General Electric Co (GE) lost its top credit rating from Moody’s Investors Service because of higher risks at the conglomerate’s struggling GE Capital lending unit.
The expected move follows a similar downgrade of GE this month by ratings agency Standard & Poor’s.
Moody’s lowered its ratings for GE and GE Capital two notches to “Aa2” from “Aaa.” It said the outlook for both was stable. The downgrades mean GE will likely pay higher costs to borrow money.
GE Capital, which recently made up nearly half of GE’s overall earnings, has been hammered by the financial crisis. GE said last week that the finance unit could end up just breaking even this year because of higher losses on loans for credit cards, overseas mortgages, big equipment and commercial property.
GE had earlier forecast around US$5 billion in earnings for GE Capital.
Moody’s said GE’s industrial businesses, which include energy equipment, machines for health care and jet engines, would still likely warrant the top credit rating on their own.
But the lower overall rating was warranted because of the volatility of GE Capital’s earnings and questions over its funding, Moody’s said. As a stand-alone entity, GE Capital would have a much lower credit rating.
GE said in a statement that the downgrade, along with the S&P cut, would not have a significant impact on its operations or funding.
The company said both ratings agencies gave it a “stable” outlook, meaning a further downgrade was not likely in the short term.
“This action was not unexpected in the current environment, and while no one likes a downgrade, Moody’s, like S&P, confirmed the fundamental soundness of GE Capital and the strength our industrial businesses,” GE chairman and CEO Jeff Immelt said in a statement.
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