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GE Deal With Shinsei Ends Liability After $4 Billion Cost

Feb. 26 (Bloomberg) -- General Electric Co.’s agreement today with Shinsei Bank Ltd. concludes a liability that has cost GE $4 billion since 2008 to compensate the Japanese lender for refunds made to customers on excess interest payments.

The pact will reduce GE’s fourth-quarter and full-year 2013 net income by $1 billion, or 9 cents a share. That adds to about $3 billion of costs since GE’s 2008 sale of its Japanese consumer business to Tokyo-based Shinsei for $5.4 billion, said Seth Martin, a GE spokesman.

Under today’s accord, financing unit GE Capital Corp. agreed to pay Shinsei 175 billion yen ($1.7 billion), Fairfield, Connecticut-based GE said in a statement. The agreement with Shinsei is part of GE’s push to reduce risk by shrinking GE Capital while expanding its industrial unit, which makes locomotives and jet engines.

“This has been a perpetual carry, like a hand reaching up from the grave,” Nick Heymann, a William Blair & Co. analyst in New York, said in a telephone interview. “Now it’s finally behind them.”

In November, GE announced plans for a spinoff by 2015 for its North American consumer credit unit, whose products include store credit cards for companies from Wal-Mart Stores Inc. to J.C. Penney Co.

Last month, GE reported 2013 net income of $14.1 billion, or $1.36 a share. The Shinsei accord won’t affect 2014 results, GE said.

Trimming Finance

Chief Executive Officer Jeffrey Immelt is working to boost the share of earnings from GE’s manufacturing businesses and has been slimming GE Capital since credit markets froze in the 2008-09 financial crisis, imperiling the parent company.

GE rose 0.1 percent to $25.30 at the close in New York, leaving the stock down 9.7 percent this year compared with a 0.2 percent drop for the Standard & Poor’s 500 Index. Heymann rates the stock as market perform. Shinsei slid 1.5 percent to 202 yen today in Tokyo, extending the stock’s year-to-date drop to 21 percent.

Shinsei said the agreement will bolster reserves for interest repayments and won’t have any impact on its earnings.

“Reserves will now be at a level sufficient to cover all expected future losses on interest repayment,” the lender said in a statement today.

Japanese consumer finance companies have had to refund overcharged interest to borrowers and cap lending rates after a government crackdown on the industry. Shinsei’s purchase of the GE businesses almost six years ago boosted the value of its local consumer loans at the time by almost two-thirds.

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 editors responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net; Ed Dufner at edufner@bloomberg.net

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