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John C. Coates, John D. Dionne & David S. Scharfstein, GE Capital After the Crisis (Harvard Bus. Sch. Case 217-071, Apr. 2017).


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?