General Electric is considering selling off non-core businesses in GE Capital to reduce their reliance on the division’s earnings. I don’t really believe that shrinking GE Capital is the best decision for GE shareholders. It is more important that GE Capital increases its deposit base to shore up longer term funding sources. The main reason why the division got into trouble during the credit crisis was that the unit was reliant on short term funding sources such as commercial paper, that really dried up after Lehman’s collapse. While divesting the division might appease short term investors who are interested in seeing a higher multiple awarded to GE, GE Capital offers some of the better growth prospects across the company.
Earnings are earnings and taking action for the sake of taking action doesn’t benefit shareholders. GE has not been diligent enough on the prices that they have paid for acquisitions and this is a much more serious issue than reducing the asset level of GE capital. When companies are acquired at too rich of a price it doesn’t benefit earnings so I believe the company should focus on organic growth, including GE Capital, and acquisitions only if the price is right.