General Electric is getting out of the lending business, a major profit generator, as it focuses more on its industrial business and sheds a massive financial unit that had its own set of risks.
The company will buy back as much as $50 billion of its own stock, sending shares up more than 9 percent before the opening bell Friday and toward a new high for the year.
In addition to the sale of GE Capital, the company will sell most of its GE Capital Real Estate to funds managed by Blackstone, and Wells Fargo will buy a portion of the performing loans at closing. The company also plans to sell additional commercial real estate assets that will bring the total value of the deal to around $26.5 billion.
The company said market conditions were favorable to sell most GE Capital over the next two years. The extended run of low-interest rates has made the sale of a huge asset like this more feasible.
The financial division generates almost half of the company's profit, but is also is a huge regulatory burden and has caused some anxiety for investors.
"The business model for large, wholesale-funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward," GE said.
GE is already in talks with regulators about removing its tag as a "Systemically Important Financial Institution," which comes with a myriad of requirements not asked of an almost purely industrial entity.
"This is a major step in our strategy to focus GE around its competitive advantages," Chairman and CEO Jeff Immelt said.
The Fairfield, Connecticut, company will keep parts of its financing business related to its industrial operations, like GE Capital Aviation Services, Energy Financial Services and Healthcare Equipment Finance. The company says it will record about $16 billion in after-tax charges in the first quarter.
Shares jumped $2.44 to $28.17 in premarket trading, close to a two-year high.