General Electric is to shrink GE Capital, its finance arm, in a move that could lead to $2bn in cost cuts, the sale of $90bn in highly leveraged assets and thousands of redundancies among its 75,000 employees.
Under plans announced on Tuesday, GE Capital will create a separate US banking unit charged with gathering retail deposits mainly via the internet. GE has more than doubled its deposits from $20bn to $43bn this year in an effort to reduce its funding costs and lessen its reliance on short-term debt.
Its performance has dragged down group earnings and caused GE to miss analysts’ forecasts in the first quarter and reduce its own guidance in the third quarter.
In spite of the setbacks, GE Capital has fared better than most and is expected to record a profit of about $9bn this year.
However, Jeffrey Immelt, GE’s chief executive, has pledged to cut the finance arm’s contribution to profits from about 50 per cent to 40 per cent.
Mr Immelt’s decision to prune costs, assets and an unspecified number of staff at GE Capital underlines his determination to take radical action to dispose of the worst performing businesses and people in the conglomerate’s sprawling portfolio.
People close to the situation said the $2bn in planned savings at GE Capital was equal to nearly 15 per cent of the division’s cost base. The savings would come from staff and overhead reductions and disposals of highly leveraged credit assets, they said.
The new GE Capital would form a restructuring unit holding $90bn in assets, including residential and commercial mortgages in the US and UK, that have been earmarked for disposals.
Under the revised structure, GE Capital’s troubled US consumer finance businesses, including its private label credit card division, would be separate from the rest of the consumer and corporate finance businesses.
6 months ago