General Electric Debt Rating Still Looks High

General Electric (GE) drew big headlines when it lost its triple-A debt rating earlier this year, but its rating still looks too high next to comparable companies with lower debt.

GE's debt to tangible book value of almost 90 represents more than three times as much leverage as any of 26 comparable financial and industrial companies, according to TheStreet.com's analysis of Bloomberg data. By this measure, GE has six times the leverage of Goldman Sachs (GS), more than eight times that of Wells Fargo (WFC) and almost 11 times the debt load of JPMorgan Chase (JPM).

Nonetheless, GE carries higher ratings from both Moody's Investors Service and Standard & Poor's.

High Debt Doesn't Weigh on GE Ratings Company Debt/ Tangible Book Value S&P Rating Moody's Rating General Electric 89.66 AA+ Aa2 Citigroup 25.18 A A3 Credit Suisse 18.53 A Aa1 Morgan Stanley 15.00 A A2 Bank of America 14.11 A A2 Goldman Sachs 14.02 A A1 Textron 13.92 BBB- Baa3 GE Capital 12.75 AA+/A* Aa2/A2* Deutsche Bank 10.64 A+ Aa1 Wells Fargo 10.64 AA- A1 Caterpillar 10.01 A A2 JPMorgan Chase 8.23 A+ Aa3 Siemens 7.43 A+ A1 Tyco 4.50 BBB+ Baa1 Emerson Electric 3.39 A A2 3M 2.15 AA- Aa2 Metlife 1.97 A- A2 Hartford Financial 0.91 BBB Baa3 Berkshire Hathaway 0.55 AAA A2 Raytheon -0.93 A- Baa1 Ingersoll Rand -0.97 BBB+ Baa1 ITT -1.61 BBB+ Baa1 Honeywell -1.72 A A2 Danaher -1.83 A+ A2 Eaton -2.73 A- A3 United Technologies -3.96 A A2 AIG -188.89 A- A3 *The higher official rating reflects GE Capital's support from its parent company. The lower rating is the ratings agencies' hypothetical view of what GE Capital's rating would be without the GE's support. Source: Bloomberg, Moody's Investors Service

S&P analyst Robert Schulz and his counterpart at Moody's, Richard Lane, say it is not appropriate to look at GE's leverage as a whole. Instead, they say, GE's industrial operations and its GE Capital financial unit should be viewed separately. GE spokeswoman Anne Eisele made the same argument in an email exchange with TheStreet.com.

S&P analyst Scott Sprinzen argues financial companies can carry a much higher debt load than industrial ones, because in many cases they only need to be paid back a certain percentage of their loans to pay their debt. By contrast, an industrial company like Raytheon (RTN) has to sell missiles in order to keep its creditors happy -- a much tougher hurdle.

But GE is not the only industrial company with a financial unit. Caterpillar (CAT) and Siemens (SI) also have financial services divisions, and their debt to book value of about 10 and seven, respectively, are just a fraction of GE's. Still, they carry lower ratings. The analysts say other industrial companies with financial services units cannot be compared to GE because their financial services units are much smaller and less diversified than GE's.