GE Banks on Russia

The news coming out of Russia is not exactly good these days. Russian-oriented headlines are generally dominated by that five-letter word: YUKOS. One day it's winning a chance at life in court. The next day, Russian bailiffs are attaching its core assets and threatening to sell them off. Yesterday, the company said it was in default on a $1.6 billion loan.

So Russians should be giving good old General Electric (NYSE: GE  ) a big round of applause today, thanking the multinational conglomerate for stepping up and voting its confidence in Russia with its wallet. Or rather, its change purse. GE Consumer Finance will not exactly break the bank (pardon the pun) with its latest acquisition. The $100 million the company is paying to acquire DeltaBank from private-equity firm Delta Capital Management is the corporate equivalent of pocket change to GE.

So what will GE get for its $100 million? DeltaBank was the first bank to seriously invest in creating (that's right, as in -- from scratch) Russia's home mortgage market. It's also a leader in credit card issuance (with over 100,000 Russian cardholders) and other personal loans. According to GE, DeltaBank's new owner will move aggressively to expand DeltaBank's market presence in the loan, mortgage, and eventually the checking-deposit businesses. Today, DeltaBank remains relatively small at just five branches, but GE intends to increase that number more than 10-fold over just the next few years.

Yet as good a buy as DeltaBank may be, GE investors will hardly notice the acquisition at the outset. The bank's $51 million in assets are so small that, when added to GE's $117 billion in worldwide assets, the increase will initially look like a rounding error.

The real story here is more long term, as DeltaBank's quality married to GE's financial strength enable the bank to expand the Russian mortgage market while capitalizing on the bank's leading role in that market. Additionally, in the wake of Russia's latest banking crisis, GE will be able to join fellow international heavyweights ING Group (NYSE: ING  ) and Citibank (NYSE: C  ) in vying for a big piece of the action as Russians move their savings from unstable domestic banks into the better-trusted "international" banks.

Fool contributor Rich Smith owns no shares in any company mentioned in this article.


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