Per media reports, Wells Fargo & Company WFC is surfacing to be the front-runner among contenders who are clamouring to buy the railcar financing unit of General Electric Company GE. GE's railcar leasing business will likely complement Wells Fargo's railcar leasing division, so the deal could make strategic sense for the bank.
The deal has not been finalized yet, but an official announcement is expected to come out early next month.
GE Capital Rail Services, which is valued at roughly $4 billion, has also drawn interest from Tokyo-based Sumitomo Mitsui Financial Group Inc. and other U.S. financial institutions.
The Chicago-based GE Capital Rail Services rail-equipment unit leases freight and tank cars and provides loans and maintenance services.
Wells Fargo and The Blackstone Group L.P. BX helped GE in commencing its finance overhaul in April by agreeing to purchase real estate assets worth about $23 billion. Wells Fargo is also reportedly considering a $40 billion deal related to GE’s commercial lending businesses.
GE has conducted a steady stream of asset offloading since April, including the recent divestment of its U.S. buyout-lending unit to Canada’s largest pension fund manager and an online bank to The Goldman Sachs Group, Inc. GS. Among other recent deals, GE announced the sale of its healthcare lending business to Capital One Financial Corporation for about $9 billion.
When finalized, this latest divestment in GE’s sweeping overhaul of its finance arm will push its asset sales past the $82 billion mark. The company is on track to reduce GE Capital’s ENI (Ending Net Investment) by $100 billion by 2015 end, and expects to be mostly done with its exit strategy by the end of 2016.
GE plans to shed over four-fifths of its finance arm, drawing an end to the era when it relied on the freewheeling business’ financial engineering skills to generate half of its profits. Post completion of the exit strategy, GE expects to derive about 90% of its annual earnings from industrial businesses.
GE presently carries a Zacks Rank #3 (Hold).
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