G.E.'s chief financial officer, Keith S. Sherin, appeared on CNBC Thursday morning and said that market fears about the conglomerate were "overdone."
"We do not have a time bomb at GE Capital," he said, referring to G.E.'s lending arm. GE Capital has been the big concern among investors, who worry that the unit -- once a powerful profit engine for the company -- will become a serious drag on its credit rating and balance sheet if the economy continues to deteriorate.
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By Scott Malone
BOSTON (Reuters) - General Electric Co acknowledged on Thursday that a cut in its top-tier credit rating was possible, but its chief financial officer said there was no "time bomb" hidden in its hefty finance arm.
Worries that unit might not have sufficient reserves to cover a feared surge in defaults as a deep recession makes it harder for consumers and businesses to pay their bills pounded shares of the U.S. conglomerate for the past three days.
But GE's stock slide paused on Thursday, rising 2.4 percent after CFO Keith Sherin said the concerns about its funding arm were "overdone."
"We're getting a lot of speculation about the risk in GE Capital, obviously, and I think it's overdone," Sherin, a GE vice chairman, said on CNBC television. "We can basically fund ourselves all the way through 2010 without any issues."
Some investors and analysts said the selling, which comes at a time of intense market volatility, may be excessive. They note that GE's industrial businesses -- it is the world's largest maker of jet engines and electricity-producing turbines -- remain on more solid footing.
"What is happening now is that both the fast money guys like hedge funds who are looking to make money quickly and the long-term investment advisers and trust banks that are rethinking this are selling," said Michael Vogelzang, president and chief investment officer at Boston Advisors in Boston, which owns GE shares. "GE is at ground zero of the storm right now."
GE shares are down 58 percent this year, a sharper decline than the widely watched Dow Jones industrial average or Standard & Poor's 500 index.
Some investors and analysts said Wall Street may be becoming too bearish on the stock.
"The industrial side of the business is still quite strong, they are leaders in many different industries," said Peter Jankovskis, director of research at OakBrook Investments LLC in Lisle, Illinois, which owns 1.7 million GE shares. "Because GE Capital is a substantial part of the company, it is holding the stock back."
Deutsche Bank's Nigel Coe wrote in a client note: "Our view is that while there is a whiff of further funding requirements -- be it public equity or government funded -- the stock will remain oversold and highly volatile."
Deutsche Bank rates GE "hold," with a $12 price target.
The Fairfield, Connecticut-based company last week cut its dividend by 68 percent in a move that it said will save $9 billion a year.
'DOUBLE-A' POSSIBLE, CFO SAYS
Nonetheless the two top credit-rating agencies continue to evaluate their ratings on GE's debt. Moody's Investors Service is reviewing its "triple-A" on GE for a possible downgrade and S&P has a negative outlook on its bonds.
Sherin said he could not imagine a downgrade to the "single-A" category by the major rating agencies, though he said a downgrade to "double-A" is possible. Continued...
There is "no silver bullet" to isolate credit losses at GE Capital, Sherin said.
Moody's is reviewing $446 billion of GE Capital debt and $10 billion of debt from its industrial businesses, according to a spokesman for the credit agency.
Fixed-income research service Gimme Credit recommended investors buy GE Capital's nine-year bonds, saying GE would likely remain a top-tier credit in the "double-A" range.
Sherin said GE Capital does not need new capital and will be profitable this quarter.
Barclays cut its profit estimate for GE Capital to $2.1 billion for this year, down from an earlier forecast of $3.8 billion. GE expects the unit to earn $5 billion, which would represent a 42 percent drop from 2008.
Sherin also said it would take an "incredibly disastrous economic situation" for GE to seek money from the government's Troubled Asset Relief Program.
"We recognize the need to be more transparent," Sherin said.
The company plans to meet with investors later this month to provide a deeper look into GE Capital and said it would disclose the results of a recent stress test of its finance business when it reports first-quarter results in April.
Railway equipment supplier Greenbrier Cos Inc said it would have to lay off workers if GE's railcar-leasing business trimmed back a long-term contract for 11,900 cars over eight years.
The cost to insure GE Capital bonds through credit-default swaps held steady on Thursday.
Five-year swaps were trading at 15.5 percent upfront, according to data from Phoenix Partners Group, meaning that investors had to pay $1.55 million immediately to ensure $10 million of debt, plus $500,000 per year.
GE shares rose 16 cents to $6.85 on the New York Stock Exchange. On Wednesday they briefly hit $5.87, their lowest point since 1991. They have traded as high as $38.52 over the past year.
(Additional reporting by Svea Herbst-Bayliss in Boston, Jonathan Stempel, Dena Aubin and Rodrigo Campos in New York; Editing by Patrick Fitzgibbons and Dave Zimmerman, Phil Berlowitz)