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Case | HBS Case Collection | April 2017 (Revised May 2017)

GE Capital After the Crisis

by John C. Coates, John D. Dionne and David S. Scharfstein

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Abstract

Keith Sherin, CEO of GE Capital, faced a decision on which hinged billions of dollars and the fate of one of America’s most storied companies. On his desk sat two secret analyses: Project Beacon, a proposal to spin off most of GE Capital to GE shareholders, and Project Hubble, a proposal to sell off GE Capital in parts. A third document sketched out the implications should GE “stay the course” on its present strategy: a continued, massive build-up of regulatory and compliance personnel to meet GE Capital’s obligations as a “SIFI”—systemically important financial institution—in the wake of the 2010 Dodd-Frank Act. No path forward was clear. A divestiture, either through a spin-off or sell-off, would reduce GE’s size and financial connectedness and address market unease about GE’s position as the seventh-largest U.S. financial institution. It would also unlock substantial value not currently reflected in the stock. Each faced major obstacles and execution risks, however. In particular, no one knew the precise cut-off for a SIFI designation or the time required to shed the designation. If the process took too long, or generated unexpected costs, a divestiture might destroy more value than it would create. Retaining GE Capital was risky, too, of course. Which set of risks was the right one to propose that the GE board accept?

Keywords: Risk and Uncertainty; Decision Choices and Conditions; Financial Institutions; Strategy;

Language: English Format: Print 23 pages EducatorsPurchase

Citation:

Coates, John C., John D. Dionne, and David S. Scharfstein. "GE Capital After the Crisis." Harvard Business School Case 217-071, April 2017. (Revised May 2017.)

Related Work

  1. Case | HBS Case Collection | April 2017 (Revised May 2017)

    GE Capital After the Crisis

    John C. Coates, John D. Dionne and David S. Scharfstein

    Keith Sherin, CEO of GE Capital, faced a decision on which hinged billions of dollars and the fate of one of America’s most storied companies. On his desk sat two secret analyses: Project Beacon, a proposal to spin off most of GE Capital to GE shareholders, and Project Hubble, a proposal to sell off GE Capital in parts. A third document sketched out the implications should GE “stay the course” on its present strategy: a continued, massive build-up of regulatory and compliance personnel to meet GE Capital’s obligations as a “SIFI”—systemically important financial institution—in the wake of the 2010 Dodd-Frank Act. No path forward was clear. A divestiture, either through a spin-off or sell-off, would reduce GE’s size and financial connectedness and address market unease about GE’s position as the seventh-largest U.S. financial institution. It would also unlock substantial value not currently reflected in the stock. Each faced major obstacles and execution risks, however. In particular, no one knew the precise cut-off for a SIFI designation or the time required to shed the designation. If the process took too long, or generated unexpected costs, a divestiture might destroy more value than it would create. Retaining GE Capital was risky, too, of course. Which set of risks was the right one to propose that the GE board accept?

    Keywords: Risk and Uncertainty; Decision Choices and Conditions; Financial Institutions; Strategy;

    Citation:

    Coates, John C., John D. Dionne, and David S. Scharfstein. "GE Capital After the Crisis." Harvard Business School Case 217-071, April 2017. (Revised May 2017.)  View Details
    CiteView DetailsEducatorsPurchase Related

About the Authors

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John C. Coates
Professor (Harvard Law School)

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John D. Dionne
Senior Lecturer of Business Administration
Finance

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David S. Scharfstein
Edmund Cogswell Converse Professor of Finance and Banking
Senior Associate Dean, Doctoral Programs
Finance

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