No doubt about it, General Electric Co.'s (NYSE:GE) CEO Jeff Immelt thinks that divesting the company's finance unit -- GE Capital -- is absolutely the wrong thing to do.
In a Monday morning memo to employees, the CEO was adamant that speculation and calls for his company to divest its finance arm were not in the best interests of the company. Some analysts and government insiders have predict that the Obama administration's proposal to revamp the regulatory governing body of the financial system could force GE to sell or divest GE Capital, Reuters reports.
"It is very early in the process, and Congress will now spend months reviewing and drafting legislation. We are certainly opposed to it, since this issue had nothing to do with the financial crisis," said Immelt, according to a spokeswoman, Reuters reported. "GE is and will remain committed to GE Capital and we like our strategy."
But it's not a matter of Immelt against the world, as BusinessWeek points out why he likes his strategy of holding on to GE Capital:
- GE Capital is positioned to acquire more market share from rivals who are weaker when the global economy improves.
- GE would have to invest as much as $32 billion in additional funds to back up the
obligations of GE Capital, Richard Hofmann at CreditSights estimated.
There are also reasons why GE Capital will want to stay under its parent's rather large financial umbrella.
- The finance unit can tap its parent's
strong credit rating to help support the financial unit's $466
billion in debt.
- Separation from GE would likely give the unit an adjusted lower credit rating, forcing it to renegotiate credit lines with some 65 banks worldwide, forcing its borrowing costs to escalate.
- Gerald Magpily
See Reuters story
See BusinessWeek article
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