General Electric Co. held takeover talks with New Jersey’s Hudson City Bancorp Inc. shortly before the lender agreed to a $3.7 billion sale to M&T Bank Corp. in August, said three people with knowledge of the matter.
GE pursued talks to secure long-term financing for its GE Capital unit, said the people, who asked not to be named because the discussions were private. Two companies besides M&T held negotiations and examined Paramus-based Hudson City’s books in 2011, and both did so again in June and July, M&T said in a regulatory filing last week that didn’t name the suitors.
Chief Executive Officer Jeffrey Immelt has hunted for ways to reduce GE’s reliance on short-term funding since 2008, when the commercial-paper market that financed many of the lending unit’s assets collapsed and threatened the entire company. The U.S. government subsequently propped up the commercial-paper market as part of a broader rescue of the financial system.
“Investors would totally understand their desire to have a more stable deposit base to call upon,” said Scott Davis, a New York-based analyst at Barclays Plc. Still, he said, shareholders don’t want the company to “invest substantially in GE Capital and grow the overall asset size.”
Russell Wilkerson, a spokesman for GE Capital, declined to comment on speculation about the company’s involvement. Susan Munhall of Hudson City’s investor relations department didn’t return a phone message or an e-mail.
GE was unchanged at $21.26 p.m. at the close in New York. The shares have gained 19 percent this year, outpacing a 12 percent increase for the Standard & Poor’s 500 Index.
In June 2011, GE lost a bidding contest with Capital One Financial Corp. for ING Groep NV’s U.S. online bank with $81.6 billion of deposits, people with knowledge of the matter said at the time. GE also is planning to buy about $7 billion of bank deposits from MetLife Inc., which is seeking to exit the banking business.
Hudson City bills itself as the “Most Efficient Bank” in the U.S. and the largest savings bank headquartered in New Jersey. Hudson City had about $24 billion in deposits as of Sept. 30. Some of Hudson City’s talks with potential bidders this year took place while Chairman and Chief Executive Officer Ronald Hermance was on medical leave for a blood disorder.
Immelt has pledged to curb GE Capital’s reliance on the commercial paper and corporate bond markets as he pares the unit’s size. The division suffered about $32 billion in credit losses when financial markets froze in the aftermath of Lehman Brothers Holdings Inc.’s 2008 failure.
Immelt’s efforts to shrink GE Capital are ahead of the schedule he laid out this year. Ending net investment, a measure of the unit’s assets that excludes non-interest-bearing liabilities and cash, fell to $425 billion at the end of the third quarter, three months sooner than expected, the company said. That’s a 17 percent decline since January 2009, when it reached $513 billion, according to regulatory filings.
By adding bank deposits, GE Capital would reduce risk and cut its funding costs, which may be more than 100 basis points higher than competitors, Davis said.
“You could make a pretty strong argument that GE’s funding-cost disadvantage right now is the highest it’s been in a very long time because they’re generally under pressure to issue longer-term debt,” he said.