More bad news for General Electric Co.'s (NYSE:GE) chief Jeffrey Immelt, who saw his company lose its AAA debt rating, delivering a blow to the company's reputation as one of the strongest and safest in the world.
Ratings agency Standard & Poor's dropped ratings on the long term of GE and its finance arm GE Capital one notch to AA+ on concerns that the recession will hurt its earnings and trigger trouble for the financial unit. The conglomerate had carried the AAA rating uninterrupted since 1956.
The downgrade could also erode confidence in Immelt, who has publicly maintained that the company's earnings outlook was strong enough to maintain its AAA rating and its annual dividend. Immelt was forced to take back the comments on the dividend a month later as GE slashed its size in order to save $9 billion annually.
Also on the minds of shareholders is the condition of GE Capital, which
has been accused of showing too little transparency about what kinds of
losses it faces from write-downs in consumer loans, credit cards and
real estate. Concern about the unit has grown enough that issuers of
credit default swaps are asking for the same spreads that would
normally be charged to insure against default by a distressed company.
The spread on a credit default swap contract insuring against a default
by GE Capital has topped 710 basis points as investors' aversion to risk
continues to climb into the stratosphere.
In a statement on the cut, GE said its doesn't "anticipate any significant operational or funding impacts
from this change. ... GE will provide a detailed update on GE Capital at a March 19 investor
meeting."
GE also still maintains the top rating from Moody's Investors Service, for now. - George White
See GE's press release on ratings cut
See Dealscape post on GE Capital swaps
See Dealscape post on GE dividend cut
Continue reading below
