General Electric’s (GE, $7.81) Massive Credit Line Poses Risks

In its latest quarterly regulatory filing, GE revealed it has almost $41 billion in credit lines involving dozens of U.S. banks, including Wall Street's big five.

For investors already wary of GE's structural issues and ability to grow earnings, this revelation comes as an additional cause for concern -- particularly given that two of the U.S.’s biggest ratings agencies have downgraded GE's credit rating. In all, Wall Street’s biggest banks have committed to lend at least $3.5 billion each to GE.

To be fair, GE had only utilized about $2 billion of the available credit by the end of the third quarter, and the company has been selling assets to generate cash. Additionally, the unused credit represents a crucial backstop in case of a funding shortage.

But from a bank and investor perspective, with GE’s rating standing at just three grades above junk, the risk of default is just too high and its impact on the U.S. banking industry could also be severe.

According to Bloomberg, Morgan Stanley’s (MS) share of the first GE facility amounted to 6% of its investment-grade lending commitments. For Goldman Sachs Group (GS), it was 4% of the bank’s high-grade book. JPMorgan (JPM) and Wells Fargo (WFC) are the other two banks involved in the backup facility.