GE Targets Ability to Send Extra Capital to Parent, Sherin Says

General Electric Co. (GE), hoping to resume collecting an annual dividend from its finance unit in 2012, sees the business generating “billions” more in free capital than needed for the payment, the finance chief said.

GE is waiting for its new regulator, the Federal Reserve, to finish its evaluation before re-starting the dividend. The payment of almost half of GE Capital’s earnings reached as much as $8.6 billion before it was suspended after the 2008 financial and economic crisis.

“Our stated goal all along was to have GE Capital pay 45 percent of its earnings as a dividend,” Chief Financial Officer Keith Sherin said in an interview today, reiterating that the company must wait for the Federal Reserve’s approval. “We believe we will have excess capital on top of that amount. We have not quantified that, but we believe it will be in excess of billions of dollars.”

Under Chief Executive Officer Jeffrey Immelt, the company is working to shrink the portion of the parent’s total earnings derived from the finance division to about one-third from about half. As the company winds down or sells assets GE Capital no longer wants, excess capital is created, Sherin said.

Once the latest international guidelines for capital funding at banks and large finance companies like GE Capital, known as the Basel standards, are finalized and the unit completes its restructuring, the company will have a more refined idea of its prospects, Sherin said.

Regulatory Framework

Excess capital at GE’s finance unit may be more than $20 billion over a three-year period, Steven Winoker, an analyst with Sanford C. Bernstein & Co., estimated in December.

GE said today its finance unit has the equivalent of a 9.9 percent Tier 1 common ratio, higher than some banks. The Tier 1 ratio measures the security of a finance company’s resources.

“We believe, when you go to whatever regulatory framework that we’re held to, if it’s Basel I or Basel III,” that the finance unit will have excess capital after paying the 45 percent internal dividend, Sherin said. “As we continue to shrink, we build up capital in the business. As we earn money, we build up capital in the business.”

“Any amount above what the maximum regulatory” requirement is set at could be returned to the parent company, he said.

As GE continues simplifying its finance unit, the company will consolidate the GE Capital Corp. and GE Capital Services Inc. entities, Sherin said on a call with the Fairfield, Connecticut-based company’s investors today.

Today’s move wasn’t spurred by the Federal Reserve’s taking over as regulator, Sherin said. GE Capital Services used to contain the company’s now disposed-of insurance divisions and, in the 1990s, the long-sold off Kidder Peabody division.

With those gone, there is little benefit to having two separate entities, he said.

GE announced a new target today of $425 billion to $440 billion for GE Capital’s ending net investment, a gauge of a finance business’s assets.

To contact the reporters on this story: {Rachel Layne} in Boston at rlayne@bloomberg.net;

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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