General Electric Company (NYSE: GE)’s finance unit, GE Capital, won approval from federal regulators to shed the “systemically important” label which carries scrutiny and stricter rules. As regulators said, this move would significantly reduce GE Capital’s threat to U.S. financial stability.
GE and the Financial Stability Oversight Council, a group of top regulators charged with monitoring risks to the system, announced the decision on Wednesday. The council was created by the financial overhaul law that came in the wake of the 2008 financial crisis that plunged the country into recession.
The designation, which has been handed out by the council starting in 2013 to nonbank financial firms, is given to companies that the U.S. regulator deems so large that their failure could threaten the U.S. economy. Along with stricter supervision, being designated a "systematically important financial institution" increased company’s cost significantly.
“This decision is a result of the transformation of GE Capital into a smaller, safer financial services company that meaningfully contributes to the success of GE’s industrial businesses,” Keith S. Sherin, GE Capital’s chairman and chief executive, said in a statement.
General Electric’s chairman and chief executive, Jeffrey R. Immelt, added: “Going forward, GE Capital will continue to be part of the ‘G.E. Store,’ supporting the growth of our industrial businesses.”
GE Capital also announced it expects to return approximately $35 billion in dividends to the parent company, subject to regulatory approval, including about $18 billion this year. Most investors had expected the designation to be shed, but maybe until the end of this year.
The fact it came earlier than expected could give GE Capital some upside flexibility on its $18 billion dividend guidance for this year and provides a bit more flexibility on industrial balance sheet leverage.
Share of GE rose 1.94% to $30.52 on Wednesday afternoon trading.