Posted Mar 04 2009, 11:54 AM by Kim Peterson
No more Mr. Reliable. That's essentially how General Electric (GE) describes itself these days as the market throws a huge red flag on the stock.
Investors have sent GE shares down for three days in a row -- to the lowest point since 1991 -- on concerns about the company's precarious financial position. And in a recent letter to shareholders, CEO Jeffrey Immelt admitted that "we weren't the 'safe and reliable' growth company that is our aspiration."
Why the gloomy talk? Because there's a real possibility that GE's situation is going to get worse this year. Analysts worry the company will face credit downgrades and new unexpected costs, including some $10 billion in consumer credit delinquencies and falling real estate values, according to Bloomberg. GE might not have enough money saved to handle that kind of hit.
GE has taken steps to shore up cash, most notably cutting its quarterly dividend for the first time in 71 years. That could save $9 billion a year, but it's not enough to get GE to steady footing. Credit-rating agencies are circling the company, reviewing its position for a possible downgrade. For years, GE enjoyed the highest possible rating a company could get.
The big question now is whether GE's going to need more money, even after raising $15 billion last October (including $3 billion in stock sales to Warren Buffett's Berkshire Hathaway).
The company said Wednesday it has no plans to raise additional capital, but shareholders can be forgiven for being skeptical -- particularly since Immelt said repeatedly that GE's dividend would be safe. (The company is now getting sued for those assurances.)
GE itself isn't doing that badly. The heart of the problem is GE Capital, the finance division that was too exposed to commercial real estate and mortgage lending. Analysts at Deutsche Bank recently placed GE Capital's value at zero, and said the lending unit may need more cash injections this year if losses continue.
GE shares are down 9% today to $6.37. That's a 30% drop from a week ago -- before the dividend cut and before the new concerns about credit downgrades.
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