General Electric story updated with analysis from Bernstein Research in last three paragraphs.
While the deal will increase GE Capital's deposits by $7.5 billion, that is only half way toward its stated goal of increasing "alternative funding" by $15 billion to $20 billion in 2012, according to a Dec. 6 investor presentation. Terms of the deal with MetLife were not disclosed.
Ben Elias, analyst at Sterne Agee, believes GE Capital will make up the difference with more acquisitions."While there's no surprise that they're doing this deal, its sort of a surprise how quickly they're moving," Elias says. GE Capital spokesman Russell Wilkerson declined to comment on the likelihood of more acquisitions, but wrote via email that "with our existing capabilities and this new retail platform, we have a strong foundation for deposit growth." As a result of the 2008 crisis when GE and other large companies had difficulty gaining access to funds through the short term commercial paper market, GE has vowed to increase its deposit base. GE Capital got 21% of its funds through deposits as of the end of the third quarter of 2011, versus 12% in 2008, according to the Dec. 6 presentation. General Electric's ability to tap the commercial paper market in 2008 and the extent of its reliance on government guarantees to avoid a funding crisis has been a subject of controversy for the company. While GE Chairman and CEO Jeff Immelt told investors in 2008 the company had no difficulty accessing the commercial paper markets, former U.S. Treasury Secretary Hank Paulson's account of the 2008 crisis in his book "On the Brink" tells a different story. ProPublica and The Washington Post contended in a report last year. As one of several measures to restore market confidence, the federal government temporarily guaranteed short term debt issuance by GE and several other giant U.S. financial companies. Sterne Agee's Elias states in a report that he does not believe the MetLife deal will change anything for GE Capital from a regulatory point of view. "Buying deposits will not make GE Capital any more or less regulated. This will not make GE Capital a bank holding company," he wrote. GE Capital nonetheless is subject to Federal Reserve oversight.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV