GE Capital: The Financial Services Arm of General Electric

GE Capital, the financial services unit of General Electric (GE), provides commercial lending and leasing, as well as a range of financial services for consumers, retailers, and businesses worldwide.

Definition and Overview

GE Capital is the financial services unit of General Electric Company (GE). Originally part of the multinational conglomerate, GE Capital has provided a range of financial services including commercial lending and leasing, as well as an array of financial products for consumers, retailers, and businesses worldwide.

Historical Context

GE Capital began operations in 1932, significantly expanding throughout the 1980s and 1990s. It has played a central role in General Electric’s strategy of diversification, contributing substantially to the parent company’s revenues. During the global financial crisis of 2008, GE Capital faced challenges, leading to a strategic restructuring and eventual downsizing in the 2010s.

Key Services

Commercial Lending and Leasing

GE Capital has been a major player in commercial lending, providing loans and leasing services to a variety of industries, including aviation, healthcare, energy, and manufacturing.

Consumer Finance

Initially involved in consumer financing through credit card operations and personal loans, GE Capital has since scaled back its consumer services in line with its restructuring plan.

Special Considerations

Regulatory Environment

Post-2008 financial crisis, GE Capital was designated a Systemically Important Financial Institution (SIFI) by the Financial Stability Oversight Council, necessitating more stringent regulatory oversight. This designation was lifted in 2016 following significant restructuring.

Divestment and Strategic Shift

In 2015, GE announced its plan to divest the majority of GE Capital’s assets, focusing on its industrial core. This move marked a significant shift in strategy, aiming to simplify its operations and reduce regulatory burdens.

Economic Contributions

GE Capital has historically been a major contributor to global economic growth through its financing projects that enable business expansions, infrastructure development, and technological advancements.

Examples of Operations

Aviation Financing

GE Capital Aviation Services (GECAS) is a notable example, providing financing solutions to airlines for purchasing and leasing aircraft, which bolsters the aviation industry.

Real Estate Investments

GE Capital Real Estate has been involved in commercial real estate financing, assisting in projects that range from office buildings to retail spaces.

Related Terms

• Commercial Lending: The provision of loans to businesses for capital expenditure, operational needs, and growth opportunities.
• Leasing: A financial arrangement in which a company allows another to use an asset in exchange for periodic payments.
• SIFI: Systemically Important Financial Institution, a classification for firms whose failure would cause significant disruption to the global financial system.

FAQs

What led to the downsizing of GE Capital?

GE Capital’s downsizing was primarily driven by the aftermath of the 2008 financial crisis, leading to regulatory changes and a strategic decision to focus on General Electric’s industrial operations.

How did GE Capital contribute to General Electric’s overall business?

GE Capital was a significant revenue generator for GE, providing diversified income streams through its financial services, often counterbalancing the cyclical nature of GE’s industrial businesses.

What happened to GE Capital’s consumer finance division?

As part of GE’s plan to streamline operations and reduce regulatory complexity, GE Capital divested most of its consumer finance operations, including the spinoff of Synchrony Financial, which became a standalone public company in 2014.

References

1. “General Electric Company (GE) History.” Funding Universe.
2. “GE’s Move to Shrink Finance Arm Aims at Wall Street Decline.” The New York Times, April 10, 2015.
3. “Federal Reserve Board Announces Rescission of Designation of GE Capital as a Systemically Important Financial Institution.” Federal Reserve, June 29, 2016.

Summary

GE Capital has played an integral role in shaping the financial landscape for both General Electric and the global economy. Through various phases of expansion, challenge, and restructuring, it has demonstrated the significant impact strategic financial services can have on a multinational corporation’s success and adaptability. Today, while it focuses more on industrial financing post-restructuring, its legacy in commercial lending and leasing continues to influence current market dynamics.