GE Capital Spin-Off? A Bad Thing or a Good Thing (GE)
General Electric (NYSE: GE) were down 4% yesterday and another 2% today, following the release of the Obama administration's proposed financial system regulatory overhaul. The weakness is related to the fears, discussed in a Wall Street Journal article, that GE Capital will likely be classified as "systemically important," meaning tighter regulation even for the company's "non financial activity." This tighter regulation could force the company to spin-off GE Capital, as GE would unlikely accept restrictions on its entire businesses, including the industrial unit.
While it appears investors are worried about this, I would argue that a spin-off of GE Capital would actually be a huge positive for the stock. It wasn't too long ago that investors in GE were clamoring for a GE Capital spin-off. At that time no one could fully wrap their head around the risk of GE Capital's massive balance sheet and investors were assuming the worse - that GE Capital would take down GE. Shares fell to below $6 per share.
Now GE may have to spin off the tainted unit and investors are mad? Somethings not right! Either the investors in GE now are a new crop that didn't live through the GE Capital hell or there is something else driving the stock action.
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