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Will SYF trend down hill. Bear news? Or not?

"The rules will require significant modifications in the structure of GE Capital and will also power the Fed to disallow the company from dividend payments or share repurchases."

SYF, Synchrony Financial operates as a subsidiary of GE Consumer Finance, Inc.

Fed Proposes Stringent Regulatory Standards for GE Capital
Thu, Nov 27, 2014, 1:01pm EST - US Markets are closed

http://finance.yahoo.com/news/fed-proposes-stringent-regulatory-standards-142002454.html

The Federal Reserve devised a set of stringent regulations for the financing arm of General Electric Company (GE) – GE Capital. The proposal intends to regulate GE Capital as if it were a bank holding company, with added governance rules tailored in accordance with its unique structure and profile.

Need for Regulation

GE Capital is one of the non-bank firms that are believed to be critically important to the wellbeing of the financial system. While the 2010 Dodd-Frank Wall Street reform act defined “systemically important financial institutions” as those with more than $50 billion in assets, it also powered the Financial Stability Oversight Council to keep an eye on non-bank financial firms that are large and risky enough so as to pose a threat to the stability of the U.S. markets.

The Fed was obligated to enforce tougher capital, liquidity and other rules for GE Capital after a group of U.S. regulators designated the firm as “systemically important” last year.

Proposed Rules

The Fed’s proposed regulations are essentially similar to those that apply to large banks. Per the rules, GE Capital would be subject to risk-based capital and leverage requirements and the Fed’s annual “stress test.” The rules will require significant modifications in the structure of GE Capital and will also power the Fed to disallow the company from dividend payments or share repurchases.

Other elements of the regulations that could prove to be a source of friction between the company and regulators are the increased independence of GE Capital’s board from the parent company, as well as restrictions on inter-company transactions between both. GE might eventually be forced to reshuffle its board as necessitated under the new regime.

GE’s Initiatives

A GE spokesperson assured investors that that the company has been “preparing for the enhanced regulatory standards”. Much of the proposal was in line with expectations, including enhanced capital ratios that would behave as financial cushions to absorb losses in case of another crisis, and GE seems prepared to meet the stringent rules.

Moreover, since the great financial crisis of 2008 when losses at GE Capital threatened the financial wellbeing of the parent company, GE has constantly been attempting to downsize GE Capital. At its height, GE Capital accounted for just under half of the revenues. In the second quarter, GE Capital contributed about 43% of the company’s profits. The company now aims to downsize its financial business so that it accounts for just 25% of its profits by 2016, with the remaining 75% coming from the industrial segment.

The conglomerate recently spun off its consumer-lending arm, Synchrony Financial (SYF), in an initial public offering, raising $2.88 billion as part of a planned, staged exit from the financial business.

Additionally, since 2008, GE Capital has strengthened its risk management and governance structure and also enhanced its capital and liquidity.

The Fed is also developing capital standards for the other two companies that are considered systemically important, American International Group, Inc. (AIG) and Prudential Financial, Inc. (PRU). added opinion: SYF recent spin off from G.E.

GE presently sports a Zacks Rank #3 (Hold).

SYF
Business Summary

Synchrony Financial operates as a premier consumer financial services company in the United States. The company provides private label credit cards, dual cards, and small and medium-sized business credit products; promotional financing for consumer purchases, including installment loans; and promotional financing to consumers for elective healthcare procedures or services, such as dental, veterinary, cosmetic, vision, and audiology. The company provides its range of credit products through programs established with a group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations, and healthcare service providers. It also offers various deposit products, such as certificates of deposit, individual retirement accounts, money market accounts, and savings accounts directly to retail and commercial customers under the Optimizer+Plus brand. The company markets its deposit products through a range of channels comprising online, print, and radio advertising. Synchrony Financial was incorporated in 2003 and is headquartered in Stamford, Connecticut. Synchrony Financial operates as a subsidiary of GE Consumer Finance, Inc.