GE to Sell Commercial Lending, Leasing Businesses to Wells Fargo -- 4th Update
October 13 2015 - 10:42AM
Dow Jones News
By Ted Mann, Emily Glazer and Lisa Beilfuss
General Electric Co. agreed on Tuesday to sell its commercial
lending and leasing business--the largest remaining chunk of its
U.S. financial services operations--to Wells Fargo & Co.
The sale marks the largest divestiture to date in GE's plan to
part ways with the bulk of GE Capital, its giant finance business
that long accounted for about half its profits but whose risks have
rattled investors and weighed on its stock.
Tuesday's plan is perhaps the most important milestone yet for
the company as shedding the lending business will be key to its bid
to escaping oversight from the Federal Reserve.
With the latest move, GE has sold off the guts of the
middle-market lending business. The sale includes about $32 billion
of assets and 3,000 employees and is made up of GE Capital's global
commercial distribution finance, North American vendor finance and
corporate finance platforms. It is expected to be completed in the
first quarter of next year.
Financial terms of the deal weren't disclosed.
GE Capital's remaining $5 billion sliver of franchise finance,
which makes loans to acquire fast-food restaurants and other
business franchises, is expected to be sold later this year.
Wells has been in discussions with GE about this business for
months, people familiar with the deal said. In fact, Wells Fargo
initially wanted to buy the full business from GE and asked GE to
take it off the market, some of these people said. But GE decided
not to do that after realizing the appetite from other possible
buyers and the monetary advantages it would have if it sold it off
in chunks, these people said.
Wells Fargo, with $1.73 trillion assets, remains the
third-largest bank by assets behind Citigroup Inc.'s $1.83
trillion, according to the banks' most recently quarterly reports.
It likely wouldn't be until early next year that Wells Fargo could
surpass Citi by asset size, said Scott Siefers, regional bank
analyst at Sandler O'Neill.
Though Tuesday's announced $32 billion acquisition makes a small
dent in Wells Fargo's overall loan base at around 3%, the bank has
still been very active with GE.
"If you aggregate the three deal series of transactions they
will have acquired or financed the acquisition of nearly a small
SIFI bank" at around $47.5 billion, said Mr. Siefers, based on his
analysis.
Since these are businesses that Wells Fargo is already embedded
in and growing its scale, Mr. Siefers said he isn't concerned from
a risk standpoint. "Wells Fargo certainly has the acumen to digest
stuff like this and not miss a beat," he said. "This whole series
of transactions is representative of Wells' unique position to
capitalize on industry dislocation."
GE Capital executives have labored since April to sell off
pieces of the business, starting with those most likely to lose
their value and their most valuable employees if they languished on
the market, like the company's Antares unit, which lends to
private-equity firms. But to achieve its goals of rapidly shrinking
the lending business and finding a way out of the Fed's oversight,
the deals team needed to find a buyer for its U.S. commercial
lending and leasing business, the division sold to Wells on
Tuesday.
GE Capital deal makers have raced to meet parent company
executives' targets for striking deals. When GE announced its plans
in April, the company pegged a goal of $90 billion in announced
sales by year's end, then quickly raised that target to $100
billion or more. The company says it has now signed deals for more
than $126 billion of the more than $200 billion in assets the
company plans to sell. Focus will now turn to include more of GE
Capital's overseas operations, which are expected to be sold off
over the coming year.
Tim Sloan, head of wholesale banking at Wells Fargo, called the
acquisition an "outstanding opportunity" for the lender to deepen
relationships and strengthen its presence in key commercial lending
markets.
Chairman and Chief Executive John Stumpf had said publicly there
were possibilities for more work with GE following its commercial
real-estate loan portfolio acquisition earlier this year. The bank
acquired GE's railway leasing business in late September.
GE shares edged up 0.5% to $28.23 in morning trading, while
Wells Fargo slipped 0.6% to $51.87.
Write to Ted Mann at ted.mann@wsj.com, Emily Glazer at
emily.glazer@wsj.com and Lisa Beilfuss at lisa.beilfuss@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 13, 2015 10:27 ET (14:27 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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