General Electric is selling the portfolio consisting of $74
billion of loans to U.S. businesses as part of its plans to
dismantle what was one of the U.S.'s largest banks, people familiar
with the matter said.
GE is in talks with Wells Fargo as well as other bidders, the
people said. Further details, including a possible price, weren't
available.
It is extremely rare for such a large portfolio of loans to hit
the market. Buying such a big block could be particularly
attractive now because interest rates are so low, making it harder
for banks to make money. For example, Wells Fargo's net interest
margin, a measure of how much money it can make from lending out
customer deposits, has dropped consecutively for the past 11
quarters. Last week, the bank said that margin shrank to 2.95% in
the first quarter from 3.2% in the same period a year earlier.
Midsize lending is also in Wells Fargo's wheelhouse. It is one
of the largest lenders to such businesses--typically companies with
revenue ranging from $25 million to $500 million--and has been
seeking to bolster lending in this area. The bank last year
estimated it lends to about 25% of these companies, with more than
$80 billion in loans to such companies in 2013, the latest data
available, up from $74.2 billion in 2012.
GE considers the business up for sale to be one of the strongest
parts of its GE Capital operations, providing financing for
companies such as fast-food franchisees, recreational-vehicle
dealerships and supermarket chains. It has more than 260,000
customers and dealers, according to GE.
Wells Fargo has already had preliminary talks with regulators
about the possible acquisition. The bank is likely to continue
keeping regulators, such as the Federal Reserve and the Office of
the Comptroller of the Currency, abreast of its plans even if just
informing them of considerations among the parties.
Any deal could be Wells Fargo's largest since its roughly $15
billion acquisition of Wachovia Corp. during the financial
crisis.
If it were sizable enough, such a purchase could change the way
regulators view Wells Fargo compared with its bigger competitors.
Rivals such as such as J.P. Morgan Chase & Co. and Citigroup
Inc. are required to set aside more capital than Wells Fargo to
guard against recessions or deep losses, which would depress
profitability. Wells Fargo currently is required to hold less
capital as a simpler bank, but a deal like this could boost it to a
higher level.
The bank is already buying part of GE's $26.5 billion portfolio
of investment in office building and other commercial property. But
Chief Financial Officer John Shrewsberry dropped a hint last week
that more could be in the pipeline. "There is opportunity there,"
he said on an earnings call. "We will definitely be working closely
together."
General Electric has said it would sell off $200 billion in
assets over the next two years. Any agreement 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 also has contacted potential buyers for its $16 billion
private-equity lending business, according to some of the
people.
Mr. Immelt and his management team decided in February to push
forward with a plan to exit from 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.
GE Capital CEO Keith Sherin is leading the process to sell GE
Capital's remaining businesses, amounting to about $165 billion in
assets. In addition to the U.S. middle-market lending business and
its private-equity lending operation, GE Capital also is 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
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