GE Takes $1.7 Billion Charge in Accord to End Shinsei Liability

General Electric Co. (GE) will take a 175 billion yen ($1.7 billion) charge after agreeing with Shinsei (8303) Bank Ltd. to conclude an obligation to compensate the Japanese lender for interest refund claims.

The agreement will reduce GE’s fourth-quarter and full-year 2013 net earnings by $1 billion and net earnings per diluted share by $0.09, the Fairfield, Connecticut-based company said in a statement today.

GE’s liability dates back to a loss-sharing agreement formed in 2008 when its finance unit sold its Japanese consumer businesses to Shinsei for $5.4 billion. The U.S. maker of locomotives and jet engines subsequently created reserves to cover the liability.

The agreement with Shinsei is part of GE’s push to reduce its risk by shrinking GE Capital Corp. while growing its industrial unit. In November, GE announced plans to spin off its North American consumer credit unit by 2015.

Unwinding the business, whose products include store credit cards for companies from Wal-Mart Stores Inc. to J.C. Penney Co., bolsters GE Chief Executive Officer Jeffrey Immelt’s bid to boost the share of earnings from units making goods such as medical scanners. He has been slimming GE Capital since credit markets froze in the 2008-09 financial crisis, imperiling the parent company.

GE shares lost 0.1 percent to $25.27 yesterday, paring its advance in the past six months to 7 percent.

Shinsei Bank said the agreement won’t have any impact on its earnings. Its purchase of the GE businesses almost six years ago boosted the value of its Japanese consumer loans at the time by almost two-thirds.

Shares of the lender have fallen 21 percent this year. The stock slid 1.5 percent to 202 yen today.

To contact the reporters on this story: Thomas Black in Dallas at tblack@bloomberg.net; Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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