GE Capital: Garage sale

When the palace has a garage sale, shoppers can find a gem. On Friday, General Electric announced it would divest most of its GE Capital unit. Apart from the regulatory headache that comes from owning assets worth hundreds of billions of dollars, GE's decision was driven by an attractive deal market. Newly ascendant "speciality" finance companies are expected buyers of big chunks of the business. Yet the beleaguered, though still formidable, big banks may well also show up to bid.

GE has forecast that its industrial business will earn $1.20 a share in 2015. Assuming that on its own the industrial business would receive the same earnings multiple as rival Honeywell (17), GE Capital traded at just half of its $90bn book value before Friday. Recent transactions, and with the 10 per cent rally in GE shares on Friday, suggest that GE could get prices near book value for the divested assets.

Friday's $26.5bn sale of commercial real estate to a Blackstone-led group was completed at a near book value. A few weeks ago GE sold its Australia and New Zealand consumer business to another private equity consortium for two times book. GE also listed its US credit card business, Synchrony Financial, last summer. Its shares trades at 2.5 times book. In another noteworthy transaction, subprime consumer lender Springleaf paid two times book for Citigroup's OneMain; The buyer's shares still jumped.

The $200bn worth of GE assets up for sale is largely comprised of various middle-market commercial lending businesses. Private equity and equipment lenders will figure in the auctions. But the opportunity for big banks, who are awash in cheap liquidity from deposits, is to pluck out loan portfolios whose capital requirements are not too onerous - for example, solid real estate loans. Wells Fargo teamed up with Blackstone on Friday to snatch $9bn in performing loans from GE Capital. Garage sales draw an interesting crowd.

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