General Electric Co. said the returns from its massive banking operations have fallen below the company’s cost of capital, adding urgency to its consideration of a bigger exit from the business.
The Wall Street Journal reported that in his annual letter to shareholders, Chief Executive Jeff Immelt said GE is focused on making its banking arm — which alone is the seventh-largest U.S. bank — smaller and more connected to the company’s industrial businesses.
“To be clear, GE is an industrial company first and foremost,” Immelt wrote. “We are still defining the competitive position for GE in the financial services industry.”
GE is rethinking the scale of its finance business, contemplating deeper cuts such as spinning off its commercial lending business, people familiar with the matter have said. GE wants to retain the parts of GE Capital that focus on fields like aviation, energy and health care where it has industrial operations.
Such moves mark a break from the past when GE stood by its lending operation as an important piece of the conglomerate better known for its power turbines, jet engines and light bulbs.
Even as GE has sold off commercial real estate and international banks in recent years, it has promoted the competitive advantages of its commercial lending unit, which provides loans to middle-market businesses like recreational-vehicle dealerships and fast-food franchisees.
Shareholders have penalized GE for its exposure to financial services, which they consider to be riskier than the industrial operations. GE’s shares, though up slightly this year, have been stuck below $30 since the financial crisis.
Last year, GE began the process of spinning off its consumer credit operation into a new stand-alone business, Synchrony Financial, and it will sell its remaining 85% stake in the operation later this year. On Sunday, it announced an agreement to sell its consumer lending business in Australia and New England.
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