March 5 (Bloomberg) -- General Electric Co. investors are treating the company as though it’s on the verge of failing ahead of a potential cut in its top-level AAA rating.
“It’s a leper right now,” said Marilyn Cohen, president of Envision Capital Management Inc. in Los Angeles, who oversees $180 million in fixed-income assets and no longer own GE bonds. Bankruptcy “seems improbable, but we’ve seen improbable things happen,” Cohen said.
GE, which just posted its third-highest annual profit ever, has lost about $264 billion in market value in 12 months. Yesterday it fell a fourth straight day to the lowest closing price since November 1992, feeding a surge in options volume and credit-default swaps. Investors are punishing the shares on a presumption, which the company disputes, that GE Capital will need more outside funding to cover potential writedowns and losses in real estate, consumer credit cards and leasing.
The run underscores how stock investors may have lost confidence in companies with finance operations -- even those like GE that own industrial businesses, still predict a profit, and operate with some degree of backing from the U.S. government. While federal commercial paper liquidity backstops and debt guarantees since October have prevented the type of creditor panics that sank Bear Stearns Cos. and Lehman Brothers Holdings Inc., a former Federal Reserve official says the programs haven’t made a convincing case for stock investors.
“Creditors are being bailed out everywhere but equity owners are not,” said William Poole, president of the St. Louis Federal Reserve Bank until March 2008. “What that does is create cascading weakness because you can’t raise any equity capital.”
Confidence in Managers
Investors unwilling to be calmed by the federal guarantees also aren’t taking comfort from GE’s managers. Chief Executive Officer Jeffrey Immelt, Vice Chairman Michael Neal and other directors bought stock as a show of faith this week. Immelt bought 50,000 shares and Neal, who also oversees GE Capital as its chief executive, bought 125,000 shares over two days. Each day the shares closed lower. GE shares trading in Germany fell 2 percent to $6.56 as of 10:13 a.m. local time.
“Our company’s reputation was tarnished because we weren’t the ‘safe and reliable’ growth company that is our aspiration,” Immelt, 53, said in his yearly letter to shareholders dated Feb. 6. “I accept responsibility for this. But, I think the environment presents an opportunity of a lifetime.”
GE, the biggest maker of jet engines and power turbines, cut its dividend Feb. 27 for the first time since 1938 to save $9 billion a year.
Lowering the dividend was necessary but also “a reputational blow to GE and an income hit to long suffering shareholders,” wrote Citigroup Inc. analyst Jeffrey Sprague, who has a “hold” rating on the stock, in a March 1 note to clients.
Debt Ratings
http://www.bloomberg.com/apps/news?pid=20601087&sid=agBGopWN_AAg&refer=homeThey're probably getting "shorted" to death. Things would get better if they just FIRED those assholes on CNBC!
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