Shrinking GE Capital may turn into a zero-sum too-big-to-fail game. By selling big slugs of its finance arm, US conglomerate GE should be able to ditch its systemic risk label. If Wells Fargo were to buy up to $83 billion of the assets, however, that would surpass the comfort level of regulators for most bank M&A in recent years.
The Federal Reserve, for example, is taking a long, hard look at CIT's plan to buy OneWest Bank and its $23 billion of assets. If approved, it would vault the lender run by former Merrill Lynch boss John Thain over the $50-billion bar into the lowest tier of systemically important financial institutions.
M&T Bank, meanwhile, has just pushed back yet again the date when it hopes finally to consummate its takeover of Hudson City Bancorp. The New York-based bank first announced the deal, which comes with up to $37 billion of assets, in August 2012. Regulatory concerns over money laundering and other matters have kept it on hold.
Acquiring GE Capital operations wouldn't have the same relative effect on Wells Fargo. It already has committed to buy $9 billion of GE real estate loans and is now, according to the Wall Street Journal and other media reports, interested in $74 billion more of commercial loans. Combined, they equate to less than 5 per cent of Wells Fargo's $1.7-trillion balance sheet.
Moreover, the institution led by John Stumpf probably doesn't need to finance the assets with debt, as less than three-quarters of its $1.2 trillion of deposits have been lent out. Wells Fargo also may well be able to make way for GE Capital's assets by selling some of its $276 billion of short-term investments, which yielded just 0.28 per cent last quarter.
There's also competition. Other banks and buyout shops may want a piece of the action, and ultimately leave Wells Fargo with less. US banks collectively have only lent out 77 per cent of deposits, leaving them with potential firepower of $2.5 trillion, according to Fed data.
Wells Fargo, however, is one of the few that could absorb so much at once, perhaps making it a more attractive buyer to GE. The question is whether regulators are keen to allow a mega-bank to become even more mega.
The Federal Reserve, for example, is taking a long, hard look at CIT's plan to buy OneWest Bank and its $23 billion of assets. If approved, it would vault the lender run by former Merrill Lynch boss John Thain over the $50-billion bar into the lowest tier of systemically important financial institutions.
M&T Bank, meanwhile, has just pushed back yet again the date when it hopes finally to consummate its takeover of Hudson City Bancorp. The New York-based bank first announced the deal, which comes with up to $37 billion of assets, in August 2012. Regulatory concerns over money laundering and other matters have kept it on hold.
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Moreover, the institution led by John Stumpf probably doesn't need to finance the assets with debt, as less than three-quarters of its $1.2 trillion of deposits have been lent out. Wells Fargo also may well be able to make way for GE Capital's assets by selling some of its $276 billion of short-term investments, which yielded just 0.28 per cent last quarter.
There's also competition. Other banks and buyout shops may want a piece of the action, and ultimately leave Wells Fargo with less. US banks collectively have only lent out 77 per cent of deposits, leaving them with potential firepower of $2.5 trillion, according to Fed data.
Wells Fargo, however, is one of the few that could absorb so much at once, perhaps making it a more attractive buyer to GE. The question is whether regulators are keen to allow a mega-bank to become even more mega.