July 26, 2002 GE Capital to Split Into Four By REUTERS
NEW YORK (Reuters) - Jeff Immelt, in his first major reorganization as chief of General Electric Co. (GE.N), on Friday tightened his grip on GE Capital and said he would split GE's profit-driving finance arm into four parts. The shake-up includes the departure of GE Capital Chief Executive Denis Nayden and will give investors a clearer picture of the unit's operations and results, GE said. GE Capital, which generates 40 percent of GE's earnings, will split into insurance, commercial finance, consumer finance and equipment units, each reporting to Immelt and Vice Chairman Dennis Dammerman. The change will take effect next Thursday. ``We've seen over the past few years management getting closer to GE Capital and this continues that process and formalizes it,'' said analyst Bob Young of Moody's Investors Service. ``Now Jeff Immelt has four GE Capital guys reporting directly to him.'' MORE DISCLOSURE Wall Street has been plagued by accounting scandals, and investors have complained the conglomerate's finance arm does not give enough insight into how GE Capital makes its profits. Corporate disclosure is a hot topic on Wall Street after questionable accounting at Enron Corp. (ENRNQ.PK) and WorldCom Inc. (WCOEQ.O) pushed the companies into bankruptcy and led investors to lose billions of dollars as their stocks tanked. GE's shares closed up $1.10, or 4.1 percent, at $27.80 in trading on the New York Stock Exchange. ``This will create a clearer line of sight on how our financial services businesses operate and enhance growth,'' Immelt said in a statement. ``Our external reporting will mirror this organizational structure, providing greater clarity for investors.'' GE, a wide-ranging conglomerate with a hand in everything from television stations and lightbulbs to washing machines and insurance, has drawn criticism for its sometimes oblique earnings reports. ``We have mixed feelings about it,'' said Morningstar analyst Jonathan Schrader. ``We are positive if it allows for further disclosure on the GE Capital side...On the other hand, whenever a high level executive departs you have to be a little bit skeptical and it raises a red flag that perhaps there may be another shoe.'' But the reorganization is unlikely to have an immediate impact on the bottom line, analysts said. ``This doesn't change the cost structure at all or change earnings a bit,'' said Morgan Stanley analyst Scott Davis. ``But it does simplify things for investors, which I think is a positive.'' While future GE financial statements will include additional information on the GE Capital units, the company has not yet determined what information it would include, a GE spokesman said. The company has already been increasing disclosure since last year, he said. IMMELT'S LEGACY Immelt replaced legendary former CEO Jack Welch in September, just days before the attacks on the World Trade Center and the Pentagon. The attacks, coupled with the crisis of confidence that has crippled Wall Street, have helped shave 30 percent off GE's stock price since Immelt took over and led to questions about his ability to get out of Welch's shadow.toward carving out his own legacy. Welch was more focused on the industrial side of the business, achieving growth through acquisitions and cost-cutting, but Immelt recognizes that GE Capital will drive growth of the company in the future, Schrader said. ``The reason for doing this is simple -- I want more direct contact with the financial services teams,'' Immelt said. The GE Capital spokesman said Immelt had been contemplating the move since he took over, but the reorganization was put on the backburner from fallout after the attacks of Sept. 11. Nayden will leave to form his own financial services advisory company, but will also remain as a senior advisor to Immelt. The reorganization will have no effect on the company's credit rating because it has no immediate impact on its finances, Moody's Young said. Standard & Poor's said the move would not change its ratings on GE. GE Capital's bonds weakened on the restructuring. The 6 percent notes maturing in 2012 of the largest U.S. corporate debt issuer now yield about 5.78 percent, or 1.4 percentage points more than U.S. Treasuries, up from 1.35 percentage points on Thursday. Michael Neal will be in charge of commercial finance, David Nissen will lead consumer finance, Arthur Harper will run equipment management and Michael Fraizer will handle the insurance group. GE Capital was started in the 1930s during the U.S. Great Depression as a way to help consumers finance purchases of appliances, but has since grown to a diversified finance company with about $345 billion in assets. GE Capital's earnings fell 10 percent in the second quarter, as it was hurt by exposure to WorldCom bonds and reported reinsurance losses, according to GE's earnings release earlier this month. ``GE Capital is positioned for another year of double-digit growth,'' Immelt said.
