GE Mortgage Insurer Unit Lets Triple-A Rating Go

Dow Jones Newswires | September 26, 2003 | Christine Richard

[Starwind]

=DJ GE Mortgage Insurer Unit Lets Triple-A Rating Go

. By Christine Richard Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--GE Mortgage Insurance, a unit of General Electric Co. (GE), Friday said it plans to run its operations at capital levels consistent with a double-A rating and give up its triple-A ratings.

That was followed promptly by action from the ratings agencies. Moody's Investors Service and Fitch Ratings downgraded their triple-A insurer financial strength ratings for GE Mortgage to double-A and assigned a stable outlook.

"It simply makes sense for us to use our capital as efficiently as possible," Tom Mann, president and chief executive officer of GE Mortgage, said in a written statement. "By operating at the 'AA/Aa2' capital levels that prevail in the industry, we can free excess capital to improve our return on equity while aggressively filling the needs of our lenders, investors and the low down payment market."

Fitch's said its double-A assessment reflects its view of GE Mortgage on a standalone basis and assumes that capital in excess of that required to meet Fitch's double-A stress test requirements will ultimately "be dividended out of the company."

(MORE) Dow Jones Newswires 09-26-03 0917ET- - 09 17 AM EDT 09-26-03

=DJ GE Mortgage Insurer Unit -2: Follows Four-Way Split

Moody's noted that pressures from consolidating powerful mortgage originators and from Fannie Mae (FNM) and Freddie Mac (FRE) are squeezing returns for GE Mortgage and for other mortgage insurers.

In addition, GE Mortgage's modest leverage is making the return on equity hurdles set by General Electric Capital Corporation (GECC), its parent, increasingly difficult to meet, Moody's added.

Mortgage insurance is required by lenders on mortgage loans in which borrowers put down modest down payments. Lower down payments increase the risk of default on mortgages.

GE's decision to take down the capital level and ratings at GE Mortgage follows an announcement last year by GE that it was splitting its finance unit GE Capital into four entities, GE Commercial Finance, GE Insurance, GE Consumer Finance and GE Equipment Management.

GE also said last year that it was looking to move toward a triple-A stand-alone rating for GE Capital.

Currently, GE Capital's rating, which allows it to fund around $200 billion in long- and short-term debt at exceptionally cheap levels, is based on the triple-A rating assigned to the industrial side of GE.

Analysts have suggested that while GE's triple-A rating is a major benefit for its finance business, it may tether other parts of the conglomerate to an overly conservative capital structure.

-By Christine Richard, Dow Jones Newswires, 201 938 2188, christine.richard@dowjones.com

(END) Dow Jones Newswires 09-26-03 1027ET- - 10 27 AM EDT 09-26-03

[Starwind]

Moody's noted that pressures from consolidating powerful mortgage originators and from Fannie Mae (FNM) and Freddie Mac (FRE) are squeezing returns for GE Mortgage and for other mortgage insurers.

In addition, GE Mortgage's modest leverage is making the return on equity hurdles set by General Electric Capital Corporation (GECC), its parent, increasingly difficult to meet, Moody's added.

[Starwind]

Good move, but indicative of decreasing corporate profitability and pricing power.

[razorback-bert]

assumes that capital in excess of that required to meet Fitch's double-A stress test requirements will ultimately "be dividended out of the company"

Hmmm, it appears someone will get their money before the ship sinks.