General Electric to Float Czech Banking Through an IPO

Company takes a step forward to solidify its industrial base

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Apr 13, 2016
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General Electric (GE, Financial) announced this week its plan to sell its Czech banking business through an initial public offering.

This is part of the company’s effort to reduce its reliance on financial services and strengthen its industrial base. GE Money Bank CEO Tomas Spurny believes that the overall economic growth and strategic move should lift investor confidence and in turn help the stock move north. The company is expected to complete the sale of existing shares by the end of this quarter on approval from the antitrust regulatory authorities.

Details

The Czech banking unit, which serves 1.2 million customers, has a wide network of 229 branches and 629 ATMs and focuses primarily on smaller towns and cities where financial services are underdeveloped. The unit happens to be the country’s fourth largest in terms of branches and sixth largest by assets. General Electric is likely to hold a minority share for at least 180 days to assist the unit’s lenders in the next couple of years.

The Czech IPO declaration comes days after General Electric reached an agreement to give away a majority of its stake in Poland’s BPH Bank in a $329 million deal. Besides, General Electric has disposed of other financial units including the spinoff of Synchrony (SYF, Financial) and the Cembra (GEH, Financial) IPO.

The Czech banking unit will be operating as a stand-alone entity, contrary to most of General Electric's financial asset sales. Spurny said in a statement, “The IPO has been evaluated as the most favorable option.” He added, “As a local Czech bank, we will continue to be successful. Perhaps more successful by opening additional degrees of freedom for the bank to make tactical and strategic decisions as a stand-alone bank rather than a bank owned by a global entity.” The banking unit is one of the most lucrative banks in the Czech Republic and the most popular in consumer lending.

Returning to industrial roots

The float is part of General Electric’s strategic move to dispose of $200 billion worth of its financial assets scheduled for this year. GE Capital states that it has struck deals for more than 80% of the assets it proposes to sell. The U.S. conglomerate has been working to shift the focus from its financial wing to broadening and solidifying its industrial base. The IPO is yet another way of shrinking the dependency on the financial arm “in line with the broader strategy of focusing on investment and growth in its technology and industrial businesses,” said Richard Laxer, chief executive of GE Capital International.

The company has been in the process of a “complete transformation” in the past three years. General Electric said it has reduced its assets to $265 billion. The company has reduced its reliance on short-term funding which stands at 6% of its liabilities, down from 21%.

There’s no doubt that the sale of financial assets has adversely affected General Electric’s revenue in the short run. The company is estimated to record a decline in top line in the first quarter of fiscal 2016. However, in the long run, General Electric’s focus on building and expanding the industrial business is going to fetch results for the company and its investors.