General Electric (GE, Financial) is disposing majority of its financial unit as it shifts towards becoming a major industrial conglomerate. The company intends to keep only those finance operations that shall support its industrial units. In its latest move to shrink its finance service business, General Electric announced to sell GE Capital Bank’s U.S. online deposit to Goldman Sachs Group (GS, Financial). Let’s take a look at the deal and see how Goldman Sachs will benefit from the transaction while GE gets closer to its strategic goal.
A closer look at the deal
Last week, Goldman Sachs settled on buying the online deposit platform and deposits to the tune of $16 billion. Half the amount is in the form of online deposits and the remaining half is certificate of deposit. The New York-based investment bank expects this move to further stabilize its source of funding and thereby get better equipped to weather future financial crises.
The deposit amount may look paltry when compared with Goldman Sachs’ assets worth $860 billion. However, this is a conscious effort undertaken by Goldman Sachs. Post the 2008 financial meltdown, regulators have forced the bank to become more of a universal financial unit and become less dependent on capital market funding.
The securities firm has increased its reliance on deposit funding. As of June 2015, Goldman Sachs’ deposits stood at $89 billion, which is more than three times of what it was in 2008. The transaction details of the purchase have not been disclosed. Goldman Sachs’ treasurer Liz Beshel Robinson said “This transaction achieves greater funding diversification and strengthens the liquidity profile of GS Bank by providing an additional deposit-gathering channel.”
Shrinking finance and shifting to industrial
As far as GE is concerned, this transaction is facilitating its strategic endeavor of selling off one of its U.S. bank charters. This will help the company reduce its financial service unit and shed the tag of being a financial institution. Apart of its deal with Goldman Sachs, GE’s also left with selling off Synchrony Financial (SYF, Financial) so that it completely exits from its banking operations in the U.S.
The company proposes to sell around $200 billion worth of its banking assets and solidify its industrial base. The company decided to reduce its reliance on banking and financial service and convert into an industrial heavyweight in the wake of the financial crises. The company, however, desires to continue some of its financial units that support its industrial operations including jet engines, CT scanners and power turbines.
GE’s announcement of selling its deposits to Goldman Sachs comes days after the company declared its $9 billion worth deal of disposing its health-care unit to Capital One Financial Corp (COF, Financial). GE has managed to sell financial assets of around $78 billion, which is close to its target of disposing $100 billion in banking business by end of this year. This excludes its deal with Goldman Sachs. The company’s investors have continually insisted it go back to its industrial roots as stringent federal regulations and fluctuating market conditions have weighed on its returns. GE seems to be moving on track to deliver stronger returns to its shareholders.
