Public policy over the past five years has been a lot kinder to the lords of finance than populist opinion would like, but I think most folks continue to underestimate the degree to which finance is shrinking already under new market and regulatory pressures. A good concrete sign of that is the idea, floated at a conference today by CEO Jeffrey Immelt, that GE might spin off its consumer finance arm.
Once upon a time, General Electric was an industrial conglomerate. When you sell expensive stuff, it’s natural to get involved in financing to some extent and thus GE Capital was born. But as the overall U.S. economy financialized, GE Capital turned into a bigger and bigger part of the overall enterprise. Since the financial crisis, however, Immelt has been trying to shrink it relative to the company’s core industrial competencies. The idea of the spinoff would be to take that one step forward, by taking financial stuff that’s unrelated to industrial work—things like GE’s credit card business perhaps—and sell them via IPO. The funds raised by the IPO could then be used for a share buyback. So you’d have a smaller company with fewer shares outstanding, a tighter focus on manufacturing, and less volatility.