NEW YORK, April 10 (Reuters) - General Electric Co.’s plan to retrench from the finance business will further reduce its already diminishing presence in the U.S. money market, which it has leaned on to fund consumer and business loans.
This development from a major issuer of U.S. commercial paper comes at time when tighter regulations have caused money market funds, which own most of the $1 trillion of ultra short-dated debt issued by banks, brokerages and commercial lenders, to cut their holdings.
There was no significant reaction on Friday in the money market in the wake of GE’s plan, which includes shedding $375 billion in GE Capital assets. As part of the overhaul, GE will also reduce the lending unit’s commercial paper to $5 billion by the end of the year from $22 billion at the close of 2014, analysts and investors said.
“You are taking a large player who’s winding down. The market should be already adjusting to it. This is accelerating what has already been happening,” said Justin Ziegler, investment manager at Aberdeen Asset Management in New York.
GE Capital’s commercial paper comprised 6.3 percent of its overall debt at the end of December, roughly half the percentage in mid-2007, before the global credit crisis, when it had about $60 billion in such debt.
GE Capital’s enormous size resulted in financial oversight from the U.S. Federal Reserve similar to large banks.
The price on a GE Capital commercial paper issue that was issued last July and will mature April 17 was quoted at 99.9978, up fractionally from late on Thursday, according to Reuters data.
As GE Capital accelerates its pullback from the commercial paper sector, it is unclear whether the purchasers of its commercial lending, consumer banking and other assets - many of whom are yet to be determined - will have as large a presence on the money market, analysts said.
“You have more specialized lenders now. They can’t or don’t necessarily need to issue commercial paper,” said Lance Pan, director of investment research and strategy at Capital Advisors Group in Newton, Massachusetts.
A further reduction in debt issuance from GE Capital would shrink an already diminished pool of securities available for cash investors to purchase. On its own, though, it is unlikely to cause lasting market disturbance, market participants said.
“Any disruption will be temporary,” said Sean Simko, head of global fixed income management at SEI in Oaks, Pennsylvania.
Reporting by Richard Leong; Editing by Christian Plumb