Westinghouse Electric Corp. said Monday that it was bailing out of the financial services business, ending a disastrous foray into commercial real estate lending.
The move by Pittsburgh-based Westinghouse marked the third time in less than two months that a major nonbank company announced a retreat from financial services.
In late September, Sears, Roebuck and Co. said it would spin off its Dean Witter Financial Services Group by the end of 1993.
Selling Healthy Units
Just last week, Chrysler Corp. agreed to sell the bulk of its consumer finance assets to Nations-Banks Corp. for a premium of $100 million over the assets' book value of about $2 billion.
In the case of Sears and Chrysler, their finance units are essentially healthy. It is their core businesses that have experienced problems.
Westinghouse, too, has problems in its core businesses. But unlike Sears and Chrysler, it has also suffered serious credit losses from its Westinghouse Financial Services Inc. unit.
"You'll see these split-ups taking place for somewhat different reasons," said John Lonski, senior economist at Moody's Investors Service.
But the banking industry's main competitors - mutual funds, brokerage houses, and major well-capitalized players like General Electric and Primerica - are not backing out of the financial services business, said Edward Furash, a banking industry consultant in Washington, D.C. "They're eating banking's lunch," he said.
Westinghouse, meanwhile, said it had written down the value of real estate assets in its financial services unit to an average of 37 cents on the dollar and would record a fourth-quarter, pretax charge of $2.35 billion.
"That's a pretty aggressive markdown," said Ray Miller, an analyst at Standard & Poor's Corp.
Real estate comprises about 42% of the unit's assets-and the bulk of its losses.
The company plans to shed the assets over three years, but the sales are expected to occur "sooner, than later," a Westinghouse spokesman said. "We'll look at every option - individual sales, bulk sales, whatever it takes," he added.
Decision to Face Pain
Up to now, Westinghouse had planned to reduce its real estate and other financial service assets gradually over five years.
The decision to accelerate the process reflects Westinghouse's desire to put its credit woes behind it as soon as possible, even if it means a bigger hit to earnings.
Westinghouse officials outlined their intentions to the company's bank lenders at a briefing in Pittsburgh last week.
The bankers generally appeared to favor the idea of an accelerated sale, a participant said.
Westinghouse said in its prepared statement Monday that it would remain in "full compliance" with its $6 billion revolving credit agreement after all the charges are taken.
Westinghouse obtained the three-year credit line last November from about 20 banks led by Chemical Banking Corp.
The line is nearly fully drawn, reflecting the company's inability to raise funds in the commercial paper market.
Westinghouse said Monday that it would also sell other non-strategic businesses, slash its annual dividend, reduce its debt by more than $5 billion within two years and record an after-tax charge of $1.13 billion.
The company's stock rose $2.375 a share Monday, to $12.125.