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.
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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.
