GE exits gun financing; opportunity for small private players in consumer finance

Analyst Commentary, Miller Chu: While politicians continue to debate about gun control in the U.S., GE Capital has decided to exit the US$11.7 billion gun financing market. The termination of the program came after the shootout at Sandy Hook Elementary School which has affected several families that are connected to GE. The ending of the program will affect individual shop owners who sell guns as their sole business. GE will continue its relationship with other better established gun retailers such as Wal-Mart and Dick’s Sporting Goods, which have diverse business lines.  Looking at the gun financing market in the U.S., many of the national retail and commercial banks including Wells Fargo, Bank of America, and Citigroup do not extend credits to individual firearm stores. After the exit of GE, we believe that there could be a supply and demand imbalance in the gun financing market, which would be an opportunity for private financing firms. Without discussing the politics or ethics in relation to this industry, it is also an investment opportunity for investors because the gun market in the U.S. remains diverse and protected. While there is the potential for tighter firearm regulation, we believe a shift from pro-gun to anti-gun policy is highly unlikely, especially when politicians continue to be lobbied by pro-gun groups. On the flip side, however, it is not uncommon to see major funds operating on the investment policy of no firearms (in addition to no tobacco or investment in companies known for exploitation of labour or on other ethical grounds), and this trend will also likely to continue to act as a counterweight on the demand of firearm-related investments.

References: WSJ (Apr 24, 2013), Bloomberg (Apr 22, 2013)

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