General Electric
The agencies certainly don't think GE's triple-A rating is a lock. In December, Standard & Poor's (a unit of McGraw Hill
The market has already voted
Parts of the market appear to have already factored in a downgrade. GE's five-year credit default swap (CDS) spread is 4.1%; that's quite a bit higher than that of another AAA corporation, Berkshire Hathaway
Both, in turn, substantially exceed the cost to insure debt of two other triple-A corporations without financial businesses: the CDS spreads for ExxonMobil
This isn't just an anomaly of the CDS market, either. According to Moody's
Without the dividend, you're not looking at much
Speaking of looking back a few years, GE shares have substantially underperformed the S&P 500 over the last 15 years, returning just 4.1% on an annualized basis. Take away the dividend and you're left with a paltry share price return of 1.6%. No wonder Immelt desperately wants to keep the dividend -- without it, shareholders may start to wonder where the return on their capital is going to come from.
That might explain why he's prepping investors for a downgrade in the rating. In reviewing GE's credit rating, one of the factors Moody's is considering is "the stress that the external dividend puts on the industrial cash flow," according to Richard Lane, the Moody's analyst who oversees the company.
And the winner is ...
It looks like Immelt painted himself into a corner in January and has now made a choice: The dividend will take precedence over the triple-A rating. Perhaps the episode will serve as a lesson that it's imprudent to make promises to investors in the worst crisis to hit the U.S. in at least a generation.
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