General Electric Sets Retail Lending Exit: Why Now?

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Aug. 30 (Bloomberg) -- Kamal Mustafa, CEO at Invictus talks with Erik Schatzker about General Electric's decision to exit retail lending and spin off their credit card business. He speaks on Bloomberg Television's "Market Makers."

Thank you so much.

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Good morning.

Happy friday.

You are watching "market makers ." i am deirdre bolton, in today for steph ruhle.

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An extra two hours of tv.

I will get right into the newsfeed.

Billionaire investor carl icahn is boosting his stake in nuance communications.

His ip may take a seat on the board of the software maker.

We are getting more details on why josef ackermann abruptly resigned following the death of the cfo.

The company said that ackermann was mentioned in the cfo's suicide note.

He said he was stepping down after members of the cfo's family said he shared responsibility for the death.

Consumer confidence was higher than expected this month.

Earlier, the government reported that consumer spending rose less than forecast last month.

General electric may be getting out of the credit card business.

According to "the wall street journal," ge is preparing to spin off its finance unit.

You might ask, why would ge want out of this business just as credit is improving?

With us to answer that question and more, kamal estafa.

The trend is positive -- dylan quincey rates have been going down steadily since the financial crisis.

Why would ge want out of this business now?

A set of reasons.

They got into the business before the recession.

Ge's financial rating was such that they could raise money fairly cheaply.

At that point in time, the regulators were stuck on basel one and basel two, so capital were claimants for that business were far lower than postrecession.

-- capital requirements were far lower than postrecession.

Today, ge as an organization cannot raise funds to fund this side of the business at the same arbitrage it had before the recession.

Kamal, you used to run mergers and acquisitions for citigroup.

You know the ins and outs of the asset disposition and acquisition game as well as anybody in the banking business.

Why is ge looking to spin this off?

Why would another bank step up -- why wouldn't another bank step up and acquire what should be an attractive business?

If you are in the credit card issuance business for walmart, banana republic, there is got to be some appeal their -- there.

There is appeal.

The size of the business is so large that the only real buyer would have to come from the bank that had just been through the -- the stress testing, the capital approval required by the federal reserve and other regulators?

Exactly, the top 18 to 20 banks in the marketplace, the once capable of taking the whole gulp.

They are the only ball -- banks who have suffered through this stress test exercise, and there are only a few of them in today's market -- this is quite separate from public opinion of banks getting bigger -- that can take a bite and still have enough capital reserves, taking into consideration what the regulators will ask them to maintain and capital against it that can do it.

Most of them will -- could not -- would not be buyers for the situation unless they have a chief executive that is willing to rock the boat a little bit.

In your mind, does that explain why ge is looking to spin this off?

Sale would be the preferred route, and it's a sale isn't possible, because of the reasons you outline, you have no choice but to spin off?

They are talking about a spinoff.

When it is spun off, the investors -- intelligent investors are going to ask the question, is the capital in the new spun off entity capable, sufficient to meet the new regulatory capital requirements?

That is going to be an interesting question.

They cannot just go out and raise money on a certain valuation.

That new entity will have to have capital levels that reflect the same stress testing exercises the federal reserve is done against these assets.

That could be a fairly high number.

But there are independent credit card companies -- discover financial services is one, american express, little more diversified, is another.

They have been mistreated they can stand on their own.

Yes, -- they have demonstrated that they can stand on their own.

Yes, and if they have sufficient capital -- that is the name of the game -- if there is a buyer that has to have for has the ability to raise the capital required under the alternative requirements -- alternatively, they would have to break it into pieces for the buyers, which is possible, but as a spinoff they need to have more capital today that would have been required in the prerecession times.

Quick question here -- the preference, obviously, has to be for them to find one single buyer for the whole unit.

It seems like that is very unlikely to happen, so when ipo was more likely, right?

Ipo, except under different ground rules.

An ipo done before the recession would not have had to raise that much capital.

The more capital you raise, the lower your return on capital.

Audited financials will not reflect the regulatory capital requirement -- required to support these assets, so the underwriting -- in a sense, the stress test or the equivalent of a stress test to make sure that investors are comfortable but enough capital is being raised for this ipo, so that they are not forced into dilution later when the regulars come back and say that we were capital.

-- that we need more capital.

Kamal, you have made it clear, this might be more tricky for ge and its shareholders then we might've recognized.

Good to talk to you again, kamal mustafa.

In the meantime, silver screen giant is going public.

Movie theater chain amc filed an ipo registration this morning.

The country's second-biggest theater changes currently a subsidiary of a chinese conglomerate.

Cristina alesci is with us now.

What have you found?

This isn't the first time that the company has tried to go public.

The difference here is that we have a new owner.

Private equity guys sold amc to one of the largest real estate developers in china, if not the largest.

The bloomberg billionaires index actually uncovered, she is worth , $14 billion -- the bloomberg billionaires index actually uncovered how much he is worth, $14 billion.

He already operates a big theater company in china.

Yes, there are synergies when it comes to cater supplies and things of that nature, but what people are saying around this deal is that it may be a way for china to get closer to hollywood at the end of the day.

This may be his right, maybe , of bridging the gap join what china is doing that drain developing and -- china is doing between developing and producing its own content and bringing hollywood films into the country in a way it has not been able to break into before.

There is lots of details and this filing.

What jumped out at you?

The filing is really bar e at this point.

There's not much.

There is a lot of great things about the company, as you would expect, because they are trying to sell shares to the public.

The company had a 200 million guests visit the theaters last year, it's best year in terms of revenue last year.

Great marketing numbers.

The real question is, in this filing and subsequent offerings, what is he going to do with the proceeds of these offerings?

When i go to the proceeds line which in the document, all i see is boilerplate that we plan to use the proceeds for general corporate purposes.

Of course, the ebony has some debt and they may use it to repay that debt.

This is coming in an era on more and more people are preferring to stay at home then go out to the movies -- i like how you look at me there, erik.

[laughter] they can get those first-run movies sometimes on pay-per- view, and just as often they don't care and don't feel like they need to see the imax experience or 3-d experience, just as happy sitting on the couch.

That is why the private equity guys had a hard time with the investment and why they did not make that much money, and why they had to pull it so many times and opted to sell it to this chinese company.

What is interesting here is, again, people around this deal i saying it is not so much applied for the theater -- not so much a plate for the theater audience, it is a play for hollywood.

If they could partner in the production and own some of the content that is being developed, especially for a chinese audience, by specifically for a chinese audience, that may be very powerful.

Even if we don't always like the blockbusters, for some reason other people like them.

There have been restrictions in terms of what can be distributed in terms of american films.

For the cynic, there is humor value in this prospectus.

The selling points of amc -- recliner seats -- bigger and bigger cupholders, maybe?

Greater engagement and loyalty -- the first things i think of when i think of a movie theater.

No sticky floors.

Cristina alesci, our deals reporter.

If the u.s. does lunc -- launch an attack against cera, burton is not going to take part.

We will look at what president obama will do next.

And a battle over foursquare -- as you know, that lets people check in and shows where they are visiting in stores and restaurants.

We will give you more details on

This text has been automatically generated. It may not be 100% accurate.


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