General Electric’s (GE) legendary former CEO said Friday the conglomerate’s plan to let loose most of its financial services business is “a smart move and right for the changing financial landscape.”
The company said Friday it will sell off the majority of its GE Capital assets—worth $500 billion—and initiate a share buyback program for up to $50 billion.
Welch, the legendary leader of the company from 1981 to 2001, whose masterwork will now be dismantled, told CNBC Friday morning: “I like the package.”
After the financial meltdown of 2008 and ensuing great recession, GE suffered like many of its banking peers. The conglomerate’s big shift marks a return to industry over finance, a major reorganization for current chief Jeff Immelt.
“When I talked to Immelt last night, he didn’t trash Jack,” a CNBC anchor said, having asked the chief whether it was a mistake for GE to structure it that way in the first place. “He said, ‘Look, it was a different market then. It’s a different market now. We’ve got to figure it out.'”
Welch protested in 1999 when GE’s industry classification in the Fortune 500 was changed to diversified financial services company from electrical equipment company, because its revenues had changed in composition. Welch told Fortune’s Carol Loomis at the time that young engineers would no longer want to work for GE if they thought it a financial services company.
“Truth is, Jack probably hated the change because he knew price/earnings ratios for financial services companies were lower than what GE was selling for,” Loomis wrote in the Sept. 19, 2005, article My 51 Years (and counting) at Fortune.
“I told Jack that the rules were the rules,” she wrote. “And we designated GE a diversified financial services company.”
Separately, Larry Bossidy, formerly CEO of Honeywell, who spent over 30 years at General Electric, rising to executive level, told CNBC Friday he viewed the day’s news with “mixed emotions.”
“I remember all hard work went into building a huge risk contained financial colossus” — one that was highly profitable, he said.
Then, subsequently, the balance sheet became stretched, on both the asset and liability side, and that left GE Capital vulnerable to the financial crisis, he added.
“So what they announced today is the right thing to do,” Bossidy said. Now it’s clear GE “wants to become an industrial company.”
The spinoff will take place over the next two years.
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