General Electric (GE) is no longer too big too fail, at least in the view of the U.S. Treasury Department's Financial Stability Oversight Council, which was established in 2010 under Dodd-Frank legislation, partially to help determine which financial companies should be considered Systemically Important Financial Institutions, or SIFIs.
Scrapping GE's SIFI designation has been one of the principal goals of GE CEO Jeff Immelt since he launched his plan to unwind the manufacturer's lending arm, GE Capital, last April.
The imperative to scrap GE's SIFI label was also shared by billionaire activist Nelson Peltz, who invested $2.5 billion in GE last October through his fund Trian Partners, as well as Real Money's Jim Cramer, who holds GE as part of the Action Alerts PLUS charitable trust.
On Wednesday, GE got its wish -- well ahead of schedule -- when the FSOC approved GE's March request to be de-designated as a SIFI.
GE has long bristled under regulatory controls associated with the SIFI label, such as limits on debt incurrence and financial reserve requirements. The SIFI controls were established to help prevent a financial crisis akin to the 2008 subprime mortgage collapse, in which GE shares were disproportionately pressured because of loans held on its once-lucrative GE Capital lending businesses. The GE Capital arm also hampered GE's recovery from the crisis, as shares rebounded at a much slower pace than industrial rivals, such as United Technologies (UTX) and Honeywell (HON).
In a Wednesday email, Cramer called the development "great news" for GE shareholders, and advised management to follow suggestions laid out in Trian's October white paper, entitled "Transformation Underway ... But Nobody Cares." The white paper suggests GE focus on its industrial roots by counterbalancing financial asset divestitures with global industrial megadeals.
GE has so far made sales totalling more than 90% of Immelt's $200 billion asset divestiture target, which the manufacturer said it would hit by the end of the year. Meanwhile, the company has expanded many of its industrial segments over the past year through massive acquisitions, such as its $10 billion purchase of French turbine maker Alstom's (ALSMY) grid businesses last fall. This was the largest acquisition in GE's 124-year history.
"GE Capital expects to deliver about $35 billion of dividends to GE under this plan, and remains on track to pay $18 billion of these dividends to GE in 2016," GE's head of investor relations, Matt Cribbins, said in a Wednesday email.
GE shares climbed by about 2% in morning trading Wednesday.
