Trystan Casey
General Electric Company (GE), founded in 1892, was an American multinational conglomerate that ventured into various industries, including finance. The company's involvement in the financial sector can be traced back to its early years, with the formation of Edison General Electric Company in 1889, financed by J.P. Morgan and Anthony J. Drexel. Over the years, GE established itself in multiple divisions, including finance, through its GE Capital division. However, in 2015, GE announced its intention to sell off a significant portion of its finance unit as part of a post-financial crisis reorganization. This decision marked a shift back towards manufacturing and a recognition that banking had become a less profitable and riskier venture. By 2024, GE ceased to exist as a conglomerate, splitting into three independent companies specializing in aircraft engines, medical equipment, and turbines, effectively ending its direct involvement in the finance industry.
| Characteristics | Values |
|---|---|
| Year of transition from financing to manufacturing | 2015 |
| Reason for transition | Banking became less profitable and riskier |
| Companies involved in the transition | Wells Fargo, The Blackstone Group |
| Value of property portfolio sold | $26.5 billion |
| Amount returned to shareholders | $90 billion |
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What You'll Learn
GE's retreat from finance in 2015
In 2015, General Electric (GE) announced its retreat from finance in a post-crisis reorganisation. The company planned to sell off most of its finance arm, GE Capital, over the next two years, marking a significant shift for the 123-year-old conglomerate. GE Capital, once a powerful driver of the company's earnings, had become a burden due to strict regulatory requirements and challenges in generating acceptable returns.
GE's decision to exit the U.S. banking sector was driven by a desire to shed its status as a "systematically important financial institution" and free itself from tightening banking regulations. The company aimed to simplify its business and focus on its core industrial businesses, including jet turbines, heavy energy equipment, and medical devices. By 2018, these businesses were expected to account for more than 90% of its earnings.
As part of its retreat from finance, GE announced the sale of its property portfolio, worth $26.5 billion, to Wells Fargo and The Blackstone Group. Additionally, GE Capital agreed to sell its Healthcare Financial Services business to Capital One for $9 billion and its online deposit platform to Goldman Sachs. The company also sold its transportation finance unit to Canada's Bank of Montreal for US$11.5 billion.
The downsizing of the finance unit was a significant change for GE, which had a long history in the industry. Under former CEO Jack Welch, GE Capital expanded significantly and became one of the country's most prominent lenders. However, the financial crisis of 2008 exposed vulnerabilities in GE's business model, and the company struggled with declining revenues and poor performance in the years that followed.
GE's retreat from finance was part of a broader transformation aimed at making the conglomerate smaller and safer, and more focused on its core industrial strengths. The company also worked to return to its roots in manufacturing and shed its image as a "hybrid" company operating in both banking and manufacturing.
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The decline of GE Capital
General Electric Company (GE), an American multinational conglomerate, has been a household name in the US since its incorporation in 1892. Over the years, the company has ventured into several industries, including finance, energy, healthcare, and aviation.
GE Capital, the financial arm of GE, was founded in 1997 as GE Capital International Services (GECIS). It was the brainchild of former CEO Jack Welch, who transformed GE into a diversified stock market winner. GE Capital contributed nearly 60% of GE's overall profits at its peak. The company provided business loans, credit cards, and mortgages with little regulatory oversight.
However, GE's decline accelerated during the Great Recession, and the financial crisis of 2008 revealed that it was overstretched. GE's stock price crashed during the meltdown as Wall Street treated it as a bank rather than an industrial company. The financial crisis delivered a near-death blow to GE Capital, which struggled under a portfolio burdened with risky loans. The company was bailed out with $139 billion in government-guaranteed debt and lost its AAA credit rating.
In 2010, the Dodd-Frank financial reform bill designated GE as systemically important to the financial system, and it was subjected to greater regulatory oversight. As a result, GE Capital could no longer take on the same level of risk and make outsize profits.
In 2014, GE began to unwind much of GE Capital, selling its retail lending and credit business. In 2015, the company announced plans to sell off most of its finance unit and return to its industrial roots. GE Capital's assets have shrunk by three-quarters since 2013, and the company has since split into three independent companies, focusing on aerospace, energy, and healthcare.
Despite GE's well-publicized decline, it remains a significant force in its three main business sectors, employing hundreds of thousands of people worldwide.
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GE's diversification after WWII
General Electric (GE) has been a household name in the electrical appliances industry since its incorporation in 1892. The company was born out of the race to provide affordable light and electricity to fuel industrial America. GE's earliest products included incandescent light bulbs, electric locomotives, X-ray machines, and electric stoves.
Following World War II, GE ventured into several industries beyond electricity, including healthcare, television, power generation, and computing. This diversification strategy, perfected under the leadership of Jack Welch in the 1980s and 1990s, aimed to enhance the company's ability to manage economic fluctuations. Welch believed that a well-diversified conglomerate could outperform a specialized firm.
GE's expansion into financial services through GE Capital marked a significant shift from its industrial roots. GE Capital diversified into areas such as consumer finance, commercial lending, and insurance. This diversification was part of a broader trend of horizontal diversification, where GE sought to operate only in industries where it could be a market leader.
The post-World War II period was characterized by economic expansion, increased consumerism, and the widespread adoption of Keynesian economic policies. This era, known as the "Golden Age of Capitalism", witnessed an unprecedented surge in global economic growth, particularly in the United States, the Soviet Union, Western Europe, and East Asia.
While GE's diversification strategy initially contributed to its success, challenges emerged over time. The 2008 financial crisis exposed GE's over-reliance on GE Capital, leading the company to reduce its size and return to its manufacturing roots. Despite these setbacks, GE has continued to adapt and transform, most recently splitting into three independent companies specializing in aircraft engines, medical equipment, and turbines.
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Genpact and outsourcing
General Electric Company (GE) was an American multinational conglomerate founded in 1892. Over the years, the company has had multiple divisions, including finance. In 2015, GE announced its intention to sell most of its finance unit and return around $90 billion to shareholders as the firm looked to trim down on its holdings and rid itself of its image of a "hybrid" company, working in both banking and manufacturing.
Genpact is an American information technology services, consulting, and outsourcing company. It was founded in 1997 as a unit of General Electric called GE Capital International Services (GECIS). GECIS created processes for outsourcing back-office activities for GE Capital, such as processing car loans and credit card transactions. It was an experimental concept at the time and marked the beginning of the business process outsourcing (BPO) industry.
Genpact has since expanded its operations worldwide and is currently active in more than 30 countries. The company is managed by a leadership team of 13 members and is listed on the NYSE. In 2023, Genpact was recognised as a leader in procurement BPO and transformation services, driving digital evolution for businesses post-pandemic. The company has a strong legacy in the optimisation of complex procurement systems, relationships, and operations, translating well into digital transformation consulting for mid-market firms.
Genpact continues to provide services to GE in customer service, finance, information technology, and analytics.
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GE's three-way split in 2024
In April 2024, General Electric (GE) completed its three-way split, marking the end of the 132-year-old conglomerate that was once a global symbol of American business power. The company had been struggling in recent years, and the split was part of CEO Larry Culp's efforts to turn it around.
GE's decline accelerated during the Great Recession, as the financial crisis revealed that it was overstretched. In 2015, GE announced its intention to sell off most of its finance unit and return to its roots in manufacturing. This was a significant shift for the company, as it had reaped enormous profits from its finance arm for decades. By 2018, GE had been dropped from the Dow Jones Industrial Average (DJIA) index after years of poor performance and declining revenues.
The three independent companies that emerged from the 2024 split were:
- GE Aerospace: This company retained the GE symbol and makes engines for Boeing and Airbus jets. It generates more than 70% of its revenue from services, and analysts estimate its market value at over $100 billion.
- GE Vernova: The energy unit, which debuted under the ticker symbol GEV (GEV.N), rose about 5% in its first day of trading. Gas turbines represent a significant portion of its revenue and power generation fleet.
- GE HealthCare: The healthcare business was spun off over a year before the other two companies, and it specialises in medical equipment.
Prior to the three-way split, GE had multiple divisions, including aerospace, transportation, energy, healthcare, lighting, locomotives, appliances, and finance. It had also owned the NBC television network from 1986 until 2013. In 2020, GE ranked 33rd in the Fortune 500 list of largest firms in the United States by gross revenue, but by 2023, it had fallen to 64th in the Forbes Global 2000.
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Frequently asked questions
General Electric has had financing operations since at least 1997, when it founded Genpact (originally GE Capital International Services) to process car loans and credit card transactions.
Genpact was a unit of General Electric founded in 1997 to process car loans and credit card transactions for GE Capital. In 2005, GE sold 60% of Genpact to General Atlantic and Oak Hill Capital Partners, and Genpact became an independent business.
General Electric sold its finance unit in 2015 because banking had become a less profitable and riskier business. The company wanted to focus on manufacturing instead.
GE Capital was a division of General Electric that swelled into one of the country's biggest lenders. It was nearly bankrupted by the 2008 financial crisis.
General Electric still has a Global Operations Center in Cincinnati, Ohio, that supports the company's finance and accounting operations, among other things.
