Nayden Out as GE Restructures Finance Unit

GE Capital will break into four units as the company looks to improve disclosure.
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Updated from 12:32 p.m. EDT

General Electric

(GE) - Get Report

, whose GE Capital unit has been criticized for its sometimes-impenetrable financial disclosure, said it would break the finance company into four segments Aug. 1. The unit's chief executive, Denis J. Nayden, will step down.

The conglomerate will separate GE Capital into GE Commercial Finance, GE Insurance, GE Consumer Finance and GE Equipment Management. The parent company named Michael A. Neal to head the commercial finance unit; David R. Nissen to head the consumer finance unit; Arthur H. Harper to head the equipment management unit; and Michael D. Fraizer to head the insurance unit.

"The reason for doing this is simple -- I want more direct contact with the financial services teams," GE Chief Executive Jeff Immelt said in a release.

"The organization and leadership will be aligned with their natural markets," Immelt said. "This will create a clearer line of sight on how our financial services businesses operate and enhance growth. Our external reporting will mirror this organizational structure, providing greater clarity for investors."

After accounting scandals at

Enron

and

WorldCom

, investors have shied away from companies with complex financials. Since the beginning of the year, GE's stock has lost 31% of its value. In recent trading, GE was up 82 cents, or 3%, to $27.47.

"They are trying to simplify their reporting," said Jeff Graff, an analyst at Victory Capital Management, which owns 28.5 million GE shares. "This allows them to streamline their accountability."

Graff downplayed the significance of GE's restructuring announcement, however. "This is not a major event for the company," he said. "No matter how you slice it, it is still the same company."

Looking ahead, the company will be challenged to maintain the earnings growth rates of the past. "The bigger issue is how GE will grow revenue and earnings at historical rates," said Robert Friedman, an analyst at Standard & Poor's and long-time GE bear. "This decision is more window-dressing than anything else."

Nayden plans to start a financial services advisory company and will continue to serve as a senior adviser to Immelt and the GE Capital board.

The four units will share several corporate functions, including risk management and capital markets, and the company's mammoth fund-raising arms, GE Capital Services and GE Capital Corp. will remain legal entities.

Specifically, the commercial finance arm will handle aviation services, commercial equipment finance, health-care financial services, real estate, structured finance and vendor finance.

The equipment group will handle fleet services, rail services, European equipment management and Penske truck leasing. The consumer finance arm will handle card services and global consumer finance, while the insurance unit will handle employer's reinsurance, financial assurance, financial guarantee insurance and mortgage insurance.