GE's $3 billion credit card IPO pegged to U.S. consumer recovery

Fri Jul 18, 2014 4:54pm EDT
 
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By Lewis Krauskopf

(Reuters) - The success of General Electric Co's impending initial public offering for its private-label credit card unit could ride on investors' willingness to bet that a lukewarm consumer-led U.S. economic recovery heats up.

GE began its investor road show on Friday for the IPO of the unit, to be called Synchrony Financial, as it revealed new details about the business.

Set for the end of the month, the IPO of 15 percent of Synchrony is expected to raise around $3.1 billion, surpassing Ally Financial Inc as the biggest U.S. financial services stock flotation this year.

While the IPO could enjoy a positive initial reception given the strong demand for offerings this year and investors' eagerness to deploy cash in the market, its longer-term performance will likely be hitched to the strength of the belief in a consumer recovery.

"It’s a good indicator and good investment based on people who believe the economy is going to continue to improve as it relates to the consumer," said David Menlow, president of IPOfinancial.com, an IPO and secondary offering research firm.

More than two-thirds of Synchrony's $9.4 billion in revenue last year came from its retail card business, which offers private label credit cards carrying brands of corporate partners such as Amazon.com Inc, JC Penney Co, Lowe's Companies Inc and Wal-Mart Stores Inc.

Some of those retailers including JC Penney and Wal-Mart have struggled to find sales growth this year even as the broader economy has recovered, in part because a broad swath of consumers remains constrained by debt and worried about job prospects.

Still, they could eventually benefit from a strengthening recovery. A gauge of U.S. consumer spending rose solidly in June, the U.S. Commerce Department reported earlier this week, indicating the economy ended the second quarter on stronger footing.   Continued...

 
The logo of U.S. conglomerate General Electric is pictured at the company's site in Belfort, June 23, 2014.  REUTERS/Vincent Kessler