March 31, 2016 / 11:33 AM / 2 years ago

GE Capital asks U.S. government to lift 'too big to fail' designation

WASHINGTON (Reuters) - Lender GE Capital asked the U.S. government on Thursday to stop designating it as “too big to fail,” saying it had shrunk to the point where it would not pose a major threat to the nation’s financial stability if it experiences distress.

A General Electric refrigerator is seen on sale at an appliance store in Westminster, Colorado January 15, 2016. REUTERS/Rick Wilking

Chief Executive Officer Keith Sherin said in a statement that the General Electric Co (GE.N) unit no longer met the criteria for a “systemically important financial institution,” a label that can trigger requirements for stricter oversight and more capital.

The application came the day after a federal judge struck down the designation of insurer MetLife Inc (MET.N), but GE Capital said the two events were unrelated. The company had said in October that it hoped to apply to the Financial Stability Oversight Council, which includes the Treasury secretary and Federal Reserve chair, for “de-designation” in the first quarter.

The 2010 Dodd-Frank Wall Street reform law authorized regulators to designate non-bank financial companies as systemically important, largely in response to the near-collapse of insurer American International Group Inc (AIG.N) and the $182 billion U.S. government bailout it received during the 2008 economic meltdown.

Only four non-banks have been deemed too big to fail, and the label has prompted most to consider reorganizing to pre-empt any increased regulation. GE Capital is the first to apply to have the designation removed.

Shares of General Electric were up 0.4 percent at $31.96 in afternoon trading. The industrial conglomerate has been working to reduce GE Capital’s size and said last April that it would focus on technology and manufacturing.

GE Capital, which received the systemically important label in 2013, said it had more than halved its assets to $265 billion from $549 billion at the end of 2012.

The unit said it had ended all consumer lending in the United States, reduced real estate debt by more than 75 percent, eliminated its real estate equity and cut outstanding commercial paper by almost 90 percent.

“Our plan to change our business model, shrink the company and reduce our risk profile has been successful,” Sherin said.

“SIGNIFICANTLY DE-RISKED”

The Financial Stability Oversight Council “welcomes the opportunity to evaluate developments at any designated non-bank financial company and their potential effect on financial stability,” said Treasury spokesman Rob Friedlander. “There is a clear process for de-designation.”

Each year the council reviews its previous designations and decides whether any changes at a company justify a rescission of the label, he said.

“Before the financial crisis, some of the largest, riskiest non-bank financial companies were not subject to adequate oversight,” Friedlander added.

S&P Global Market Intelligence analyst Jim Corridore, who follows General Electric, said in a note on Thursday that he expected GE Capital’s designation to be removed.

“GE Capital’s transformation has significantly de-risked the company,” Corridore said.

MetLife, the largest U.S. life insurer, sued after it was designated systemically important in 2014. Earlier this year, it said the “regulatory environment” and potentially large capital requirements were causing it to consider spinning off its retail business.

Meanwhile, billionaire investor Carl Icahn has pressured AIG to split into smaller companies to shed its designation.

AIG CEO Pete Hancock said on Thursday that the MetLife court decision created an opportunity for the company to seek de-designation, but it was “reserving judgment.”

Prudential Financial Inc (PRU.N), which was designated systemically important in 2013, did not immediately respond to a request for comment.

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