S&P warns General Electric may lose AAA credit rating

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General Electric Co. has long prized its AAA credit rating. Today, Standard & Poor’s warned that GE might not hang on to that top grade.

That slammed the stock and helped pull the broader market lower, and dealt another blow to the image of GE Chief Executive Jeffrey Immelt.

S&P today revised its credit outlook on GE and the company’s financial services arm, GE Capital, to ‘negative’ from ‘stable.’ That means the ratings firm believes ‘there is at least a 1-in-3 possibility of a downgrade within the next two years,’ it said.

GE Capital also is rated AAA, which is critical given the massive amount of borrowing the unit does to support its operations.

S&P said it believed that GE Capital ‘will experience significantly higher credit costs in 2009 compared to those in 2008 and sharply lower earnings from its real estate operations.’

Although Immelt has pledged to bolster GE Capital so it can retain its top credit grade, S&P said that the division’s ‘large size compared to the rest of GE and the former’s heavy ongoing funding requirements mean that there are limits to the further support that GE could provide’ to GE Capital.

‘Delinquencies and credit-related charge-offs have risen significantly in the past year, particularly in GECC’s U.S. consumer portfolio ($54 billion of serviced assets) and in its global consumer mortgage portfolio ($72 billion),’ S&P noted.

‘GE Capital’s credit quality measures remain significantly better than those of the vast majority of its peers, and we expect this to remain so,’ S&P said. ‘Still, we believe there is some risk that credit performance in 2009 could be significantly worse than management’s forecast, given the potential for a sharp increase in losses at GE Capital’s commercial businesses, reflecting the steep economic downturn unfolding in a number of its key geographic markets and customer segments.’

GE on Tuesday said it would stop giving quarterly guidance about its earnings outlook, given the economy’s woes. But the company said it remained confident that GE Capital would earn about $5 billion in 2009.

GE investors, who’ve been hoping their battered stock has seen its worst, suffered another hit today: The shares dropped $1.43, or 8.2%, to $15.96. The stock still is up from its multiyear low of $12.84 on Nov. 20, but is down 57% year to date.

The Dow Jones industrial average (which includes GE) fell 219.35 points, or 2.5%, to 8,604.99, its biggest decline since Dec. 9.

-- Tom Petruno