GE signals disposals in financial services

GE signals disposals in financial services
By Francesco Guerrera in New York
Copyright The Financial Times Limited 2007
Published: July 13 2007 12:20 | Last updated: July 13 2007 18:19


General Electric is to sell parts of its sprawling financial services business in a further attempt to restructure its portfolio following the decision to divest its troubled subprime mortgage unit.

The moves - announced on Friday alongside second quarter results in line with Wall Street expectations - came as the US industrial conglomerate said it would double its share buyback to $14bn.

The increased buyback is partly designed to compensate shareholders for this week’s surprise collapse of GE’s $8bn takeover of the diagnostics unit of Abbott Laboratories.

The decision to trim its financial services unit is part of GE’s drive to convince investors that its disparate collection of businesses, ranging from jet engines to movies, can keep delivering strong earnings growth.

Jeffrey Immelt, GE’s chairman and chief executive, has taken radical action to reshape the company with acquisitions in fast-growing areas such as aerospace and energy and disposals of low-margin units such as plastics.

After years in the doldrums, GE shares have responded, rising more than 7 per cent this year. The shares were up 2.4 per cent to $39.94 - closing in on their five-year high - in New York midday trading.

Mr Immelt said GE would be “tough-minded and investor-friendly” in its review of disposal targets and signalled that it would refrain from large acquisitions over the next few months after a $7bn takeover spree this year.

GE recently decided against trumping News Corp’s offer for the media group Dow Jones, after discussing a joint bid with Pearson, the owner of the Financial Times.

Keith Sherin, chief financial officer, told the FT the company would consider disposals of parts of its commercial and consumer finance units but would not sell whole businesses or spin off the entire consumer finance division as suggested by some analysts.

Any disposal would come on top of the sale of WMC, GE’s subprime mortgage unit, which has been hard hit by the sector’s crisis.

The unit, which GE acquired for an undisclosed sum in 2004, reported a loss of $182m in the second quarter in addition to the $370m loss recorded three months ago. This quarter’s loss was largely due to the sale of more than $3.7bn in troubled mortgage loans, which left WMC with $1.1bn in loans.

GE on Friday reported a 10 per cent rise in net earnings to $5.4bn in the three months to June 30 on revenues of $42.3bn - 12 per cent higher than in the same period a year ago. Earnings per share, excluding discontinued businesses like plastics, were 13 per cent higher at $0.53.