It has been in the news for a while now that GE Capital has been unwinding its finance arm. Many might wonder what could be the reasons behind it and whether it signifies fading profits of the venture. That is partly true and there have been changes in regulations that have made it less profitable for the venture to continue, leading to the decision taken by GE Capital.
How GE Finance started
Indeed, this venture came about when Michael Neal, the then boss of GE Capital, had walked into a room where auto loans were being bid upon by Goldman Sachs bankers in the late nineties in Bangkok. The result was a car loan division started by the financial arm of an American venture that had initially focused on providing finance to the consumers of the electronics goods of the company. The company flourished mainly due to cheap capital being available from the parent company and due to the regulations that were light from the federal point of view. As a result, the company had even competed to offer investments and loans against larger companies in the lines of credit for vehicle purchases even.
How the scene changed for GE Finance
The finance arm has assets as diverse as a drill ship of Brazilian origin as well as a Japanese bank. As a result the company had set up a global empire, which was a profitable venture under the US regulations.
Today the scene has changed and the following factors have emerged which have brought about its downfall:
- GE was being accused of having stagnant stock and the risks that were included did not make the investors happy.
- When the idea to unwind the financial arm as raised by the CEO Jeffrey Inmelt, the board decided to go for it.
Process of unwinding
The process of unwinding the company has been completed and it has been sold to the Wells Fargo company. The terms of the sale were not disclosed however. The company being dismantled might have come about due to the toughened guidelines that the federal regulators have adopted towards banks after the crisis that came about around 2008. The loans that were offered by the company were funded by debt and money also came in through IOUs of the short term nature. This market crashed when the financial crisis came about. Since then the regulators have been strict on how borrowed money can be circulated as loans in the market.
The financial scenario in the country has changed, which the Financial Leaders Need to Notice and lending is not so easy and attractive any more. As a result, GE Capital stated that they were left with lower earnings as well on loans that were given to industrial ventures. GE Finance was one of the largest banks of the country that has been unwound in a systematic manner. Its leases, assets and loans total about 360 billion in US dollars. Its assets in real estate are being handed over to Blackstone Group while financial assets are being offloaded to a Canadian pension fund and Wells Fargo.