General Electric

Were General Electric (Ticker: GE) to fail, it would be time to head for the hills. The conglomerate is not just an industrial and financial bellwether; it is the poster child for corporate solidity. Protecting the triple A credit rating is close to a matter of faith. Default should be inconceivable.

Yet the credit default swap market has been spooked. The cost of insuring the debt of GE’s finance subsidiary, GE Capital, has risen in the past month to levels more consistent with a troubled investment bank. It is true that GE group does not directly guarantee the liabilities of its lending arm, but it would be a seismic shift were the conglomerate to threaten the balance sheet strength, or reputation, that it considers a competitive advantage.

Indeed, after pre-emptively raising $15 billion of fresh capital last week, $3 billion of it from Warren Buffett, the group should be fine through to the end of 2009. With third quarter results released on Friday – meeting expectations lowered only two weeks previously – management emphasized that funding needs were adequately met. Alternatives to tapping the commercial paper markets exist, and refinancing $66 billion of long-term debt due in 2009 could be postponed by the unpleasant option of shrinking GE capital. (Although if GE cannot sell bonds, the corporate debt market will have closed entirely.)

Aside from GE’s financial businesses, which in recent years contributed over a third of profits, the outlook for media spending or aircraft purchases is grim. Even healthcare is struggling. The dividend is set to be unchanged next year for the first time in more than three decades, and on current estimates will require close to all of the profits from the industrial businesses to pay it. Like the economy it represents, hard times lie ahead for GE.