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GE Capital to break into four units from August

The General Electric Co, often criticized for the complexity of its structure and the resulting opacity of its numbers, said Friday that it would break GE Capital, by far its largest business, into four businesses, effective Aug. 1.

The reorganization effectively eliminates the job of Denis Nayden, 48, the chairman of GE Capital.

Each of the new units will have its own chief, who will report directly to Jeffrey Immelt, GE's chairman.

"The reason for doing this is simple -- I want more direct contact with the financial services teams," Immelt said.

The new businesses are GE Commercial Finance, GE Insurance, GE Consumer Finance and GE Equipment Management. Some support functions within GE Capital, including risk management and treasury, will now report to Dennis Dammerman, 57, a GE vice chairman who preceded Nayden as GE Capital's chief.

Nayden will remain at GE as an adviser for now, but is expected to leave shortly to start a financial services advisory firm.

"He may even wind up doing some things for us," Dammerman said.

Dammerman insisted that the reorganization had nothing to do with the increasing clamor from investors, regulators and the news media for greater transparency in accounting and for chief executives to take more responsibility for businesses. Analysts seem to believe him.

"This is just what it appears to be, a managerial reorganization which gives leaders more direct access to the office of the chairman," said Martin Sankey, a GE analyst with Goldman Sachs.

The executives leading the new units will also sit on GE's corporate executive council, a committee made up of the company's top 25 executives, which meets periodically and discusses various strategic and management issues.

GE Capital, the company's largest unit, provided US$55 billion of GE's US$124 billion in revenue last year and US$5.6 billion of its US$19.7 billion in pretax profits. The rest of GE had been dividedinto 11 other businesses, many of them -- lighting and appliances are examples -- much smaller than the new GE Capital units, yet each run by someone who reports directly to the chairman.

Dammerman said that Immelt began talking about breaking GE Capital into more manageable pieces as soon as he took over as chief executive last September.

"Jeff didn't like the extra layer between him and the GE Capital businesses," Dammerman said. "But with Sept. 11, and all the unrest in the financial world, there wasn't time to carry this out."

GE has tried to make GE Capital less mysterious to the outside world. Although GE Capital was officially one unit, it had begun to report quarterly results in five product-related segments -- a number that will be reduced to four with the new organization. And analysts say GE Capital's management has been more accessible than it was in past years, and that Immelt and other GE corporate executives have been willing to discuss GE Capital in more depth.

"They've been giving much better details on the state of the business," said James Kelleher, an analyst with Argus Research. "But there was still a perception in the market of GE as this two-headed beast, with Denis Nayden effectively up there right next to Jeff Immelt."

Analysts who have followed GE for a long time suggest that one reason for the move now is that Immelt's predecessor, John Welch Jr., was such a forceful leader that it did not occur to investors he was not on top of everything at GE.

"Jeff is a less evangelistic leader operating in a newly hostile business environment, and he simply has to resort to more traditional management methods," one analyst said.
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