General Electric Company GE crossed a major milestone as it completed over $100 billion worth of portfolio and business unit sales, as the sale of its U.S. and Canadian portion of its fixed-wing Corporate Aircraft financing portfolio wrapped up. The achievement fortifies the conglomerate’s position as it seeks to apply for de-designation as a systemically important financial institution (“SIFI”) soon.
The Corporate Aircraft financing portfolio in the Americas was sold to Global Jet Capital, and represented about $2.1 billion in ENI (Ending Net Investment). The sale of the residual aircraft finance assets is set to close next month.
The sales are a part of GE’s massive $200 billion asset offloading program, spearheaded by CEO Jeff Immelt, as the conglomerate strives to shrink its financial arm and return to its industrial roots.
Ever since GE revealed its milestone intentions to sell off chunks of GE Capital in April, the industry bellwether has been busy offloading holdings, while at the same time attempting to expand its manufacturing capabilities. With this latest deal, the total ENI for GE’s announced asset sales has reached a whopping $149 billion year-to-date, with $101 billion in closed transactions.
GE also completed the split-off of Synchrony Financial SYF last month, through a share exchange. The severance trims down GE Capital’s systemic footprint significantly, reducing ENI by $65 billion and shrinking GE’s outstanding shares by about 6.6% (roughly $20.4 billion in GE stock buyback).
However, GE plans to keep its vertical financing businesses that are directly related to its core industrial business, such as its GE Capital Aviation Services, GE Capital Healthcare Equipment Finance, and GE Energy Financial Services.
GE expects to be mostly done with the GE Capital exit plan by the end of next year, and is on course to return over $90 billion to investors from 2015 to 2018. Post completion of the exit strategy, GE expects to derive about 90% of its annual earnings from its high-margin industrial businesses.
GE decided to trim down GE Capital, the parent unit of its real estate business, after the division’s lack of access to credit during the 2008 financial crisis endangered the stability of the parent company. The present-day stringent regulatory framework that emerged in the wake of the economic crisis, which requires higher capital ratios and restricts risky loans, had weighed on GE Capital’s profitability to a great extent.
The aggressive scaling back of its banking operations is also aimed toward ultimately rendering GE Capital free of its designation of a SIFI, which it plans to apply for in the first quarter of 2016.
GE presently carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks worth considering now include Federal Signal Corp. FSS and Macquarie Infrastructure Corporation MIC, both sporting a Zacks Rank #2 (Buy).
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