What does this mean for investors?For one thing, it is a major piece of Jeff Immelt's long-term strategy to trim GE Capital's contribution to General Electric's earnings to roughly 30%. During the third quarter, GE Capital's contribution to the parent company's operating income was 49%. For the first three quarters of 2013, the finance unit's contribution to the parent's operating earnings was 46%. GE Capital had $515 billion in total assets as of Sept. 30, declining from $562 in September 2013. The unit's "ending net investment" (ENI), excluding non-interest bearing liabilities, cash and equivalents, was $385 billion as of Sept. 30, down from $425 billion a year earlier. GE Capital will shed another $50 billion or so through the spinoff of the consumer finance unit, bringing the unit within Immelt's long-term ENI target range of $300 billion to $350 billion. The long-term initiative to trim GE Capital, while improving the unit's liquidity, is aimed at allowing GE to continue providing middle market commercial financing and continue to lend to its industrial customers, while avoiding the type of crisis the company faced in 2008. At the height of the U.S. credit crisis, liquidity in the commercial paper market dried up, forcing GE to rely on the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program (TLGF) and the Federal Reserve Bank of New York's Term Asset Backed Securities Loan Facility (TALF). Illustrating the great strengthening of its balance sheet, GE reported that its ratio of debt to equity was lowered to as of Sept. 30 from 9.6 at at the end of 2008.
What might the spin-off mean to competitors?GE is the largest private label credit card lender, with a portfolio of about $36 billion as of Sept. 30. "Given the size and private label focus of GE's current operations, we feel that the implications are fairly limited to certain names in our coverage universe, namely Capital One ( COF) and on a smaller scale Alliance Data ( ADS)," KBW analyst Sanjay Sakhrani wrote in client note on Friday.
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