GE Capital CEO Sees Asset Sale Pace Speeding Up in Third Quarter

Jun 30 2015 | 11:00pm ET

(Reuters) - The head of General Electric's finance unit said Tuesday he expects the pace of GE Capital asset sales will accelerate in the third quarter as the U.S. conglomerate eyes unloading an even bigger chunk of assets.

"We’re going to pick up the pace in the third quarter," GE Capital Chief Executive Keith Sherin told Reuters in an interview.

GE, which is shedding $200 billion in finance assets to focus on industrial manufacturing, earlier on Tuesday announced the $2.2 billion sale of its European private equity financing business to Japan's Sumitomo Mitsui Banking Corp. A day earlier, GE said it had agreements to shed its fleet management arm. A deal to sell its U.S. private equity lending business was disclosed earlier in the month.

Analysts have said the finance asset sales have garnered high deal prices so far, but it remains to be seen if future sales will realize the same value and allow GE to reap more than the $35 billion in proceeds it has targeted for share buybacks.

A hefty portion of the businesses that have yet to be sold are part of GE's North American commercial lending and leasing portfolio. Overall, GE's North American units are "highly coveted," Sherin said.

"Globally, we have strong businesses but they’re not as strong as some of these North American franchises," he said.

All told, since April 10 GE Capital has announced asset sales totaling $23 billion in ending net investment, GE's measure of assets that excludes non-interest bearing liabilities. With the most recent deals, GE hit a target of announcing $20 billion to $30 billion in asset sales during the second quarter.

"We’re going to have more announcements in the third quarter, and it will be more than we had in the second quarter," Sherin said. Sherin confirmed that meant exceeding $23 billion in second-quarter announced deals, but did not give a specific target.

Sherin reaffirmed GE's earlier goal to close deals for $100 billion in assets this year. The company has announced buyers for $68 billion in assets thus far.

GE had prioritized the sale of three businesses, Sherin said last month, of which only healthcare financial services remained without an announced buyer. An agreement for that business, which lends to private equity in healthcare as well as provides real estate loans to operators of assisted living facilities, is "in the near term, I hope," Sherin said on Tuesday.

GE's decision to sharpen focus on manufacturing of big-ticket items such as jet engines and power turbines won wide favor from investors who said the company's finance division, and the regulatory burden that came with it, was weighing down its stock valuation.

GE Capital's size and the potential risk from its lending portfolio has made it subject to government oversight. The company plans to apply next year to escape its designation as a systemically important financial institution, although Sherin said the path to do so was not entirely clear.

“We’re the first, there’s no specific process," he said. "We understand why we were designated as a systemic financial institution and if we address those factors ... we think we will be able to achieve that goal."

Some analysts have worried that rising interest rates or a drop in the stock market could hurt valuations for GE Capital's remaining assets.

Sherin said he is not particularly concerned about a slight rise in interest rates.

“A severe dislocation in financial markets of some type would slow us down, for sure,” Sherin said.

To buy time, PREPA and its creditors are also expected to extend a key creditor agreement that expires on Tuesday, the sources said.

Parties to the creditor agreement, known as a forbearance agreement, include bank lenders and an ad hoc bondholder group made up of hedge funds and institutional investors, such as OppenheimerFunds and Franklin Advisers, according to the original forbearance agreement.

Bond insurers, including Assured Guaranty and National Public Finance Guarantee, are also parties to the deal.

PREPA's initial plan, unveiled at a June 1 meeting, was met with near-universal reproach from creditors, though details of how it would treat their debt were kept private. Creditors made their counter-proposal to that plan last week.


In Depth

Q&A: Portfolio Advisors' Brian Murphy On The Advantages of A Private Markets Platform

Jan 2 2018 | 11:05am ET

Most private markets firms reference their platforms as a source of competitive...

Lifestyle

CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Steinbrugge: The Top Hedge Fund Industry Trends for 2018

Jan 2 2018 | 12:22pm ET

Each year, Don Steinbrugge’s Agecroft Partners compiles the insights gained...

 

FINalternatives Trending

From the current issue of