Volatility the new reality for GE shares

Jeffrey R. Immelt, chairman and chief executive of General Electric leads a discussion with business leaders at an Ecomagination news conference at Universal Studios in Los Angeles, California May 24, 2007. (REUTERS/Fred Prouser)

BOSTON (Reuters) - Investors can expect more volatility in the stock of once rock-solid General Electric Co <GE.N>, at least until the company reassures Wall Street with a few solid earnings reports.

Shares of the second-largest U.S. company by market capitalization fell for a second straight day on Friday -- hitting their lowest point since late 2003 -- after speculation about coming write-offs at its financial arm spooked investors.

A GE spokesman rebutted the market talk.

"Our UK mortgage portfolio is stable and we do not anticipate any material increase in write-offs and provisions," said spokesman Russell Wilkerson.

The swing in GE's shares -- which were down 29 cents, or 1 percent, at $28.76 cents on the New York Stock Exchange on Friday, a day after falling 2.6 percent -- reflects investors who are on edge about the financial sector due to the credit crisis and still jittery about GE after it stunned Wall Street with an unexpected drop in first-quarter profit.

"People are going to be worried about this probably for the rest of the year," said Matt Collins, a capital goods analyst at Edward Jones in St. Louis. "GE dodged the bullet on the financial side and it's catching up to them now."

GE has lost about $77 billion in market capitalization since its April 11 earnings report. Its $288 billion market value now exceeds that of No. 3 Microsoft Corp <MSFT.O> by just $16 billion. The top-ranked U.S. company Exxon Mobil Corp <XOM.N> has a market cap of $465 billion.

A year into a credit crunch sparked by turmoil in the subprime lending market, investment banks including Lehman Brothers Holdings Inc <LEH.N> have reported surprise losses and had to seek additional capital.

'NO EXTERNAL FUNDING'

But investors and analysts who follow GE said they do not expect that kind of drastic move out of the Fairfield, Connecticut-based conglomerate, given that even when it reported an unexpected drop in first-quarter earnings, its financial services arms continued to make money.

"You're not going to see them have to go out and have to raise capital," Collins said.

Jeff Immelt, GE's chairman and chief executive, has also been forceful on that point, telling investors in a briefing last month that the company would retain its coveted triple-A credit rating without seeking a capital infusion.

"We will continue to be AAA with no external funding," Immelt said at the time. "I just want to be perfectly clear and very specific at that point."

Analysts also noted that GE continues to see strong growth at its infrastructure and industrial businesses, which are growing rapidly selling power plants and jet engines to industrializing China and India.

"If the situation was really that dire, the industrial business could infuse capital, though we do not believe that is currently the case," wrote Bob Cornell, an analyst at Lehman Brothers, in a note to clients.

Given the stunning first-quarter result, which prompted the biggest sell-off in GE shares in two decades, it will take time for investors to lose their GE jitters.

"We'll see some significant volatility here unless we get some kind of incredible assurance, and I'm not sure that Jeff (Immelt) has the credibility at this point to reassure folks that there aren't any problems," said Douglas Adams, chief executive of Adams Express Co, a Baltimore-based money manager that oversees $2.2 billion in assets and holds GE shares.

GE shares have tumbled 22 percent so far this year, with most of that decline coming since the April 10 earnings report. That's a sharper drop than the 8 percent fall of the blue-chip Dow Jones industrial average <.DJI> and broad Standard & Poor's 500 index <.SPX>.

While the company has less power than it once did to calm Wall Street with words, Adams said he remained satisfied with Immelt's management.

"I have confidence in Jeff and the whole team there," he said. "To judge this leadership by the stock price is a mistake. With the exception of the first quarter, the company has done tremendously as far as the revenue and earnings are concerned."

(Editing by Brian Moss, Leslie Gevirtz)