Continuing to offload its financial assets at a whirlwind pace, General Electric Company GE inked an agreement to sell its GE Capital, Transportation Finance business in the U.S. and Canada to BMO Financial Group. The transaction represents ENI (Ending Net Investment) of roughly $9 billion, and subject to customary regulatory and other approvals, is expected to conclude by the end of this year.
With this divestment, sales announced this year reach $85 billion. The company is thus well on track to reduce GE Capital’s ENI by $100 billion by 2015 end, and expects to be mostly done with its exit strategy by the end of 2016.
GE’s Transportation Finance business is one of its core commercial lending and leasing businesses and provides wholesale and commercial end-user financing to dealers, OEMs and end users for heavy and medium duty commercial trucks and trailers.
Separately, GE is also exploring the sale of its asset management arm, scouting for investment management firms that have extensive experience in managing retirement plan assets, along with broad distribution capabilities that can support the growth of the unit’s third-party client base.
GE Asset Management had $115 billion in assets under management as of Jun 30, 2015. The company would deposit the proceeds of any potential sale into the GE Pension Trust thus increasing trust assets used to pay GE pension plan benefits.
The plan is a part of GE’s massive $200 billion asset offloading program spearheaded by CEO Jeff Immelt, as the conglomerate strives to shrink its financial arm and return to its industrial roots. Although GE Asset Management is not a part of GE Capital, the move is in line with the conglomerate’s efforts to reshape itself into an industrial entity.
GE decided to trim down GE Capital, the parent unit of its real estate business, after the division’s lack of access to credit during the 2008 financial crisis endangered the stability of the parent company.
The present-day stringent regulatory framework that emerged in the wake of the economic crisis, which requires higher capital ratios and restricts risky loans, had weighed on GE Capital’s profitability to a great extent. Eventually, the division’s incapability to boost margins and its negative impact on the rest of the company led CEO Immelt to commence a landmark staggered sale of GE Capital operations worth over $200 billion, over a period of two years.
Since April, GE has conducted a steady stream of asset sales, including the recent divestment of its U.S. buyout-lending unit to Canada’s largest pension fund manager and an online bank to The Goldman Sachs Group, Inc. GS. Among other recent deals, GE announced the sale of its healthcare lending business to Capital One Financial Corporation for about $9 billion. Also, some time back, GE struck agreements to offload real estate assets worth about $23 billion to Wells Fargo & Company WFC and The Blackstone Group L.P. BX.