General Electric Co Chief Executive Jeff Immelt went to Michigan, the bleeding heart of the U.S. industrial heartland, on Friday to call for a resurgence in American manufacturing.
But even as he warned against relying too heavily on the financial industry to drive economic growth, he subtly set up a defense of the largest U.S. conglomerate’s hefty finance arm.

Analysts and investors are worried that the Obama administration’s proposed overhaul of U.S. financial regulations could force GE to spin off GE Capital, which has businesses ranging from leasing jet planes to investing in commercial real estate.

“We also need a financial system that is built around helping industrial companies to succeed,” Immelt told the Detroit Economic Club. “GE is an important part of this financial services approach. We plan to focus GE Capital on financing small- and medium-sized customers in industries that we know the best.”

He said that after first contending that the U.S. had come to rely too much on Wall Street wizardry and consumers who spend more than they earn to drive prosperity. Disparities in pay reflect that imbalance, he said.

“You know something is wrong when a mortgage broker is pulling down $5 million a year while a Ph.D. chemist is earning $100,000,” Immelt said.

Immelt did not directly address the proposal on Thursday. But earlier this week, he told GE employees that the largest U.S. conglomerate would fight any effort to force it to separate GE Capital from its industrial core.

Several analysts this week warned that the administration’s current proposal, which would prevent large financial institutions from having nonfinancial operations, would likely require such a separation. However, they pointed out that even the current proposal — which would be subject to negotiation in Congress — allows a five-year grace period.

“The government is unlikely to do anything to cause major disruptions to a huge company like GE until the market recovers significantly, especially since GE has not been blamed for any problems in the financial system,” wrote BernsteinResearch analyst Steven Winoker, in a note to clients.

New opportunities for ex-bankers are few and far between. However, one area of the financial industry continues to grow: restructuring.

Like the credit boom turned on its head, restructuring deals help lower companies’ debt before it drags them into insolvency. Deleveraging is the awkward word the industry uses and it offers opportunities right across the financial services business.

As I wrote in February, the big investment banks see restructuring as a great chance to restart relationships with indebted corporate clients, and are willing to go head-to-head with well-established boutique advisory firms for lucrative advisory mandates. JP Morgan, Credit Suisse and Morgan Stanley have all made high-profile hires in London.

Smaller boutiques are building up their teams while new ones are springing up. Jefferies is a new name for many in Europe’s restructuring industry, while Gleacher Shacklock, Greenhill and Moelis have all made hires. Others, such as Versatus, see former bankers set up shop to offer their capital market expertise.

Lawyers also sense opportunities. Loan documents are the bedrock on which banks will strike restructuring deals. This means hiring a clever lawyer, able to pick apart thorny inter-creditor agreements, can give you a clear advantage over rivals.

London-based “Magic Circle” law firms, such as Allen & Overy, Freshfields and Clifford Chance, face growing competition from rivals such as Ashurst, Gide Loyrette and Paul Hastings, with the latter recently hiring many of Cadwalader’s highly respected restructuring team.

The big four accountants see restructuring as key, and take a large share of the business available. A restructuring needs number-crunchers and business analysis, and PwC, Deloitte, KPMG and Ernst & Young usually have a role somewhere in the restructuring process. All have been hiring.

This boom, like the credit boom before it, will not be short. Restructuring the debt load taken on when times were good will not be over by the end of the year, industry sources say, nor the end of the year after that.

Having largely held off from picking up cheap financial services assets last year, private equity firms will boost their buying as low valuations make assets in the sector too attractive to pass up, a new report predicts.

The increased interest will come as these firms look for ways to  use funds raised in the last two years and regulators further loosen restrictions on ownership of banks, independent advisory firm Freeman & Co projects in its annual summary on transactions. Buyout shops have about $600 billion to work with.

Private equity tested the financial sector waters last year - and sometimes got burned. But they have continued to look at the sector with interest. Private equity firms put in $23 billion in 84 financial services deals last year, down 69 percent from 2007, Freeman said.

In one of the first deals to be announced this year, a group of private investors, including JC Flowers, agreed to take the failed IndyMac bank off regulators hands.

Freeman says private equity will launch a barrage of distressed debt funds to take advantage of historically low-priced corporate debt. After a dismal year for the financial sector, there are plenty of assets on the block. Large financial companies are seen dumping non-core assets and broker-dealers and exchanges will be looking to consolidate, Freeman said in its report.

(Photo credit: Lee Jae-won, Reuters)