GE CFO sees no "time bomb" in finance arm

By Scott Malone

BOSTON (Reuters) - General Electric Co acknowledged on Thursday that a cut in its top-tier credit rating was possible, but its chief financial officer said there was no "time bomb" hidden in its hefty finance arm.

Worries its finance unit might not have sufficient reserves to cover a feared surge in defaults as a deep recession makes it harder for consumers and businesses to pay their bills sent the shares of the U.S. conglomerate lower again on Thursday, closing off 3 cents to $6.66.

After three days of sharp declines, the shares of the world's largest maker of jet engines and electricity-producing turbines leveled off after CFO Keith Sherin sought to soothe jittery investors.

Sherin told CNBC it was possible the company's coveted triple-A rating, which has historically allowed GE Capital to borrow money very cheaply, could be cut to the double-A range, but he could not imagine it being cut further.

"We're getting a lot of speculation about the risk in GE Capital, obviously, and I think it's overdone," said Sherin, a GE vice chairman. "We can basically fund ourselves all the way through 2010 without any issues."

Loomis Sayles' Dan Fuss, one of the biggest and most widely followed U.S. bond managers, said he may add to his positions in the company's bonds.

"It is probably a 'double-A'," said Sayles, vice chairman of the Boston-based money manager.

Fixed-income research service Gimme Credit recommended investors buy GE Capital's nine-year bonds, saying GE would likely remain a top-tier credit in the "double-A" range.

The two top credit-rating agencies are evaluating their ratings on GE's debt. Moody's Investors Service is reviewing its "triple-A" on GE for a possible downgrade and S&P has a negative outlook on its bonds.

GE shares were little changed on a day U.S. markets tumbled, with the Dow Jones industrial average down 4.1 percent to a 12-year low. GE fell 0.5 percent on the New York Stock Exchange.

The cost of insuring GE Capitals' debt through credit- default swaps rose on Thursday, according to Phoenix Partners Group. Investors were paying 17.5 percent upfront, meaning that it required an immediate $1.75 million payment plus an additional $500,000 per year to ensure $10 million of GE debt for five years. At Wednesday's close they had stood at 15.5 percent upfront.

NEED FOR TRANSPARENCY

Worries GE Capital is not prepared for rising defaults have pounded GE shares down 59 percent this year, a sharper decline than the widely watched Dow or Standard & Poor's 500 index.

The entire financial sector has fallen dramatically, with Citigroup Inc down 85 percent and Bank of America Corp down 77 percent.

"We recognize the need to be more transparent," Sherin said, noting the company would meet investors later this month to provide an in-depth look into GE Capital.