BOSTON (Reuters) - Shares of General Electric Co fell 8 percent on Wednesday after a stock analyst said the U.S. conglomerate may be set for a drop in profit next year and the cost to insure its debt skyrocketed.
The company said its commercial paper funding processes were going on smoothly.
GE last week warned investors that earnings this year could fall as much as 12 percent as volatile global credits markets take a toll on its large finance arm, which has operations ranging from loans to mid-sized businesses to investments in real estate.
"We now call for an earnings decline next year," Deutsche Bank analyst Nigel Coe wrote in a note to clients. He cited declining earnings at the GE Capital finance arm, as well as lower spending on aviation products like the jet engines and parts to maintain them produced by the company's industrial units.
Coe said he now expects GE profit of $2 per share this year -- a 9 percent drop -- and $1.95 per share next year.
The shares tumbled $2.10 to $23.40 on the New York Stock Exchange, on a morning when the Dow Jones industrial average was down more than 1 percent. The cost to insure $10 million of GE Capital's debt over a five-year period with credit-default swaps rose to $700,000 per year on Wednesday, up from $550,000 on Tuesday, according to Phoenix Partners Group.
GE credit-default swaps are now trading as if they were rated "B2," a junk rating 14 steps below its actual AAA rating, according to Moody's Investors Service's credit strategy group.
GE's activity on the commercial paper debt markets has been uninterrupted, a spokesman said.
"We have overfunded every day over the past several weeks, including today, with good demand for our paper in term maturities and good pricing," GE spokesman Russell Wilkerson said in an e-mail. He noted that the Fairfield, Connecticut-based company cut its commercial paper outstanding to $90 billion at the end of the quarter.
GE shares have fallen 36 percent this year -- a steeper slide than either the Dow or broad Standard & Poor's 500 index, as investors have become increasingly concerned about the effects of the credit meltdown on GE Capital.
The shares remain above the 52-week low of $22.19 reached on September 18 but well below the high of $42.15 reached October 2.
(Reporting by Scott Malone, additional reporting by Dena Aubin in New York; Editing by Steve Orlofsky and Gerald E. McCormick)
