Dillard's Inc. (DDS) said Sunday it has agreed to sell Dillard National Bank, which handles credit cards for the national department store chain, to GE Consumer Finance for about $1.25 billion.

According to an announcement from the Little Rock-based Dillard's, GE Consumer Finance (search) will assume $400 million in liabilities, purchased the owned-account receivables and pay an undisclosed premium.

The transaction has been approved by both companies but is subject to regulatory review, Dillard's said. The deal is expected to close by the end of the current fiscal year, according to the company.

"Substantially all of the approximately 500 employees of Dillard National Bank (search) will become employees of GE Consumer Finance," Dillard's said.

GE Consumer Finance said the purchase includes 5.5 million Dillard's charge accounts handled by Dillard National Bank.

Dillard's and GE Consumer Finance said they would also enter into a long-term marketing and servicing alliance, with an initial term of 10 years.

Dillard's said it would use the proceeds from the sale to reduce its debt and repurchase common stock, as well as other uses.

The long-term marketing and servicing alliance calls for GE Consumer Finance to provide a range of services to Dillard's, including marketing support and dealing with holders of Dillard's credit cards.

The two companies said they would share in the income generated by the alliance. Dillard's said it expects that that income generated by the alliance could be comparable to the earnings currently generated by Dillard National Bank.

William Dillard II, chief executive office of Dillard's, said the alliance "will provide Dillard's shoppers expanded financing options."

Mark W. Begor, president and chief executive of GE Consumer Finance-Americas, said the partnership would open up "great opportunities to offer more products, benefits and value to Dillard's customers."

Morgan Stanley served as financial adviser to Dillard's on the transaction, while Dillard's legal advisers were Simpson Thacher & Bartlett LLP and Sidley Austin Brown & Wood LLP.

Dillard's annual revenues exceed $7.8 billion from 329 stores in 29 states.

GE Consumer Finance, a unit of General Electric Co. (GE), has $117 billion in assets. The company provides credit services to consumers, retailers and auto dealers in 40 countries.