GE's finance unit sheds its 'too big to fail' designation

Wed Jun 29, 2016 1:13pm EDT
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By Lisa Lambert and Lewis Krauskopf

(Reuters) - General Electric Co.'s (GE.N: Quote) slimmed down financing arm shed its "too big to fail" designation on Wednesday, no longer deemed by the U.S. government "systemically important" and so liable to wreck the economy in the event it runs into distress.

The move by the Financial Stability Oversight Council was the first time a non-banking firm has been freed from the designation, a product of the financial crash that can trigger stricter oversight and requirements to hold more capital.

It was a big victory for GE CEO Jeffrey Immelt, who since April 2015 has reached agreements to unload about $180 billion worth of GE Capital businesses to lessen the industrial conglomerate’s exposure to the finance sector and shed the designation.

The oversight council, made up of all the heads of the major U.S. regulatory agencies, voted unanimously to remove the label it put on GE Capital in 2013, according to the U.S. Treasury. One member was recused.

“The council will remove a designation when that company no longer poses risks to U.S. financial stability,” Treasury Secretary Jack Lew said in a statement. “When it identifies a company that could threaten financial stability, it acts; when those risks change, the council also acts."

GE shares were up 1.8 percent in mid-day trading after the announcement, outperforming a 1.4 percent gain for the broader S&P 500 index .SPX.

“We have transformed GE by exiting most of financial services, acquiring Alstom, and investing to be a leader in the industrial Internet,” said Immelt in a statement, adding that in the future GE Capital will support the growth of the corporation's industrial business.

Lifting the designation is expected to allow GE Capital to free up cash from its balance sheet and allow parent company GE to deploy it for other uses, particularly share buybacks and its increased focus on aviation and energy.   Continued...

The logo of U.S. conglomerate General Electric is pictured at the company's site in Belfort, in this April 27, 2014 file photo. REUTERS/Vincent Kessler