General Electric Co (GE) on Friday announced it would sell off most of its banking business to complete its refocus on heavy industry and infrastructure.
The US industrial giant said it would offload most of the US$500 billion in assets of GE Capital over the next two years, including US$26.5 billion worth of real estate immediately.
However, GE plans to retain its aircraft leasing, and energy and healthcare equipment finance operations, businesses closely tied to GE’s core industrial manufacturing operations.
After its share price has sagged for more than a decade, the company said the sale of GE Capital assets over the next two years could generate as much as US$90 billion to be returned to investors via dividends and share buybacks.
The move was the latest and biggest step by chief executive Jeff Immelt to turn the 123-year-old company back to its roots of advanced industrial technology and manufacturing, after the once hugely profitable finance business dragged the company down in the global financial crisis in 2008.
Immelt, who took over GE from predecessor Jack Welch in 2001, has been paring off non-industrial units since the crisis, including insurance, consumer finance, GE appliances, plastics and NBC Universal, the media and entertainment company. In July last year, GE spun off via a public offering its retail finance and credit card business, Synchrony Financial.
GE manufactures aircraft engines and parts, railroad locomotives, turbines for the energy industry and healthcare industry equipment. It also develops a broad range of technologies in communications, consumer goods and healthcare.
Immelt sees the company’s future in those businesses, taking advantage of ever greater investment around the world in transportation and infrastructure and healthcare.
By 2018, more than 90 percent of the company’s earnings are to come from its industrial business, compared to 58 percent currently.
“These businesses are leaders in technology, the industrial Internet and advanced manufacturing. They are well-positioned in growth markets and are delivering superior customer outcomes, while achieving higher margins,” Immelt said.
“Creating a simpler GE will position us to deliver superior outcomes around our core capabilities,” he said.
GE investors were happy with Friday’s announcement — including the promise of a US$50 billion share buyback — sending GE stock up 7.5 percent to US$27.66.
“We view this development as the shot in the arm that GE shares have sorely needed,” Morningstar Inc analyst Barbara Noverini said.
However, Immelt remains under market pressure to perform given the share’s dismal record under his watch.
GE shares have recovered only partially since plunging 80 percent in the 2008 crisis, and remain 35 percent below their pre-crisis peak, while the S&P 500 has soared to record heights in the same period.
Over a decade, GE shares are down 23 percent; the S&P has gained 75 percent.
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