Should G.E. Spin Off Its Financing Arm?

Should G.E. Spin Off Its Financing Arm?
September 23, 2008, 7:55 am

As The New York Times noted Monday, General Electric is as much a bank as a blue-chip industrial company and that dichotomy last week landed smack in the middle of the market turmoil surrounding financial companies.

Half of G.E.’s profits come from GE Capital and in last week’s crisis, G.E. found itself treated by fearful investors as another financial company potentially in peril, until news of a planned federal bailout brought a rebound in the markets late Thursday and Friday.

The way Breakingviews sees it, GE Capital is holding the rest of the group’s top-notch businesses hostage, Breakingviews argues. That doesn’t just hurt the stock’s value, says the publication — GE Capital’s financing needs could put the whole company at risk.

One solution to keeping its other businesses untainted by future problems with its financing arm, Breakingviews argues, would be to spin off GE Capital to shareholders, perhaps even as a bank holding company — the corporate structure Goldman Sachs and Morgan Stanley are now embracing.

The publication admits this would be a complicated move. But, Breakingviews argues, if there’s a lesson to be drawn from the travails at Lehman Brothers, Bear Stearns, the American International Group and elsewhere, it is that corporate executives and the boards that oversee them should be a little more imaginative in their planning meetings.