Capital punishment

AMONG the proud titans humiliated in the financial crisis of 2007-08 was GE, forced to take a government bail-out in 2008. In response it swiftly slimmed down its lending arm, GE Capital. But the regulators were still not happy. In 2013 they labelled it a “systemically important financial institution” (SIFI), ie, one big enough to pose a global risk. That imposed costly regulatory burdens and encouraged GE’s boss, Jeffrey Immelt, to announce in April 2015 the closure of GE’s finance division within three years.

In a remarkable corporate transformation, he is ahead of schedule. The disposal to Wells Fargo this week of GE’s global inventory-financing business means that GE has sold $193 billion of “ending net investment”, or ENI (an adjusted asset figure), in the past 18 months, covering more than 25 lending units.

It has taken almost a decade. But GE is, almost, an ex-bank. As Mr Immelt promised last year, it is also much simpler. It shed its SIFI status in June. Lending, in ENI terms, is down by 85% from its peak in 2008 (see chart) and now focuses on its core industrial businesses. Its reliance on short-term…Continue reading

This post was originally published in the Economist.

Capital punishment

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