GE Capital to Split Into Four; Immelt Takes Charge
Tuesday, July 30, 2002
NEW YORK — Jeff Immelt, in his first major reorganization as chief of General Electric Co. (GE), Friday tightened his grip on GE Capital and said he would split GE's profit-driving finance arm into four parts.
GE Capital, which generates 40 percent of GE's earnings, will split into insurance, commercial finance, consumer finance and equipment units, each reporting to Immelt and vice chairman Dennis Dammerman. The change will take effect next Thursday.
The shake-up includes the departure of GE Capital Chief Executive Denis Nayden and will give investors a clearer picture of the unit's operations and results, GE said.
"We've seen over the past few years management getting closer to GE Capital and this continues that process and formalizes it," said analyst Bob Young of Moody's Investors Service. "Now Jeff Immelt has four GE Capital guys reporting directly to him."
Wall Street has been plagued by accounting scandals, and investors have complained the conglomerate's finance arm does not give enough insight into how GE Capital makes its profits.
Corporate disclosure is a hot topic on Wall Street after questionable accounting at Enron Corp. and WorldCom Inc. pushed the companies into bankruptcy and led investors to lose billions of dollars as their stocks tanked.
GE's shares moved up 2.4 percent to $27.35 in trading on the New York Stock Exchange.
"This will create a clearer line of sight on how our financial services businesses operate and enhance growth," Immelt said in a statement. "Our external reporting will mirror this organizational structure, providing greater clarity for investors."
GE, a wide-ranging conglomerate with a hand in everything from TV stations and lightbulbs to washing machines and insurance, has drawn criticism for its sometimes oblique earnings reports.
"We have mixed feelings about it," said Morningstar analyst Jonathan Schrader. "We are positive if it allows for further disclosure on the GE Capital side ... On the other hand, whenever a high level executive departs you have to be a little bit sceptical and it raises a red flag that perhaps there may be another shoe."
Immelt, who in September replaced legendary CEO Jack Welch, recognizes GE Capital is the growth engine of the company and is essential if he is to carve out his own legacy, Schrader said.
"The reason for doing this is simple -- I want more direct contact with the financial services teams," Immelt said.
A GE Capital spokesman said Immelt had been contemplating the move since he took over, but the reorganization was put on the backburner from fallout after the attacks of Sept. 11.
While future GE financial statements will include additional information on the GE Capital units, the company has not yet determined what information it would include, the spokesman said.
Nayden will leave to form his own financial services advisory company, but will also remain as a senior advisor to Immelt.
The reorganization will have no affect on the company's credit rating because it has no immediate impact on its finances, Moody's Young said. Standard & Poor's said the move would not change its ratings on GE.
Michael Neal will be in charge of commercial finance, David Nissen will lead consumer finance, Arthur Harper will run equipment management and Michael Fraizer will handle the insurance group.
"GE Capital is positioned for another year of double-digit growth," Immelt said. |
