General Electric Co's
Shares of the world's largest maker of jet engines and electricity-producing turbines rose 6 percent in early trading after three consecutive days of sharp declines and volatile trading.
We're getting a lot of speculation about the risk in GE Capital, obviously, and I think it's overdone, said Keith Sherin, chief financial officer and a GE vice chairman, on CNBC. We can basically fund ourselves all the way through 2010 without any issues.
Concerns that its hefty GE Capital finance arm may be under-reserved for the likelihood of rising defaults in the face of a brutal economic downturn have driven the selling. Sherin said there was no time bomb in that business.
With the shares down 59 percent this year, a sharper decline than the widely watched Dow Jones industrial average <.DJI> or Standard & Poor's 500 index <.SPX>, one analyst said Wall Street may be becoming too bearish on the stock.
GE's industrial businesses are clearly worth more than the current share price, wrote Nigel Coe, of Deutsche Bank, in a note to clients. Our view is that while there is a whiff of further funding requirements -- be it public equity or government funded -- the stock will remain oversold and highly volatile.
Deutsche Bank rates GE hold, with a $12 price target.
The Fairfield, Connecticut-based company last week cut its dividend by 68 percent in a move that it said will save $9 billion a year.
'DOUBLE-A' POSSIBLE, CFO SAYS
Nonetheless the two top credit-ratings agencies continue to evaluate their rating 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.
Sherin said he could not imagine a downgrade to the single-A category by major rating agencies, though he said a downgrade to double-A is possible.
There is no silver bullet to isolate credit losses at GE Capital, which like many finance companies is being hurt as the troubled economy makes it harder for consumers and businesses to pay their bills, Sherin said.
Sherin said GE Capital does not need new capital and will be profitable this quarter.
Barclays cut its profit estimate for GE Capital to $2.1 billion for this year, down from an earlier forecast of $3.8 billion. GE expects the unit to earn $5 billion, which would represent a 42 percent drop from 2008.
Sherin also said it would take an incredibly disastrous economic situation for GE to seek money from the government's Troubled Asset Relief Program.
The company plans to meet with investors on March 16 to disclose more details on the GE Capital unit.
We recognize the need to be more transparent, Sherin said.
Railway equipment supplier Greenbrier Cos Inc
The cost to insure GE Capital bonds through credit-default swaps held steady on Thursday, a day after spiking to a record high.
Five-year swaps were trading at 15.5 percent upfront, according to data from Phoenix Partners Group, meaning that investors had to pay $1.55 million immediately to ensure $10 million of debt, plus $500,000 per year.
GE shares rose 41 cents to $7.10 on the New York Stock Exchange. On Wednesday they briefly hit $5.87, their lowest point since 1991. They have traded as high as $38.52 over the past year.
(Reporting by Scott Malone, additional reporting by Jonathan Stempel and Dena Aubin in New York; editing by Patrick Fitzgibbons and Dave Zimmerman)