Japan's Shinsei Bank said Friday it had agreed to buy US giant General Electric's Japanese consumer finance arm for 580 billion yen (5.4 billion dollars) in a major push into the troubled sector.
Shinsei, a mid-sized lender that is about one-third owned by US buyout firm JC Flowers & Co., said it will pay in cash for GE Consumer Finance Co.'s loan, credit card and mortgage business in Japan.
The planned purchase, which was also confirmed by GE, is expected to be completed in the third quarter of 2008.
The US conglomerate is not the only foreign group exiting the troubled sector. Citigroup, reeling from the subprime mortgage crisis, said last month it was closing down its remaining consumer lending outlets in Japan.
Consumer finance used to be a cash cow for banking groups in Japan, but profits have slipped as tighter regulations are introduced to shield the public from interest rates deemed excessively high.
Shinsei said it was aiming to benefit from having both traditional banking services and consumer loan operations.
"This acquisition is a critical next step in our pioneering approach to redefine consumer finance in Japan," Shinsei president Thierry Porte said in a statement.
"We're acquiring a high-quality portfolio with a great management team, solid consumer base built on a strong brand while also providing value to our shareholders."
GE, a broadly diversified company, has been affected by a global economic slowdown and credit crunch, with first-quarter profit falling six percent as its commercial finance arm took a hit.
GE Money head William Cary said in a statement on the sale of the Japanese unit that the firm had decided to exit "an extremely challenging environment" and to put its capital to work in areas offering strong long-term growth.
The group, which was set to report its second-quarter results later in the day, said Thursday it was likely to spin off its industrial unit including its appliance division as part of a planned reorganisation.
Shinsei has also been hit by the global credit crunch and announced in March that it would sell its Tokyo headquarters for more than one billion dollars.
Even so, it reportedly offered a higher price than other bidders including Japan's biggest consumer lenders Acom Co. and Promise Co.
Shinsei, whose name means "new life," was bought by a foreign fund after its forerunner, Long Term Credit Bank, collapsed under a pile of bad debts in the late 1990s.
The bank said in November that JC Flowers & Co., an equity fund headed by former Goldman Sachs partner J. Christopher Flowers, would pay up to 202 billion yen to become its top shareholder with a 32.6 percent stake.
