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How Big Is General Electric’s Capital Segment?

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Jul. 11 2016, Published 1:30 p.m. ET

About GE’s Capital segment

GE Capital is the financial services unit of the American conglomerate General Electric (GE). Its major products cater to GE industry–focused financial services verticals, commercial loans and leases, commercial real estate, fleet management services, and consumer credit cards. GE Capital contributed ~9% to GE’s total consolidated revenue in 2015.

Most of GE Capital’s commercial loans are to small and mid-sized companies, spread across multiple industries and geographies, and secured by tangible assets.

More than 70% of GE Capital’s loans are under $100 million. GE has a presence in nearly 55 countries. In 2015, the company’s Tier-1 capital was 14.5% after it paid total dividends of $4.3 billion in 2015. In 2014, GE’s net interest margin was 5%, while its Tier-1 capital ratio was 12.7%.

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Demand drivers for GE’s Capital segment

Going ahead, GE’s existing verticals (energy, aviation, and healthcare) and its commercial finance verticals will be GE Capital’s primary growth drivers. Even though the segment’s outlook looks promising, its earnings could be impacted by its continued reduction of its non-core assets, including the split-off of Synchrony Financial (SYF).

Wells Fargo & Company (WFC) agreed to buy GECC’s (General Electric Capital Corporation) commercial distribution finance and vendor finance businesses, a total of $32 billion in assets in 4Q15. Wells Fargo is expected to pay 1.4x tangible book value in cash for the transaction. The businesses have a combined 3,000 employees, and 90% of their portfolios are concentrated in the United States and Canada. The deal was completed in 1Q16.

GE makes up part of the Industrial Select Sector SPDR ETF (XLI) and accounts for 11.0% of XLI’s total holdings. Other major holdings in XLI ETF include 3M Company (MMM) at 5.5%, Honeywell International (HON) at 4.8%, and Boeing (BA) at 4.3%.

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