“G.E.’s current chief executive, Jeffrey R. Immelt, initially backed the growth of GE Capital when he took over in 2001, increasing its business in commercial real estate loans and subprime lending…

…But the financial crisis ushered in market upheaval that hurt GE Capital’s ability to borrow. By the time the too-big-to-fail label came into effect, owning a giant lending arm had become widely viewed as a liability. The objective of the sell-off of GE Capital assets, which began in spring 2015, was to reduce the financial division’s size to much more manageable levels — and eliminate the heavy capital requirements and other regulations that the label imposed. “This decision is a result of the transformation of GE Capital into a smaller, safer financial services company that meaningfully contributes to the success of G.E.’s industrial businesses,” Keith S. Sherin, GE Capital’s chairman and chief executive, said in a statement.”, Michael J. de la Merced, “General Electric Wins O.K. to Shed ‘Too Big to Fail’ Label”, The New York Times, June 30, 2016

General Electric Wins O.K. to Shed ‘Too Big to Fail’ Label

By MICHAEL J. de la MERCED

General Electric’s lending arm is no longer “too big to fail.”

The conglomerate said on Wednesday that its GE Capital unit had shed a government designation for the country’s biggest finance companies, one that imposes additional regulations and capital constraints.

With the declaration that GE Capital was no longer a threat to the nation’s financial stability — or, what regulators call a “systemically important financial institution” — G.E. has completed a roughly yearlong quest to sell nearly $200 billion of assets and shrink what had been the engine of its profit for decades.

Beginning under General Electric’s former chief executive John F. Welch Jr., GE Capital swelled into one of the country’s biggest lenders, becoming as big a business as G.E.’s traditional divisions such as jet engines and medical equipment.

But the 2008 financial crisis laid bare the burdens of GE Capital, and by last year G.E. announced it would get out of most of its finance activities and refocus on industry, becoming one of dozens of companies that had concluded being smaller is better for shareholders.

That meant shrinking its lending arm — and in the process slipping out from under a welter of regulations that required supervision by the Federal Reserve.

Investors approved, sending G.E. shares up 2 percent on Wednesday, to $30.55.

G.E.’s new status signaled a success for the Obama administration as well. Ever since the so-called SIFI designation was created by the 2010 Dodd-Frank financial overhaul, the country’s biggest financial institutions have faced tougher regulations aimed at making sure they were less likely to collapse ruinously.

In addition to the largest American banks, four nonbank financial institutions received the designation: GE Capital and the insurance giants American International Group, MetLife and Prudential Financial.

Some designees, notably MetLife, complained bitterly about the status, arguing that the process behind being named a SIFI was opaque. MetLife ultimately won a court case that removed it from SIFI status. The Treasury Department is appealing that ruling.

G.E. instead worked to shrink enough so that the label no longer applied. It says it consulted closely with regulators during the planning and execution of its asset sales, and was told in March that the Financial Stability Oversight Council, which controls the designation, would weigh removing that label.

“For some time now, people have been arguing that there’s no exit ramp,” Jacob J. Lew, the Treasury secretary, said in a telephone interview. “Today shows that’s incorrect.”

It was a noteworthy turnaround for G.E., whose lending business had long been one of its signature divisions. Mr. Welch viewed finance as a way to diversify the conglomerate and rapidly and powerfully increase the company’s earnings.

G.E.’s current chief executive, Jeffrey R. Immelt, initially backed the growth of GE Capital when he took over in 2001, increasing its business in commercial real estate loans and subprime lending.

But the financial crisis ushered in market upheaval that hurt GE Capital’s ability to borrow. By the time the too-big-to-fail label came into effect, owning a giant lending arm had become widely viewed as a liability.

The objective of the sell-off of GE Capital assets, which began in spring 2015, was to reduce the financial division’s size to much more manageable levels — and eliminate the heavy capital requirements and other regulations that the label imposed.

“This decision is a result of the transformation of GE Capital into a smaller, safer financial services company that meaningfully contributes to the success of G.E.’s industrial businesses,” Keith S. Sherin, GE Capital’s chairman and chief executive, said in a statement.

Mr. Lew said that G.E.’s shedding of the SIFI label was unique to the conglomerate. Other designees, primarily financial institutions, cannot easily shed enough assets to escape the status.

G.E. will still maintain some lending capabilities — only now, they will support the conglomerate’s divisions by providing loans to customers.

“Going forward, GE Capital will continue to be part of the ‘G.E. Store,’ supporting the growth of our industrial businesses,” Mr. Immelt said in a statement.

A version of this article appears in print on June 30, 2016, on page B1 of the New York edition with the headline: General Electric Wins O.K. to Shed ‘Too Big to Fail’ Label.

Posted on July 1, 2016, in Postings. Bookmark the permalink. Leave a comment.

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