
General Electric Sells $30 Billion in Financials Businesses to Wells Fargo
NEW YORK (The Deal) -- General Electric's (GE) - Get Report GE Capital unit on Tuesday agreed to sell three businesses and a specialty finance loan portfolio valued at about $30 billion to Wells Fargo (WFC) - Get Report in the industrial conglomerate's latest move to substantially reduce its financial businesses and regulatory headaches in Washington.
"This is our largest transaction to date and a critical step in our efforts to reduce the size of GE Capital," said GE Capital CEO Keith Sherin in a statement.
The deal's price was not disclosed. It includes the sale of GE Capital Commercial Distribution Finance, which provides financing for recreational and off-road vehicles and boats, as well as the GE Capital Vendor Finance construction and technology business lending unit. As part of the deal, which is set to close in the first quarter of 2016, about 3,000 employees will be transferred.
A spokeswoman said that no U.S. regulatory approval was necessary for the transaction, though some minor approvals will be needed in Canada and overseas.
The deal is part of an ongoing effort -- officially launched in April -- to allow General Electric to have its GE Capital unit deregister from a so-called Systemically Important Financial Institution, or SIFI, categorization imposed upon it by a council of regulators in Washington.
The GE Capital division was designated as a SIFI in 2013 by the Financial Stability Oversight Council, which was set up to identify emerging threats to the economy. The group of regulators argued that such a big, interconnected unit would have a hard time selling assets in a period of financial stress and that it could cause an "impairment" of financial markets "sufficiently severe to inflict significant damage to the broader economy."
To be de-designated, GE has been divesting a variety of financial assets, mostly from within its GE Capital unit, since April.
As those sale efforts have begun, Wells Fargo has already agreed to purchase the conglomerate's railcar-leasing business and a mortgage commercial real estate loan portfolio in the U.S., U.K. and Canada, valued at $9 billion. The sales to Wells Fargo, one of the largest U.S. banks, with $1.7 trillion in assets as of June, raises questions about whether the council's effort and GE's sales are actually dissipating systemic risk or just transferring it to another megabank.
One regulatory lawyer familiar with the situation noted that 2016 is likely the earliest GE Capital could be de-designated by the FSOC, largely because of the council's lengthy process for reviewing applications.
The sale comes after billionaire activist investor Nelson Peltz of Trian Fund Management earlier this month launched a campaign at the industrial company, putting GE CEO Jeffrey Immelt on the clock for a turnaround.
As far as U.S. sales are concerned, only one major GE unit remains to go -- its GE Capital Franchise Finance unit in the U.S., which finances restaurant and hotels franchises.
However, it still has businesses up on the block outside the U.S. and plans to complete its overall sale initiative by the end of 2016, much earlier than a previous 2018 deadline the conglomerate had set for itself.
Other financial asset sales as part of the broader de-designation efforts include an August $510 million sale of GE Capital Healthcare Financial Services to CapitalOne Financial (COF) - Get Report , which followed a June sale of its European Sponsor Finance business to Sumitomo Mitsui Banking for $2.4 billion.
General Electric in June agreed to sell the bulk of its car fleet business to Canada's Element Financial (ELEEF) and France's BNP Paribas (BNPQY) , striking separate, but linked, deals valuing the operations at about $10 billion.
It also sold its GE Antares Capital sponsored finance arm to the Canada Pension Plan Investment Board for $12 billion.
GE received financial advice from Goldman Sachs (GS) - Get Report and Credit Suisse (CS) - Get Report . Weil Gotshal & Manges provided legal advice. Wells Fargo Securities served as Wells Fargo's financial adviser and Mayer Brown served as its legal adviser.
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