General Electric Company's (GE) consumer financial arm, which has issued some 55 million credit cards to customers and proven to be incredibly profitable, might be spun off as early as 2014, as the company looks to continue pulling back from the lending market. The move would follow a previous attempt to move out of healthcare lending, and continue the company’s positioning out of credit entirely.
With the consumer finance spinoff, GE seems uninterested in trying to resuscitate their risky finance division. Consumer financing is a volatile business, and a shrinking one, as customers that went through the Great Recession are leery of taking on too much debt on discretionary items.
During the financial crisis, the company was nearly sunk entirely by financial wing GE Capital’s credit exposure. Since that time, GE has slowly yet steadily been pulling out of consumer lending.
This move out of retail finance follows GE positing itself out of healthcare lending. In June, the conglomerate first announced they were actively looking for a buyer for their CareCredit healthcare financing arm, seeking approximately $2 billion.
The very future of GE Capital’s healthcare financial division is in jeopardy as a result of Obamacare. The governmental healthcare overhaul will drastically lower the numbers of uninsured Americans, and thus would make taking out a credit card to pay medical bills much less common.
With both moves, GE makes clear they are not interested in staying in credit, and seek stability in returning to their manufacturing roots. Though Immelt acknowledges American manufacturing is getting more competitive, he highlights the company’s manufacturing of high priced items like jet engines and turbines that will create 15,000 jobs as being the real future of GE.
Analysts theorize the value of the spun off consumer lending company to be around $35 billion, making it the fifth largest commercial bank in America.
GE is currently trading around $23 a share.
(image of original GE HQ in Schenectady, NY courtesy of Wikimedia Commons)
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer