In Support of the GE/MetLife Deposit Acquisition (GE, MET, COF, ING)

General Electric Co. (NYSE: GE) is in the news with an acquisition of depository assets from MetLife, Inc. (NYSE: MET) which some may fear is taking it back to being more and more dependent upon its finance operations to juice up earnings.  Stern Agee’s Ben Elias is reiterating a “Buy” rating on GE along with a target price of $22.75 for the conglomerate.

The report calls GE’s move as taking GE Capital halfway home on alternative funding as it is acquiring some $7.5 billion in MetLife Bank deposits. GE Capital recently noted that it was planning to increase the alternative funding at GE Capital by $15 billion to about $80 billion and this deal gets the conglomerate’s capital unit halfway there. Elias also noted that he believes GE’s price paid was at the low-end of the multiple from when Capital One Financial (NYSE: COF) acquired the ING U.S. deposits from ING Groep NV (NYSE: ING). 

The good news in the report: “We do not believe this deal will change anything for GE Capital from a regulatory point of view. Buying deposits will not make GE Capital any more or less regulated. This will not make GE Capital a bank holding company. The biggest benefit for GE Capital is that it takes them further away from a reliance on wholesale funding, especially unsecured bonds and Commercial Paper.”

GE Capital had over $95 billion in commercial paper in late-2007 versus about $41 billion today.  GE Capital is now only about 2% of the whole U.S. bond market issuance, down from about 4% as recently as 2008.  Elias’ note goes on to say that GE Capital can now grow mid market lending at a competitive and diversified cost of funds with a sticky business that improves GE Capital’s funding going into 2012 and beyond.

JON C. OGG

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