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Immelt Pushes Harder to Shrink GE Capital

Stocks in this article: GE C

GE Capital aims to pay regular quarterly dividends of 30% of earnings to the parent company. Special dividends are expected to total $4.5 billion this year.

Immelt was typically cautious in his comments about significant moves the company might take to shrink GE Capital further during a conference presentation on Tuesday, according to a transcript provided by Thomson Reuters. "What we are saying to investors today is that we have got the next phase outlined, getting the portfolio down to -- or getting the ENI down to $300 billion to $350 billion . . . continue to do run-off of non-core assets, to basically look at some staged exits of value-maximizing platforms."

"Staged exits" could mean one or more spinoffs through public offerings. Immelt said "the capital markets are very receptive to IPOs . . . So I think you basically have as good a setting as you could possibly have."

By saying "our idea is to be closer to a commercial finance core," Immelt hinted that the GE Capital was considering a move to spin off its private label credit card (PLCC) business and its consumer finance unit. He also indicated that an IPO process will take some time, as it will "require us to be in sync with how our regulator looks at the financial service business and things like that."

Bank of America Merrill Lynch analyst Erika Penala in a note to clients early this month suggested that Citigroup (C) was " the most logical bidder" for GE Capital's $31 billion private label card portfolio.

In a report on Thursday, Bank of America Merrill Lynch analyst Andrew Obin wrote that "the IPO discussion does not necessarily preclude the company from exploring divestiture options, which we think are still on the table for the right price.

"We calculate that the buyback would not fully offset high-return PLCC divestiture dilution in the first year, though we think portfolio reshaping would be well-received by investors, as management eliminates risk from higher-leverage non-core finance holdings," Obin wrote.

Continuing on his generally positive theme, Obin wrote that "GE's ability to extract more incremental cash from GECC ahead of the SIFI designation is indicative of a constructive relationship with the regulators."

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