General Electric Co.'s (GE) finance unit said Thursday it will sell Latin American bank and credit card issuer BAC Credomatic GECF Inc. to Colombia-based bank holding company Grupo Aval Acciones y Valores S.A. for $1.9 billion.
The sale supports GE Capital Global Banking's goal of shedding smaller businesses and focus on commercial lending. The transaction is expected to close by the end of 2010.
BAC-Credomatic owns the retail bank BAC International Bank, Inc. and also focuses on the credit-card business in the Central America region. In addition, the unit runs an insurance company and has other assets. Founded in 1952, BAC International Bank has operations across Central America, including Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama and Mexico, with about $5.1 billion in loan assets and $5.5 billion in deposits.
In 2005, Fairfield, Connecticut-based GE paid about $500 million for a 49.9% stake in BAC-Credomatic. Last year, the company raised its stake to 75% due to contractual obligations. However, the move added $9 billion to GE's balance sheet at a time when it was seeking to downsize its financial arm, GE Capital.
GE Capital proved to be the parent company's weak spot during the credit crunch and subsequent global recession, as its investments in commercial real estate and portfolio of home mortgages proved to be riskier bets than GE had expected. The unit invested heavily in real estate and was battered by mounting defaults due to loan losses.
In June, media reports had indicated that GE was trying to sell BAC-Credomatic as it seeked to pare back GE Capital and focus on commercial lending. GE Capital has been selling parts of itself to help pay down its huge debt load, which has been weighing on the parent company's stock price.
GE was advised in the transaction by Credit Suisse, while Latham & Watkins served as the company's external counsel.
Dmitri Stockton, president and CEO of GE Capital Global Banking said, "This is a good deal for GE, and furthers our objective of reducing the overall size of GE Capital. We have enjoyed working with BAC's shareholders and their world-class management team to successfully grow the franchise over the previous five years. We believe this transaction will be positive for BAC, and will allow the Bank to focus solely on its excellent prospects for future growth."
GE aims to reduce its net investment in finance assets to about $440 billion by the end of 2012 from about $516 billion at the end of the first quarter.
As a Colombian holding company, Grupo Aval owns sufficient amounts of voting stock in other companies to control their policies and management. In addition to its interests in numerous industrial sectors, Grupo Aval controls some of Colombia's financial organizations, including Banco de Bogotá S.A., Banco de Occidente S.A., Banco AV Villas S.A., Porvenir S.A , Leasing de Occidente S.A., and Corficolombiana S.A.
Grupo Aval is controlled by chairman Luis Carlos Sarmiento, who directly and indirectly owns more than 90% of its shares. In 2000, plans to list Grupo Aval on the New York Stock Exchange were postponed due to Wall Street's unfavorable climate for emerging market funds at the time.
In Thursday's regular trading session, GE is trading at $15.04, down $0.16 or 1.05% on a volume of 18.07 million shares. The stock has been trading in a range of $11.25-$19.70 in the past 52 weeks.
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