Breakingviews‘ Rob Rox makes an interesting observation in an article in Monday’ Telegraph. Mr. Rox sees no difference, from a number’s perspective, between General Electric’s (GE) financial arm and CIT (CIT), the lender that is preparing for a possible bankruptcy filing. Both CIT and GE Capital, notes Rox, operate under business models that no longer work: financing longer-term loans to customers largely with short-term funding in the capital markets.
Oddly, CIT’s application to participate in the TLGP has been pending since January. Yet, CIT and GE Capital look like birds of a feather – arguably CIT looks like the prettier of the two ugly ducklings of finance. In the first quarter, CIT had shareholders’ equity equal to 10pc of its $76bn of assets – higher than GE Capital’s 9.6pc.
Moreover, CIT was less dependent than its far larger rival on short-term funding. GE Capital, which had $636bn of assets, qualified $176bn, or 28pc, of its assets as short term. CIT said $17.1bn of its funds were due to be repaid within 12 months – equal to 22.5pc of its total assets.
CIT may yet gain access to the TLGP and get through its short-term refinancing crunch. But the lender’s travails should make a compelling case for GE to begin winding down, and getting out, of the financial business for the long-term good of its shareholders.