LONDON - General Electric Co. announced Tuesday that it has agreed to pay about $1.4 billion in cash for an Abbey National PLC lending unit that would bring it more than 2 million customers in the United Kingdom.
The deal for First National - which finances mortgages, home improvements, and big-ticket consumer purchases like computers and vacations - would also boost assets at GE's Consumer Finance business by $7.9 billion.
Abbey, the United Kingdom's No. 2 mortgage lender, said it decided to sell First National to boost capital and stem losses. Luqman Arnold, who took over as Abbey's chief executive officer in October, is trying to return it to its roots as a British consumer bank by selling assets that do not fit that strategy.
"The business is more of a fit for GE," said Ben Ritchie, who helps oversee about $3.3 billion at Aberdeen Asset Management PLC and holds Abbey shares. "For Abbey National, it's the first step of what's going to be a fairly long restructuring."
The purchase would be GE's third of a U.K. lending business in two years.
"We are buying it because it is core to our business, and Abbey National is selling something that isn't core to its business," Charles Alexander, the president of GE Capital Europe, said in an interview.
GE Consumer Finance has almost $70 billion of assets and provides credit to consumers, retailers, and car dealers in 35 countries through personal loans, leasing, and credit cards. In the United Kingdom, it provides car loans, mortgages sold through brokers, and credit cards for retailers. Its European operations, launched in 1990, also include businesses in France, Germany, and Scandinavia.
First National's profits in the first half of last year fell 13% from a year earlier, to $105 million. Abbey sold the unit's rental-car business to Lloyds TSB Group PLC for $76 million in April.
Even though First National also makes automobile loans, that business is not part of the GE deal; Abbey says it is still considering its fate.
First National has about 1,400 employees, and GE does not plan any immediate job cuts, Mr. Alexander said.
The deal, which is subject to approval by the European Commission, is expected to close in eight weeks. GE may pay an additional $69 million, depending on the performance of First National's stock. The current price would be $359 million more than First National's net tangible assets, which include $585 million more in cash than it needs to support its loans, Mr. Alexander said.
Abbey expects to post its first loss and cut the dividend after expanding in corporate lending and making investments in junk bonds. It said it will take a "significant writedown" for goodwill related to First National.
It is selling businesses to raise cash and release capital that can be used to support growth at its mortgage and consumer banking business. It said that the First National sale would free $6.4 billion of risk-weighted assets.
Abbey bought First National Finance Corp. for $469 million in 1995 and doubled the unit's assets when it bought auto-finance, consumer-goods and business-equipment leasing units from National Westminster Bank PLC for $572 million in 1998.
