General Electric’s finance unit, GE Capital, agreed on Friday to sell its Mexican consumer mortgage division to Santander of Spain for 2 billion pesos, or US$162 million, part of the industrial giant’s strategy to sell off non-core financial assets following the economic crisis.
Under the terms of the deal, Santander will take over GE Capital’s consumer mortgage unit in Mexico, which includes a US$2 billion loan portfolio. GE Capital has provided mortgages in the country since 2002.
Santander disclosed the price of the transaction in a regulatory filing with the Mexican stock exchange. The deal is expected to be completed in the first half of next year.
Before the financial crisis, GE had relied on GE Capital for years to bolster its profits. The unit provided handsome revenue from commercial lending and eventually accounted for nearly half of the parent company’s profits.
However, the market turmoil of 2007 and 2008 revealed weaknesses in the unit, most notably its heavy exposure to commercial real estate and subprime mortgages, the latter of which arose from an ill-timed 2004 purchase of WMC Mortgage of California.
Since the crisis, GE has sold off assets to refocus the division on safer industrial finance operations (it sold WMC in 2007 at a loss of US$1 billion loss).
GE’s chief executive, Jeffrey Immelt, said in a recent interview that he intended to limit GE Capital to areas in which GE already had a strong presence, including power generation, aviation and health care equipment, and lending to midsize industrial companies.
“This sale is consistent with our strategy to exit non-strategic businesses that lack scale to help reduce GE Capital’s balance sheet while investing in core industrial and commercial finance platforms, including in Mexico,” said Mark Begor, the chief executive of GE Capital’s restructuring operations, in a statement.
Santander said the deal would make it the second-biggest mortgage lender in Mexico.
“This acquisition is evidence of Santander’s confidence in Mexico, and is consistent with the company’s strategy in Mexico of investing in the strengthening of our franchise,” Financiero Santander executive president Marcos Martinez Gavica said in a statement.