General Electric Co shares climbed more than 7 percent on Thursday after a powerful U.S. lawmaker said he saw no great need for the largest U.S. conglomerate to spin off its finance arm.
Since the Obama administration introduced its proposed revamp of the U.S. financial regulatory system, investors and analysts have been concerned that a passage in the proposal could compel the Fairfield, Connecticut-based company to spin off GE Capital.
To break up GE at this point, I think, would be a mistake, U.S. Rep. Barney Frank told reporters. The chairman of the House Financial Services Committee said he saw no great need for a breakup.
Earlier on Thursday Goldman Sachs raised its rating on the shares to buy on the news, citing a Bloomberg News interview with Frank.
Greater potential for a manageable regulatory outcome should prompt investors to focus on longer-term benefits of economic and credit stabilization to GE shares, Goldman Sachs analyst Terry Darling wrote in a note to clients. Goldman raised its target price on the shares to $15.
Still, another analyst pointed out that Frank's words did not mean there would be no change in GE Capital's status. It could yet be required to register as a bank holding company, even if its parent does retain it.
Concerns surrounding the financial impact of (GE Capital's) status will likely rise with growing regulatory encouragement to convert GECS to a bank, wrote Sterne Agee analyst Nick Heymann, in a note to clients.
The company is also in the process of downsizing its finance business in the face of falling profits, with a goal of making it more safe and secure.
GE shares rose 93 cents to $13.19 on the New York Stock Exchange, hitting their highest point since early June.
Deutsche Bank analyst Nigel Coe called the news a modest positive and noted significant risks persist at GE Capital.
GE officials had repeatedly said they would resist any attempt to force them to spin off GE Capital.
We support systemic regulation and look forward to continuing to work with Congress and the administration on meaningful financial services reform, said GE Capital spokesman Russell Wilkerson. We have been preparing for more regulation and will have to wait and see what specific proposals are made.
(Reporting by Scott Malone in Boston, additional reporting by Rachelle Younglai in Washington, editing by Maureen Bavdek and Steve Orlofsky)