Thursday, March 12, 2009

Big setback for GE in a sign of the times

General Electric's credit-worthiness officially marked lower. From Bloomberg:

General Electric Co. and its finance arm lost the AAA rating that they’ve held from Standard & Poor’s since 1956 as a global recession sapped earnings and exposed potential risks.

The downgrade to AA+ with a “stable” outlook affects long-term debt, S&P_ analysts said in a statement today.

The loss of the AAA -- a sign that a company is among a handful of the world’s safest and strongest -- is a setback for Chief Executive Officer Jeffrey Immelt, who said as recently as January that GE generates enough earnings to justify keeping both the rating and the annual dividend. A month later he reduced the shareholder payout for the first time since 1938 in a move to save about $9 billion a year.

Standard & Poor’s in December said GE had a 1-in-3 chance of losing its top AAA designation within two years, and S&P kept GE’s “negative” outlook after the dividend reduction. Moody’s put GE on review in January and, after the dividend cut, said it would keep studying GE’s debt for a possible lower rating than its top-level Aaa.

The company has come under attack from some investors and analysts for a lack of transparency at GE Capital, the finance arm. Investors are concerned that the unit, already facing rising credit-card delinquencies and $4 billion in unrealized property losses, will require more capital than GE anticipates.

GE’s shares traded below $6 on March 4, the lowest since December 1991, while credit-default swaps that investors buy as protection against possible default surged.

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