General Electric is leaving the lending business, a major source of both profit and risk, as it continues to whittle its focus down to an industrial core.
The company said Friday that it will sell most of its GE Capital assets over the next two years, shedding businesses in a sector where it has had a tough time generating acceptable returns. GE also plans to repurchase as much as $50 billion of its own stock.
Shares of GE climbed to their highest price in almost two years Friday after the company announced the buybacks and the return to a simpler focus that investors have favored.
In addition to the GE Capital sale, the company will sell most of its GE Capital Real Estate to funds managed by the investment firm Blackstone. Wells Fargo will buy a portion of the loans at closing. The company plans to sell additional commercial real estate assets that will bring the total value of the deals to around $26.5 billion.
The once broadly diverse conglomerate has been steadily shedding businesses as it focuses more on building industrial machines like aircraft engines and medical imaging equipment and selling big, complex products like power generators and oil and gas equipment.
Last September, it announced the sale of its appliance division to the Swedish appliance maker Electrolux for $3.3 billion. Before that deal, it spun off its consumer credit card business into a new company, Synchrony Financial. In recent years it also has sold NBC Universal and its insurance operations.
An extended run of low-interest rates has made GE's latest divestiture more feasible for the company.
"We see a very attractive market for selling our assets," GE Capital Chairman and CEO Keith Sherin told investors during a conference call. "Bottom line, we think the timing's right to execute this strategic shift."
With the shift, GE expects that more than 90 percent of its earnings will be generated by its industrial business by 2018. That compares with 58 percent in 2014.
While the financial division generates nearly half of the company's profit, is also presents a huge regulatory burden and has caused some anxiety for investors. Heavy exposure to commercial and residential mortgages threatened GE's existence during the financial crisis.
Company officials noted that GE Capital's return on equity slipped to 8.6 percent in the fourth quarter of last year from 13.1 percent in the final quarter of 2008. The company plans to shed most of its commercial lending and leasing segment, including all of its U.S. and international banking assets.
GE is moving back toward a business that investors can understand better, said Edward Jones analyst Logan Purk.
"At the end of the day, when half your business is a bank, you get a lower valuation and less credit in the marketplace," he said.
GE is already in talks with regulators about removing its designation as a "Systemically Important Financial Institution," which comes with a myriad of requirements not asked of an almost purely industrial entity.
The company will keep parts of its financing business related to its industrial operations, like GE Capital Aviation Services, Energy Financial Services and Healthcare Equipment Finance. The company says it will record about $16 billion in after-tax charges in the first quarter.
But the company also said it expects to return $90 billion to shareholders through the buyback, its dividend and the Synchrony split.
Shares of GE soared almost 8 percent, or $2.04, to $27.77 in midday trading Friday, while broader indexes were largely flat.