GE to Sell Commercial Lending, Leasing Businesses to Wells Fargo -- 4th Update

By Ted Mann, Emily Glazer and Lisa Beilfuss 

General Electric Co. agreed on Tuesday to sell its commercial lending and leasing business--the largest remaining chunk of its U.S. financial services operations--to Wells Fargo & Co.

The sale marks the largest divestiture to date in GE's plan to part ways with the bulk of GE Capital, its giant finance business that long accounted for about half its profits but whose risks have rattled investors and weighed on its stock.

Tuesday's plan is perhaps the most important milestone yet for the company as shedding the lending business will be key to its bid to escaping oversight from the Federal Reserve.

With the latest move, GE has sold off the guts of the middle-market lending business. The sale includes about $32 billion of assets and 3,000 employees and is made up of GE Capital's global commercial distribution finance, North American vendor finance and corporate finance platforms. It is expected to be completed in the first quarter of next year.

Financial terms of the deal weren't disclosed.

GE Capital's remaining $5 billion sliver of franchise finance, which makes loans to acquire fast-food restaurants and other business franchises, is expected to be sold later this year.

Wells has been in discussions with GE about this business for months, people familiar with the deal said. In fact, Wells Fargo initially wanted to buy the full business from GE and asked GE to take it off the market, some of these people said. But GE decided not to do that after realizing the appetite from other possible buyers and the monetary advantages it would have if it sold it off in chunks, these people said.

Wells Fargo, with $1.73 trillion assets, remains the third-largest bank by assets behind Citigroup Inc.'s $1.83 trillion, according to the banks' most recently quarterly reports. It likely wouldn't be until early next year that Wells Fargo could surpass Citi by asset size, said Scott Siefers, regional bank analyst at Sandler O'Neill.

Though Tuesday's announced $32 billion acquisition makes a small dent in Wells Fargo's overall loan base at around 3%, the bank has still been very active with GE.

"If you aggregate the three deal series of transactions they will have acquired or financed the acquisition of nearly a small SIFI bank" at around $47.5 billion, said Mr. Siefers, based on his analysis.

Since these are businesses that Wells Fargo is already embedded in and growing its scale, Mr. Siefers said he isn't concerned from a risk standpoint. "Wells Fargo certainly has the acumen to digest stuff like this and not miss a beat," he said. "This whole series of transactions is representative of Wells' unique position to capitalize on industry dislocation."

GE Capital executives have labored since April to sell off pieces of the business, starting with those most likely to lose their value and their most valuable employees if they languished on the market, like the company's Antares unit, which lends to private-equity firms. But to achieve its goals of rapidly shrinking the lending business and finding a way out of the Fed's oversight, the deals team needed to find a buyer for its U.S. commercial lending and leasing business, the division sold to Wells on Tuesday.

GE Capital deal makers have raced to meet parent company executives' targets for striking deals. When GE announced its plans in April, the company pegged a goal of $90 billion in announced sales by year's end, then quickly raised that target to $100 billion or more. The company says it has now signed deals for more than $126 billion of the more than $200 billion in assets the company plans to sell. Focus will now turn to include more of GE Capital's overseas operations, which are expected to be sold off over the coming year.

Tim Sloan, head of wholesale banking at Wells Fargo, called the acquisition an "outstanding opportunity" for the lender to deepen relationships and strengthen its presence in key commercial lending markets.

Chairman and Chief Executive John Stumpf had said publicly there were possibilities for more work with GE following its commercial real-estate loan portfolio acquisition earlier this year. The bank acquired GE's railway leasing business in late September.

GE shares edged up 0.5% to $28.23 in morning trading, while Wells Fargo slipped 0.6% to $51.87.

Write to Ted Mann at [e-mail], Emily Glazer at [e-mail] and Lisa Beilfuss at [e-mail]

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(END) Dow Jones Newswires

October 13, 2015 10:27 ET (14:27 GMT)

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