Market sentiment on General Electric Co. deteriorated further Monday, with the stock sliding and the cost of protecting against default on GE debt climbing, even as the conglomerate moved to reassure nervous investors.
GE posted an unprecedented "investor update" on its Website Sunday, reiterating among other things that it has no need to raise outside capital and that it has "an unwavering commitment to maintaining our Tripe A" rating, which is the highest.
The letter came amid news that Lehman Brothers Holdings Inc. was preparing to file for bankruptcy and Merrill Lynch was set to be acquired by Bank of American Corp., the latest twists for the beleaguered U.S. financial sector. Concerns were also mounting about the fate of insurer American International Group Inc., which is said to be preparing a restructuring announcement.
GE, which reaps about half its revenue and earnings from its financial-services businesses, has been trading increasingly like a financial stock because of its big exposure to the sector.
Shares of the Fairfield, Conn., were off 6.4% to $25.03 late Monday morning, after falling as much as 11% to its lowest point in more than five years early in the session. The stock fell 5% on Friday
Meanwhile, credit default swaps on General Electric Capital Corp. surged. Five-year protection on $10 million of GE Capital bonds soared to $349,000 a year in early trading, up $140,000 from Friday's close.
Despite GE's reassurance, investors clearly were jittery. Even some inclined to give GE the benefit of the doubt saw reason for nervousness.
"I'll take them at face value" that they have the situation under control, said Stephen Lieber, chief investment officer at Alpine Woods Investments, whose firm owns a GE stake. But "there's enough there to scare you."
Among other things, the company said Sunday that it is "adequately reserved for delinquencies at GE Money," its consumer finance operations. GE Money delinquencies were 5.92% in the second quarter, matching a high reached in December 2002.
"In the event that delinquencies and non-earnings rise, we will increase allowances for losses," said Trevor Schauenberg, GE's vice president of investor communications, in Sunday's investor update.
Schauenberg also reiterated that GE's commercial real estate business, with an $87 billion portfolio, is on track to earn $1.5 billion to $1.7 billion this year. Delinquencies in the commercial real estate business are 0.2% of assets, a "very low" rate that GE credited to in-house underwriting, and it the company said its average loan-to-value ratio is 68%.
GE also said 60% of its real estate assets are outside the U.S., spread across 23 countries.
GE - which operates businesses as diverse as aircraft-engine production and health care - has been attempting to auction off its $30 billion credit-card business, which backs specialty cards for retail stores, but has not received the response GE would like.
