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Why Is GE Selling $32 Billion in Assets to Wells Fargo?

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Wells Fargo deal

On October 13, a day before the Federal Reserve granted permission to Synchrony Financial (SYF) to run as a standalone unit, Wells Fargo (WFC) agreed to buy GECC’s (General Electric Capital Corporation) (GE) commercial distribution finance and vendor finance businesses, a total of $32 billion in assets. Wells Fargo is expected to pay 1.4 times tangible book value for the transaction in cash. The businesses in question have 3,000 employees, and 90% of the portfolio is concentrated in the United States and Canada. The deal is expected to be completed in 1Q16.

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GECC

GECC has signed $126 billion in asset sale deals since the start of 2015 and has closed $60 billion in sales during the same period. By the end of 2015, the company expects to close $100 billion in asset sales. The deals closed include that of its buyout lending business and its real estate arm. GECC’s total assets have dropped to $427.4 billion as of September 30, 2015, compared with $506.9 billion as of September 30, 2014. Synchrony Financial and Wells Fargo deals would further reduce the asset base. GE is also in talks to sell its asset management business. By 2017 end, GE plans to have only $90 billion in assets with GECC. As of now, GE is running ahead of schedule with the plan and may end up achieving the target of reducing exposure to financial services (XLF) by the end of 2016.

GE’s appliances business

Apart from mega deals for selling financial assets, GE is also trying to shift away from the appliances business. The appliances and lighting business generated 7.2% of GE’s revenues in 3Q15 but accounted for only 3.1% of total segment profit. In September 2014, GE agreed to sell its appliances business to Electrolux for $3.3 billion. However, the deal is stuck due to anti-trust issues. GE is reviewing the deal and hopes to close it in 4Q14.

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