GE Launches Bidding for Some Commercial-Lending Operations

General Electric Co. has launched the bidding process for a $40 billion chunk of its U.S. commercial-lending operation, a crucial step in its effort to escape regulation by the Federal Reserve.

As part of its continuing effort to sell off the bulk of its $500 billion financial-services arm, GE Capital, the conglomerate is seeking buyers for the U.S. portions of its dealer-financing and corporate-finance businesses, which provide loans for equipment purchases and truck vendors, as well as leasing and asset-backed loans for midsize businesses.

GE says the lending units account for slightly more than half the $74 billion in loans and other assets at its U.S.-based commercial-lending operation.

GE is working with Credit Suisse Group AG and Goldman Sachs Group Inc. on the sale. The business units could all go to a single buyer or could be divided and sold separately, these people said.

J.P. Morgan Chase & Co. is overseeing all of the sales processes.

GE has dubbed the effort to sell this chunk of its commercial-lending business "Project Jupiter." Potential bidders include Toronto-Dominion Bank, CIT Group Inc., Ally Financial Inc. and Wells Fargo & Co., according to the people familiar with the matter. Other large and midsized banks, as well as private-equity firms are expected to express interest, they added.

A person familiar with the matter said GE has circulated a "teaser" outlining the assets for sale, but that a deal for the dealer-financing and corporate-finance businesses isn't expected until the second half of the year.

Before GE started paring it down, GE Capital would have ranked as the country's seventh-largest bank. The company is shrinking it as it prepares to ask regulators next year to lift its designation as a "systemically important financial institution." The label, applied to financial institutions that could threaten the economy in a collapse, subjects GE Capital and GE to tighter regulation and tougher capital requirements.

If successful, GE would be the first financial institution to be de-designated a SIFI.

GE executives last week said they have seen stronger-than-expected demand for some of the assets being sold off, such as its sponsor-finance unit, which provides financing for leveraged buyouts and the private equity industry. A deal for the sale of that business—the sale of which is dubbed "Project Atlas"—could be announced as soon as this week.

Other pieces of the commercial-lending unit are likely to be sold off separately, including its franchise-finance unit, for operations like fast-food restaurants, and small units that lease railcars and manage automobile and trucking fleets for commercial clients.

Since GE announced on April 10 that it planned to sell off the bulk of GE Capital and largely exit the lending business, it has been clear that a primary consideration has been escaping the SIFI designation. To do that, executives in April said they would focus on slimming down GE Capital's operations in the U.S. before making a formal application to the Fed in 2016.

"The faster we go and the smaller we get certainly in the U.S....the earlier we'll be able to address the characteristics that made us systemic and apply to de-designate," said Jeffrey Bornstein, GE's chief financial officer, on a conference call with investors April 10.

GE has been weighed down in the years since the financial crisis by GE Capital, which in many years accounted for around half the company's profit but which was a negative for investors focused on GE's jet engines, power turbines and hospital scanners.

Regulatory limits are also making the business less profitable.

Chief Executive Jeff Immelt wrote in a letter to investors this month that GE Capital's returns had fallen below GE's cost of capital, meaning returns on things like loans for recreational-vehicle dealerships were no longer reaping the reward for GE that the same money could have in other areas of the business.

The company expects to have the bulk of the assets sold in 2016.

Write to Gillian Tan at [e-mail], Ted Mann at [e-mail] and Dana Mattioli at [e-mail]

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