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Immelt Pushes Harder to Shrink GE Capital

Tickers in this article: C GE

NEW YORK (TheStreet) -- General Electric has made great progress in shrinking GE Capital, and CEO Jeff Immelt on Tuesday said the company was considering spinoffs through public offerings as a way to meet its goals.

GE reported first-quarter operating earnings of $4.059 billion, or 39 cents a share, increasing from $3.567 billion, or 34 cents a share, during the first quarter of 2012. GE Capital contributed profit of $1.927 billion, or 47% of the parent company's operating earnings.

Immelt has long stated that GE's goal is to grow its industrial earnings and shrink GE Capital sufficiently to have the conglomerate deriving 70% of earnings from its industrial business.

GE Capital had $524.0 billion in total assets as of March 31, declining from $573.4 billion a year earlier, in keeping with the company's plan to reduce the size and risk of its finance business. Excluding non-interest bearing liabilities, cash and equivalents, the finance unit's "ending net investment" was $402 billion as of March 31, declining from $436 billion a year earlier, and well below Immelt's earlier initial target of $425 billion.

When speaking about GE Capital's success in shrinking its balance sheet, GE CFO Keith Sherin said during the company's earnings conference call on April 19 that there were "not a lot of huge transactions there," but that the finance unit was continuing to see a runoff of noncore assets. Increasing real estate values were also enabling GE Capital to mark additional assets to sell by the end of 2013.

But Immelt now wishes to shrink GE Capital's ENI to a range of $300 billion to $350 billion by the end of 2014. "That is going to create excess cash in GE Capital, and we are going to use that excess cash to buy back stock. We would like to get our share count down to 9 billion to 9.5 billion shares by the end of '15." Immelt expects share buybacks to total $10 billion this year.

GE Capital is GE's cash cow. The finance unit announced last week a plan to pay $6.5 billion in dividends to the parent company during 2013, increasing from $6.4 billion in 2012.