GE, Berkshire lose AAA ratings; ranks of top firms thinning

Fitch Ratings yesterday stripped Berkshire of its AAA grade, citing risks stemming from derivatives holdings and Buffett's role as chief investment officer. Hours earlier, GE lost the top rating at Standard & Poor's that it's held since 1956. S&P and Moody's still rate Berkshire triple-A.

The downgrades underscore how the credit seizure is hurting perceptions of even the strongest companies, said Michael Yoshikami, chief investment strategist at YCMNet Advisors. Five non-financial U.S. companies, including Microsoft Corp., now hold S&P's AAA grade, down from more than 60 in 1982, according to the ratings firm.

“Triple-A in the end is probably going to be left for the Treasury when it's all said and done,” said Yoshikami, whose Walnut Creek, California-based firm oversees US$800 million and owns Berkshire Hathaway shares. “You're seeing the rating agencies taking an abundance of caution at this point.”

U.S. companies aren't alone in losing triple-A status, as the weakest world economy in six decades strip them of sales.

Berkshire has outperformed the S&P 500 Index in 38 of the 44 years Buffett has run the firm and handled its investments, according to the Omaha, Nebraska-based company's 2008 annual report.

“Major fans of Mr. Buffett, of which there are many, may view this downgrade as a sign of just how pervasive this downturn is and that nobody is immune,” said Kirby Daley, senior strategist and head of capital introductions at Newedge Group in Hong Kong.

Buffett's assistant, Carrie Kizer, didn't respond to a message left after normal business hours in Omaha.

Buffett's role as chief investment officer puts the company at risk if he becomes unable to do the job, Fitch said in a statement. Fitch cut the so-called issuer default rating on Berkshire to AA+, and senior unsecured debt to AA. The insurance and reinsurance units kept their AAA status, with a negative outlook for all entities, Fitch said.

“Fitch views this risk as unrelated to Mr. Buffett's age, but rather Fitch's belief that Berkshire's record of outstanding long-term investment results and the company's ability to identify and purchase attractive operating companies is intimately tied to Mr. Buffett,” Fitch said. Buffett is 78.

Moody's and S&P have “stable” outlooks on Berkshire.

The loss of GE's AAA is a setback for Chief Executive Officer Jeffrey Immelt, who was born the year the company got the rating and said as recently as January that GE deserved the top credit grade.

The company has come under attack from some investors and analysts for a lack of transparency at GE Capital, the finance arm. Investors are concerned that the unit, already facing rising credit card-delinquencies and US$4 billion in unrealized property losses, will require more capital than GE anticipates.

Still, investors were relieved the ratings cut wasn't worse. GE shares rose US$1.08, or 12.7 percent, to close at US$9.57. That made them one of the biggest percentage gainers among companies on the Dow Jones Industrial Average.

Investors were also heartened by S&P's decision to raise GE's outlook to “stable” from “negative,” making a further credit reduction unlikely in the next six to 12 months. Analysts said a ratings downgrade was already factored into GE's share price, which before Thursday had lost about half its value since the start of the year.

“This is good news as the market was expecting the downgrade and

it removes a layer of uncertainty,” said Deutsche Bank analyst Nigel Coe. He added that some GE watchers feared a rating as low as “AA-.”

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