General Electric Co. plans to exit the bulk of its lending business, including a $26.5 billion (Dh97.26 billion) sale of most of its real estate, as Chief Executive Officer Jeffrey Immelt refocuses the company on its industrial roots.

In the broadest restructuring since the GE Capital unit destabilised GE during the 2008-09 financial crisis, the company said it will keep only those operations that support its manufacturing arms and dispose of its middle-market lending business and all consumer platforms.

The shares surged 7.8 per cent to $27.74 at 8:19am in New York before regular trading as GE authorised a stock buy-back of as much as $50 billion. GE said it would take after-tax charges of about $16 billion in 2015’s first quarter, with about $12 billion of that to be non-cash.

GE’s moves are an “overwhelming positive,” Steven Winoker, a Sanford C. Bernstein & Co. analyst who rates the shares as outperform, said in a note to clients. While Winoker said he was counting on GE to eventually divest more of GE Capital, “what we did not expect was the speed with which management would move to undertake this transformation.”

By 2018, “high-value industrials” will generate more than 90 per cent of earnings, up from 58 per cent last year, according to GE, whose product lines include jet engines, oilfield equipment and diesel locomotives. GE Capital will be formally merged into GE as part of the shift.

‘Acceptable Returns’

“The business model for large, wholesale-funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward,” GE said in a statement.

Immelt, 59, has been shrinking GE Capital since its access to credit dried up in the financial crisis, imperilling the parent company. The strategy: move away from finance and focus on industrial operations, the traditional heart of the company founded by Thomas Edison.

The new plan to unload most of GE Capital dwarfs the previous piece-by-piece disposals, which included the sale of stakes in foreign banks and last year’s initial public offering — and eventual spin-off — for the North American consumer lending business. Immelt also has sold off units such as the appliance business on the grounds that they don’t fit GE’s industrial focus.

GE’s ending net investment in GE Capital — a balance sheet gauge that excludes non-interest-bearing liabilities and cash — will fall to $90 billion from $363 billion as of December 31 once the disposals are completed, the company said Friday.

Welch Tweet

Former CEO Jack Welch, an architect of GE’s tilt toward finance during a two-decade tenure that ended in 2001, expressed his approval Friday. “I like the package,” he said in a tweet. “It looks like a smart move and right for the changing financial landscape.”

GE said it is working with the Financial Stability Oversight Council to get below the threshold to be designated a systemically important financial institution. GE has “a constructive relationship” with regulators, Immelt said in a statement.

GE Capital had a $499 billion loan portfolio at the end of 2014. The unit, one of the country’s largest non-bank financial companies, has business lines spanning real estate, consumer and commercial lending, and aircraft and energy financing. GE will retain GE Capital Aviation Services, Energy Financial Services and Healthcare Equipment Finance.

Investor Support

Investors have supported Immelt’s acceleration of the business overhaul.

Immelt’s pace “is really picking up,” Jack De Gan, chief investment officer of Harbor Advisory Corp., which owns about $2.5 million in GE shares, said in an April 9 interview. “It appears that he’s realised that investors want this transition to get over more quickly than his original plan.”

The real estate transaction announced Friday is an agreement with Blackstone Group LP and Wells Fargo & Co. valued at about $23 billion, and GE said it’s in talks with buyers for other commercial property that will boost the value of the asset disposals to $26.5 billion.

Blackstone units will acquire US holdings, mainly office buildings in Southern California, Seattle and Chicago, for $3.3 billion, along with a $4.6 billion portfolio of commercial mortgages, mainly in the US. The firm also agreed to buy European assets including office, industrial and retail properties, for 1.9 billion euros (Dh7.35 billion; $2 billion) and commercial mortgages in Mexico and Australia for $4.2 billion.

Wells Fargo will buy performing mortgages on commercial real estate valued at $9 billion in the US, UK and Canada, according to a statement by the companies on Friday.

After last year’s IPO, the rest of the North American consumer business, now known as Synchrony Financial, is supposed to be spun off to shareholders this year. GE has also sold real estate, including several floors of New York’s 30 Rockefeller Plaza building, where GE has offices.

— Bloomberg