GE Capital: The Ultimate Acquirer Faces an Unknown Future

by Dexter Van Dango

Dexter Van Dango is a pen name for a real person who is a senior executive with more than 25 years of experience in the equipment leasing industry. A self-described portly, middle-aged, graying, balding leasing guy in the twilight of a mediocre career, Van Dango will provide occasional insight from the front lines via Monitor.



Dexter Van Dango sums up General Electric’s sale of the majority of its GE Capital assets in three short words: Naiveté in abundance!

I was between bites of a good bowl of oatmeal when I heard Andrew Ross Sorkin report on CNBC that General Electric CEO Jeff Immelt had just announced the company’s intent to sell off most of GE Capital, retaining only its aircraft leasing operations, as well as financing for the energy and healthcare business units that support GE’s core industrial operations. A majority of the $500 billion behemoth will be discarded over the next two years, as GE came to the conclusion that the benefits of owning a big bank aren’t worth the burden that comes with the regulatory oversight.

This was truly a Jack Welch “Aha moment!” In fact, shortly thereafter, Jack Welch was quoted as being supportive of the sale of the financial services giant that Jack himself was credited with building.

Over the years I have referred to GECC as the Goliath Enterprise, Giant Enormous Capital and other silly names. They were the nemesis, the bully and the big guys who everyone loved to hate. But don’t confuse spitefulness and jealousy for lack of respect. Most companies feared GE because of their size, their strength and their disciplined approach to business. When GE makes a decision to get into a new market, they get in in a big way, assess the situation and determine whether to grow it or to get out. Execution at its finest, GE is a master. And they had the size and financial wherewithal to do it right — six sigma and all.

When I arrived in Chicago at the ELFA Funding Expo, the place was rolling in cacophonic rumblings and rumors over what was going to happen to GECC. The so-called Networking Room was actually Rumor Central. Walking past the small groups huddled in conversation you could hear some of the latest goodies. “Wells Fargo is going to buy the commercial lending and lease portfolio for $74 billion.” “I heard that sovereign wealth funds were looking to buy the entire kit and caboodle for a premium.” Several people joked that GECC folks would no longer be invited to the famed GE Crotonville Campus for leadership training; instead they would be heading to Rosetta Stone for Chinese language training so they could communicate with their new owners.

It is highly unlikely that any single buyer will be capable of swallowing the entire GE Capital organization and accompanying infrastructure. It is more likely that pieces, portfolios and platforms will be auctioned off to the highest bidders.

GE’s timing is tremendous. The prolonged economic recovery that has allowed steady improvement to the balance sheet of most financial institutions has also left most companies hungry for earning assets. Balance sheet strength coupled with exceptionally low interest rates and fierce competition almost guaranties that GE will receive a premium for most assets.

But a few obvious questions remain unanswered. Why didn’t GE simply spin off the finco to existing GE shareholders in a non-taxable share distribution of the new company? Why did they immediately take a $15 billion charge upon announcing the sale of $26.5 billion in real estate assets to Wells Fargo and Blackstone? If they had kept the real estate piece in tact with the rest of the company, which is expected to sell at a premium, might they have avoided the huge charge? And perhaps most interestingly, where the heck is former GE Capital CEO Mike Neal? Shouldn’t he know where the best performing assets exist and also were the skeletons are hiding? I would be shocked if one of the big private equity firms hasn’t lassoed Neal in and offered him a lucrative contract to help them guide their way through the GECC maze.

Before leaving Chicago I noticed that the buzzards were swarming, figuratively at least. I spoke with peers from PNC, Bank of America, Wells Fargo and Everbank — each staking claim to bits or pieces of what GE controls today — a named account, a vendor relationship, a seasoned sales representative. It’s all fair game now that the chaos has ensued.

After speaking with representatives from one of the captives in attendance who does a decent bit of business with GE, I learned of the storyline GE folks are extolling in public. They admit that the shoe is on the other foot this time since they are usually the acquirer, not the one being acquired. But they believe it is only a matter of time before their new parent company will be identified and they will continue on, business as usual. Naiveté in abundance!

Over the next few months it will be fun to watch the future unfold. Despite Immelt’s suggestion that Capital will be divested over the next two years, consensus at the Funding Expo was that most of the dust will be settled by the end of this year. As I stated in my TOP Picks for 2015,

M&A activity in our industry will be fast and furious in 2015. At year end it will be fun to see who is still standing and which corporate logos reside on their business cards.

Certainly, each reader has an opinion on this one. Share yours with me at dvandango@gmail.com.

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Terry Mulreany
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