GE credit rating cut for the first time in 40 years

The American conglomerate General Electric has had its credit rating cut for the first time in more than 40 years because of financial problems at its lending arm.

Despite being a bellwether of the economic health of the US, both GE and its GE Capital finance division had their "triple-A" ratings from Standard & Poor's dropped by a notch to "double A-plus" yesterday.

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Robert Shulz, a credit analyst at S&P, said: "We believe GE Capital is under increasing earnings pressure, due to the recent sharp deterioration in general economic conditions around the globe. This will result, in our opinion, in rising credit losses across key segments of GE Capital's finance portfolio."

Another rating agency, Moody's, has also had GE at AAA for decades, but now also has that assessment under review. GE has had a rough year. The company's financial performance has come in below analysts' expectations, and it has been forced to cut its dividend for the first time since 1938. GE Capital's problems stem from the collapsing value of its loans and mortgages. But the group's manufacturing business, which builds everything from aircraft engines to kitchen appliances, is also suffering.

The group raised $15bn (£10.8bn) in a rights issue last year and diverted $9.5bn of the remaining cash to shore up GE Capital in February. The finance arm has already raised nearly $27bn under a US government scheme to help the ailing banking system. And earlier this week, it raised $8bn of debt guaranteed by the US government, after two weeks of ructions which saw GE's share price fall to its lowest level in nearly 20 years.

Jeff Immelt, the chief executive of General Electric, remained bullish yesterday. "We are prepared to fund the company as a double A, but we will continue to run GE with the disciplines of a triple-A company, which means low leverage, high liquidity and strong risk disciplines," he said.

"While no one likes a downgrade, this review and rating reaffirm the relative strength of the company."