GE to sell healthcare finance unit for $8.5bn

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General Electric has taken another big step in unwinding its finance arm by agreeing an $8.5bn sale of its healthcare finance unit to Capital One, one of the fastest-growing US banks.
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Capital One will pay a 6 per cent premium to the value of the unit’s loans to acquire the business, in a move that will help the ambitious second-tier bank become a bigger player in commercial lending. GE Capital’s healthcare unit provides financing to companies, investors and developers across various sectors of the industry, including hospitals, pharmaceuticals and medical devices.

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The McLean, Virginia-based bank is among a group of second-tier lenders to have built aggressively since the financial crisis, taking advantage of turmoil at global banks subject to strategic overhauls and tougher regulatory regimes. Capital One’s total assets of $311bn at the end of June were roughly double the pre-Lehman level, pumped up by deals such as the 2012 acquisition of ING’s online banking businesses in the US.

“This is a strategic investment in a specialty industry segment that we have been building out for the past several years,” said Michael Slocum, president of Capital One’s commercial banking division. “This addition will catapult us to a leading market position in providing financial services to the healthcare sector.”

GE’s sale of its healthcare financing unit will help America’s best-known conglomerate meet its commitment of selling nearly $200bn of assets at its finance unit as part of a shake-up.

Jeff Immelt, GE’s chief executive who succeeded Jack Welch more than 13 years ago, said in April that the conglomerate would dispose of most of its financial services operations to help the group return to its industrial roots.

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The tougher regulatory framework that emerged in response to the economic crisis, including higher capital ratios and curbs on risky loans, had made it less profitable for the conglomerate to run GE Capital.

Ultimately the inability to boost margins and the division’s negative impact on the rest of the business led Mr Immelt to agree to a staggered sale, which is expected to take about two years.

The sale of the healthcare financing business follows GE Capital’s sale of its private equity lending unit to the Canada Pension Plan Investment Board for $12bn in June.

In April, when the sale plan was announced, GE sold the majority of its real estate portfolio to Blackstone and Wells Fargo for $26.5bn.

It still has to sell most of its US and international commercial lending business as well as its global consumer business. Wells Fargo is seen as a potential buyer of some of these assets, according to people familiar with the negotiation process.

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