GE stripped of top-tier credit rating by S&P, stock up

By Nick Zieminski and Scott Malone

NEW YORK (Reuters) - General Electric Co (GE.N) was stripped of its AAA credit rating by Standard & Poor's, which cited the performance of GE's finance unit, but its shares rose 12.7 percent as investors breathed a sigh of relief the cut was not deeper.

S&P said a sharp deterioration in world economies would lead to rising credit losses across GE's finance portfolio.

However, S&P raised its outlook to stable from negative.

"We're expecting really no earnings and no cash flow for GE Capital this year or next year," said S&P analyst Robert Schulz in an interview. "Now that we're at a lower rating, we think that 'stable' was more appropriate..."

S&P lowered its outlook on GE's ratings to "negative" in December. A month later, Moody's Investors Service took a stronger step, putting its ratings on review for possible downgrade. Moody's put GE on review on January 28 and typically tries to complete its reviews within 90 days.

Their stance was unchanged even after the company cut its dividend by 68 percent, in a move GE said would save $9 billion a year.

"It's good to see it not drop lower, and it's heartening to see that the outlook is stable. The ratings agencies can see more of that portfolio (than the average investor)," said Daniel Holland, equity analyst at Morningstar in Chicago. "Back in December when they flipped to negative, pandemonium broke loose, so it's good to see them to go stable."

GE stock, the last original component to remain in the Dow Jones industrial average .DJI, jumped $1.08 to close at $9.57 on the New York Stock Exchange, reaching its best level since February 19 and helped boost the overall stock market.