GE to Acquire Lending Unit of Japan’s Lake
General Electric Co.'s finance arm will buy the consumer finance business of Lake, Japan’s fifth-biggest consumer lender, as it expands in Japan’s $42.7-billion consumer lending market.
The Lake business makes loans to individuals with poor credit histories at an average annual interest rate of 26%--more than six times the rate on the average Japanese mortgage. GE Capital Co., the world’s largest non-bank finance company, didn’t say how much it’s paying for the lender.
GE, the biggest U.S. company by market value, has taken advantage of Asia’s economic crisis and tumbling currencies to make acquisitions throughout the region. In Japan, it bought Koei Credit, a medium-size consumer credit company, in January and formed a venture with Toho Mutual Life Insurance Co. in February.
Buying the Lake business “gives GE the opportunity to tap into one of the richest and most saving-prone societies in the world,” said Nicholas Heymann, an analyst at Prudential Securities.
As of March 1998, Lake had $3.75 billion in outstanding loans, 1.4 million customers and 564 branches.
The companies expect Lake’s 2,700 employees to stay on. The transaction is expected to close by Nov. 2.
“Lake was the ideal candidate. It’s got branches all over the country, and it allows GE to enter the business with sufficient scale to compete for the top position,” said Tod Wood, analyst at ING Baring Securities (Japan) Ltd.
GE Capital formed a new subsidiary that will buy the Lake business and keep its name, spokeswoman Mary Horn said.
The remaining businesses of Lake, including corporate loans, real estate and stocks, will operate under a new name.
Most non-bank lenders in Japan process and issue loans to new applicants within 40 minutes, often through “loan-a-matic” machines. These companies lend sums of less than $3,500 to applicants who otherwise couldn’t qualify for a loan or don’t want to wait for a bank’s approval.
The acquisition of Koei Credit, which lends to borrowers with good credit, “was testing the waters,” Wood said.
“It gave them a very good insight into what a larger company would be like.”
GE Capital, which accounts for about 40% of GE’s earnings, has done business in Japan since 1994 and offers a variety of finance products there, including auto leasing, consumer credit cards and insurance.
The Japanese financial services market has historically been closed to foreign companies through tight regulations, Heymann said.
The country’s recent economic troubles have prompted a loosening of those laws, he said.
Fairfield, Conn.-based GE expanded in Europe when restrictions on financial services were reduced.
The company is “astute at investing in financial service markets going through immense regulatory change,” Heymann said.
GE Chairman and Chief Executive John F. Welch Jr. has said that by 2000 almost half of the company’s revenue will come from outside the U.S.
GE shares rose $1.69 to close at $91.69 on the New York Stock Exchange.