GE, Citi Card Deal is Big Reversal

NEW YORK (TheStreet) -- My, how times have changed.

Back in 2007 General Electric(GE)'s GE Capital was trying to trying to sell its retail credit card business. The conglomerate took, millions if not billions, of dollars in write downs and cut jobs at its finance unit as part of a $2 billion cost-reduction program due to the mortgage business.

Now that same unit is taking on Citigroup's (C) consumer financing portfolios.

The deal surprised many who focus on M&A in the industry. NexGen Advisors' Carla Zilka believes that GE could be taking a gamble with the acquisition so soon after restructuring its consumer finance business.

"I don't think it is wise. The credit card business has a direct correlation to the mortgage business and you know where that is with all the foreclosures, bankruptcies and defaults," said Zilka, who specializes in restructuring. "The first thing people pay is their mortgage and if they aren't paying that, they clearly won't be paying their credit cards on time."

GE Capital spokesperson Stephen White clarifies that its consumer financing portfolio was never on the block, only it's private credit card label was. He says times have changed, and GE's strategy has shifted.

GE Capital's purchase of $1.6 billion in retail sales finance assets is an interesting play at a time when consumer lending could use a pick-me-up. Mark Begor, president and CEO of GE Capital Retail Finance said in a press release the transaction should be immediately accretive.

"It shows some movement in credit card portfolios. Citigroup had been trying to sell it for a while," said Jones Day's Chip MacDonald. "It is a good sign for the credit market and it is a good sign for retailers and consumers."

Morningstar equity analyst Daniel Holland estimates the price of the deal may have ranged from $400 million to $500 million. A price MacDonald thinks is, "a huge premium."

MacDonald believes that GE could even look to pick up more consumer lending businesses from banks, perhaps at a discount.

GE spokesperson White affirms that both the retail credit card business and consumer lending business are, "performing well" and the retail credit card business now is part of GE's core strategy. Over the past two years GE Capital has re-signed deals with Wal-Mart, JCPenny and several other retailers. He adds that GE Capital could make similar acquisitions to the Citi one in the future.

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