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GE to pay $1.7 billion to Japan's Shinsei to end refund obligations

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[February 27, 2014]  (Reuters) - General Electric Co <GE.N> said it would pay $1.7 billion to Japan's Shinsei Bank Ltd <8303.T> to end exposure to claims related to the sale of its Japanese consumer loan business to the bank in 2008.

GE said on Wednesday the deal would reduce fourth-quarter and 2013 earnings by $1 billion and earnings per share by 9 cents, noting that the settlement affected last year's results because the agreement was reached before the company filed its annual financial statements.

Operating earnings remain unchanged and the agreement will not affect first-quarter or 2014 results, GE said.

GE reported a fourth-quarter net profit of $4.2 billion, or 41 cents per share. Adjusted profit was 53 cents per share.

Shinsei said the agreement was not expected to have any impact on its earnings.

GE sold its Japanese consumer finance business to Shinsei for $5.4 billion after the government passed a law cutting maximum interest rates and ordered lenders to repay charges on outstanding loans that were deemed to have breached the limit.

General Electric Capital Corp and Shinsei had agreed to a loss-sharing arrangement for potential claims on loans with interest rates of 20-29 percent, with a buyout option to end the obligation in the first quarter of 2014.

Daniel Holland, an analyst with Morningstar, said the Shinsei obligations had been a lingering issue for GE's earnings.

"It's good to finally get it cleaned up and done," Holland said. "As investors, we didn't really have the visibility of what the magnitude could be."

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GE is putting the Shinsei obligations behind it as it nears the expected initial public offering of GE Capital's North American retail finance business, which is expected by the end of next month. The IPO is expected to be the first of a two-stage process, in which as much as 20 percent of the business could be offered this year.

GE shares rose about 0.2 percent to $25.32 in morning trading on the New York Stock Exchange, nearly in line with the increase in the broader U.S. markets.

(Reporting by Chris Peters in Bangalore and Lewis Krauskopf in New York; Editing by Gopakumar Warrier, Ted Kerr and Jonathan Oatis)

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