A slipping crown

"General Electric, a bellwether of American business, suffers a blowFOR decades America’s General Electric (GE) has worn its AAA credit rating as a badge of pride. The company has also used it to mint money in its financial-services business, GE Capital. No longer. On Thursday March 12th Standard & Poor’s (S&P), a credit-rating agency, stripped the company and its financial arm of their top-notch ratings, downgrading them to AA-plus. That added insult to the injury that GE has already suffered as a result of the deterioration in the quality of part of GE Capital’s loan portfolio.Despite its image as an industrial behemoth with a reputation for innovating in a wide range of sectors from wind turbines to brain scanners, GE makes a good deal of money from GE Capital’s activities. Last year the outfit generated a profit of $8.6 billion, or almost 48% of GE’s total earnings. By exploiting its AAA rating, GE Capital was able to raise capital cheaply and then deploy it to fund everything from commercial-property and home loans to credit-card lending and insurance. But the chaos triggered by the credit crunch has taken the shine off GE’s cash machine, which has seen some of its property and other loans turn sour. Announcing its decision to downgrade the business, S&P predicted rising credit losses in coming months in several areas of GE Capital’s portfolio. ..." (2009-3-13)
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