General Electric Co. (GE:US) climbed the most in seven weeks after announcing its finance unit will resume payouts to the parent company that were suspended in 2009 during a freeze in credit markets.
GE Capital will pay a special dividend of $4.5 billion this year and hand over a $475 million quarterly payout in the three months through June, according to a statement today. Full-year payments, excluding the special dividend, are targeted to be 30 percent of the finance unit’s 2012 earnings.
Restarting the dividend is a milestone in GE Capital’s recovery from the financial crisis, when the unit suffered $32 billion of credit losses and received capital infusions from the parent. Proceeds from the transfer will be used to accelerate share repurchases, one of Chief Executive Officer Jeffrey Immelt’s priorities this year.
“It’s earlier than we thought and bigger than we thought, so on an overall basis it’s very bullish,” said Scott Davis, an analyst at Barclays Capital in New York who had forecasted a $3.2 billion payout in the second half of this year. “Without this dividend up to the parent, you can’t really do buybacks, which is something shareholders really want them to do.”
GE gained the most today of any stock in the Dow Jones Industrial Average (INDU), advancing 3.3 percent to $19 at the close in New York. The increase was the largest since Nov. 30.
GE, which had targeted a payment of 45 percent of the finance unit’s profits, told investors in April that the plan was subject to the business’s review by the Federal Reserve, its new regulator. Annual payments from the unit were as much as $8.6 billion before the dividend’s suspension amid the global financial crisis following Lehman Brothers Holdings Inc.’s 2008 bankruptcy.
Deirdre LaTour, a spokeswoman for Fairfield, Connecticut- based GE, said the company can’t comment on the Fed process. A Federal Reserve spokeswoman, Barbara Hagenbaugh, also declined to comment.
“GE Capital’s decision to declare and pay dividends to GE is a management decision of the GE Capital board,” LaTour said. “Like other communications with the bank regulators, our discussions with the Fed involve confidential supervisory information that we cannot disclose.”
The $475 million quarterly dividend approved by the finance unit’s board represents 30 percent of earnings for the three months through March, LaTour said in an e-mail.
As GE Capital sells or winds down unwanted assets, the parent could receive any excess capital above what regulators require to be retained by the finance unit, Chief Financial Officer Keith Sherin has said.
Since the financial crisis, GE has pared the finance unit while Immelt focuses on industrial businesses such as energy and transportation, which are typically valued more highly by investors. He has worked to shrink GE Capital by exiting businesses such as Irish mortgage lending and reducing the size of its balance sheet.
GE Capital accounted for 31 percent of the company’s $147.3 billion of revenue last year, compared with 39 percent in 2007, according to a filing with the Securities and Exchange Commission.
The parent company, which invested $11 billion in energy acquisitions completed through 2011, said yesterday it agreed to buy Australian manufacturer Industrea Ltd. (IDL) for about A$470 million ($466 million) to add mining equipment, technology and services businesses in emerging markets.
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