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GE's Shadow Bank Moving Towards the Light

Short-term borrowings funded 21% of GE Capital's balance sheet as of June 30, coming down from 29% in June 2008.

GE Capital will add roughly $6.8 billion in additional deposits, after the company's GE Capital Retail Bank subsidiary completes its purchase of the remaining deposits of MetLife (MET) subsidiary MetLife Bank, NA.

Eager to escape the "bank holding company" label and the associated supervision by the Federal Reserve, MetLife in December of last year agreed to sell MetLife Bank's deposits to GE Capital, for undisclosed terms. After endless "due diligence" by the FDIC for a relatively small deposit deal, MetLife announced last Friday that it had revised its agreement with GE Capital, so that GE Capital Retail Bank would assume MetLife Bank's deposits, rather than GE Capital Bank.

GE Capital Retail Bank's primary regulator is the Office of the Comptroller of the Currency, which is expected to take a less unreasonably long time to approve the transaction, than the FDIC was taking.

Bank of America Merrill Lynch analyst Andrew Obin rates General Electric a "Buy," with a $25 price target, and said on Monday that the restructuring of the MetLife deposit deal "should accelerate the closure of the acquisition to late '12-early '13 under the new regulator," and that the FDIC had "continued to delay its approval of the transaction as it continued its lengthy due diligence, likely due to GE's relatively recent entry into the consumer deposit space and its lack of physical branches."

Obin called the MetLife deal "another milestone in strengthening GECC's funding base," and said that "the company aims to more than double its bank deposit through 2014, mostly through organic growth, but also through some select acquisitions, such a MetLife."

The analyst called GE Capital's stabilizing funding model "one of factors that should enable the parent company to extract more cash to fund growth initiatives on the industrial side, support higher dividends and incremental share buybacks over time."

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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