OREANDA-NEWS. GE (NYSE: GE) continues to quickly and successfully execute the transformation of GE Capital into a smaller, more focused financial services firm. Today, GE filed its request to the Financial Stability Oversight Council (FSOC) for rescission of GE Capital’s designation as a nonbank Systemically Important Financial Institution (SIFI).

The filing demonstrates that GE Capital has substantially reduced its risk profile and is significantly less interconnected to the financial system, and therefore does not pose any conceivable threat to U.S. financial stability. The request details the changes and dispositions GE Capital has made since being designated as a SIFI in 2013 and, in particular, since GE announced in April 2015 that it would become a more focused digital industrial company by dramatically reducing the size of GE Capital.

“Our submission details the complete transformation of GE Capital. Our plan to change our business model, shrink the Company and reduce our risk profile has been successful,” said GE Capital Chairman and CEO Keith Sherin. “We have completed over 80% of our projected asset reductions; exited leveraged lending and U.S. consumer lending; exited nearly all middle market lending; reduced real estate debt by more than 75% and real estate equity by 100%; and reduced outstanding commercial paper almost 90%.

“We believe GE Capital no longer meets the criteria to be designated as a SIFI and we look forward to working cooperatively and constructively with the FSOC through the rescission process,” added Sherin.

The key points in the application are as follows and are detailed further in the attached summary: (Beginning numbers are as of year-end 2012; ending numbers are as of the time of filing.)

  • GE Capital has completely transformed itself, primarily through the sale or split-off of most of its legacy financial services businesses, into a smaller, simpler company focused on customers and markets aligned with GE’s industrial businesses.
  • GE Capital has reduced its assets 52%, from $549 billion to $265 billion. Of the remaining $265 billion in assets:
  • $77 billion are cash and cash-like investments
  • $36 billion are assets related to run-off U.S. insurance activities
  • $153 billion are therefore non-cash, non-insurance related assets;
  • only ~$50 billion of these assets are in the U.S.
     
  • Financing receivables are down 74%, from $277 billion to $72 billion. Loans secured by real estate are down 77%, from $72 billion to $17 billion; in the U.S., this is down to $5 billion.
  • Loans to consumers are down 95%, from $72 billion to $4 billion; in the U.S., loans to consumers are down to $0.  
  • Meanwhile, cash and cash-like investments are up 35%, from $57 billion to $77 billion.
     
  • GE Capital has materially reduced its use of short-term and securitization funding.
     
  • Commercial paper (CP) is down 88%, from $43 billion outstanding to $5 billion, taking it from being the top issuer of U.S. CP to representing less than one-tenth of 1% of the market.
  • Securitization funding is down 90%, from $30 billion to $3 billion.
  • GE Capital does not plan to issue any incremental debt for the next four years. GE also assumed or guaranteed all of GE Capital’s unsecured debt, which mitigates the likelihood of and reduces the impact if GE Capital were to experience financial distress.
     
  • GE Capital has exited one of its U.S. bank charters through the completed split-off of Synchrony Financial and regulatory approval has been granted for the sale of its U.S. deposit business to Goldman Sachs. The sale and the surrender of that second bank charter should be completed by April 30, 2016, after which GE Capital will no longer own any banks with deposits insured by the Federal Deposit Insurance Corporation.
  • Through numerous dispositions and the Synchrony Financial split-off, GE Capital has exited all leveraged lending, all consumer lending in the U.S., most consumer lending in the E.U., and nearly all middle market lending and commercial real estate financing globally. Its current (and future remaining) businesses do not provide a critical function to the economy that could not easily be supported by other entities.
  • GE Capital has simplified and rationalized its structure and completed a significant reorganization. These changes have reduced its complexity and enhanced its resolvability.
  • GE Capital’s regulated operations are now centered in Europe. GE Capital has consolidated its non-U.S. operations into GE Capital International Holdings Limited, whose operations are and will be prudentially supervised by the U.K. Prudential Regulation Authority for as long as prudential regulation is required.
     
  • Going forward, GE Capital will be focused on its vertical businesses which serve customers and markets aligned to GE’s industrial businesses: GE Capital Aviation Services, GE Energy Financial Services and GE Capital Industrial Finance, which includes Healthcare Equipment Finance and Working Capital Solutions. The go-forward portfolio composition and risk structure will be similar to that of other finance companies aligned with their industrial parents.

In sum, GE Capital believes it poses no threat to U.S. financial stability and, as of today, no longer meets the criteria for designation as a nonbank SIFI. GE Capital looks forward to working cooperatively with the FSOC on the request to rescind the SIFI designation.

About GE
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