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GE Capital to Pay $6.5 Billion Dividends to GE (Update 1)

8:09 a.m. ET with morning market action and comments from BernsteinResearch analyst Steven Winoker.

NEW YORK (TheStreet) -- GE Capital plans to churn out even more cash than it did last year.

The board of directors of General Electric's (GE) financial services subsidiary said on Monday it planned to pay the parent company a total of $6.5 billion in dividends during 2013, increasing from $6.4 billion during 2012.

GE Capital's regular dividends are planned to be 30% of operating earnings. During the first quarter, GE Capital paid the parent company a regular $447 million dividend to the parent, based on the financial segment's operating performance.

With strengthening credit quality and a shrinking balance sheet, GE Capital plans again to kick large special dividends upstairs, to reduce the financial arm's excess capital. During 2013, GE Capital plans to make $4.5 billion in special dividend payments

GE Capital had $529.5 billion in total assets as of March 31, declining from $573.5 billion in total assets a year earlier. The financial segment has been rumored to be considering selling its private label U.S. credit card portfolio, with loan balances of roughly $31 billion. Bank of America Merrill Lynch analyst Erika Penala suggested earlier this month that Citigroup (C) would be the ideal purchaser for the portfolio, following the bank's deal to acquire Capital One's (COF) private label card portfolio, in a deal that is expected to be completed in September.


General Electric CEO said in the company's press release on Monday that GE Capital's announcement "is consistent with our goal to reduce the overall size of GE Capital and for it to return significant cash to GE," and that GE Capital "ended the [first] quarter with $68 billion in cash, and its Tier 1 common ratio under Basel 1 improved by 65 basis points to 11.1%."

In addition to shrinking GE Capital's balance sheet, which, combined with the improved credit quality and operating earnings has boosted the unit's capital ratios, GE Capital has also taken steps to strengthen its liquidity, in order to reduce its reliance on short-term wholesale funding. Reliance on short-term and overnight funding forced the company to sell $16 billion in commercial paper to the Federal Reserve late during 2008, at the height of the liquidity crisis.

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