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GE Capital Buying Most of Citi Capital

NEW YORK/BOSTON (Reuters) – GE Capital said on Thursday it agreed to acquire most of Citigroup Inc's (C.N: Quote, Profile, Research) North American commercial lending and leasing business for an undisclosed price, expanding its assets in a key portion of its finance operations.


GE Capital, a unit of General Electric Co (GE.N: Quote, Profile, Research), would buy seven CitiCapital equipment finance business lines, ranging from health-care finance to construction equipment finance. CitiCapital's tax exempt finance business would remain with Citigroup. GE Capital had acquired Citigroup's transportation financial services business in 2005.


The deal, which is expected to close in the third quarter, would add about $13.4 billion in assets to GE Capital's commercial finance business.


“This deal is right down in the middle of the sweet spot for us. It's in collateral we know, it's construction, materials handling, franchise equipment, in industries we understand,” said Daniel Henson, president and chief executive of GE Capital Solutions, in a phone interview. “It's basically a small version of us, we're about 10 times their size.”


While GE, the second-largest U.S. company by market capitalization, stunned Wall Street last week with a 20 percent decline in profit at its finance arms, the Capital Solutions business did not fair as poorly, with earnings up 1 percent.


Henson noted that Fairfield, Connecticut-based GE expects the acquisition to add to earnings this year.


Credit markets are currently in turmoil, leaving some big financial services companies looking for ways to raise capital. Faced with that environment, GE will continue to look for opportunities to add to its core financial services businesses, Henson said.


“When you've got an environment like you have today … we have the opportunity to do some deals at attractive economics,” he said.

This transaction allows Citigroup to release capital from non-core areas and redistribute that capital to areas with the greatest opportunities for profitable growth,” said Peter Knitzer, chairman and chief executive officer of Citibank North America.


Citigroup has been trying to strengthen its balance sheet and cut costs after a write-down for mortgages led to a record $9.83 billion quarterly loss.


GE is also looking to exit some more volatile parts of its financial services portfolio, with its U.S. private label credit card and Japanese consumer lending units on the block.


(Reporting by Jessica Hall in New York and Scott Malone in Boston, editing by Gerald E. McCormick and Dave Zimmerman)