General Electric, one of the world’s biggest companies, admitted yesterday that profits this year could be as much as a sixth lower than it had originally forecast amid what it called unprecedented weakness in the financial services market.

The company, which derives 45 per cent of its profits from GE Capital, its financial unit, said that it would have to slice the amount of money its lending business pays the parent group to keep its AAA credit rating.

GE Capital normally gives 40 per cent of all its profits in the form of a dividend to the parent company, which is one of the world’s largest conglomerates. However, it said yesterday that the dividend would be cut to 10 per cent. It also said that to keep its credit rating, it would stop buying back its shares to maintain capital reserves.

Once a company’s credit rating is reduced, raising new funds becomes much costlier. Some financing routes also become closed because a number of funds will not invest in securities that do not have a AAA rating.

GE is one of the companies on the temporary short-selling ban list because it was deemed by the New York Stock Exchange to be a financial stock. It said yesterday that it was aiming to achieve 60 per cent of its earnings from its industrial business and 40 per cent from its lending business by the end of next year.

Jeff Immelt, chairman and chief executive, said in a statement: “Given the recent dramatic developments in the financial markets, we have made some tough decisions to further reduce risk and strengthen our balance sheet while maintaining our dividend. We have suspended the stock buyback to reduce GE Capital leverage, while still being able to pursue opportunistic acquisitions.”

Despite the move, shares in GE rose by more than 4 per cent, pulled up by a stock market celebrating a deal being done to approve Washington’s $700 billion (£380 billion) bailout of the US banking system.

The GE profit warning was expected on Wall Street. Art Hogan, a market strategist for Jefferies & Co, said: “It shouldn’t catch anybody by surprise. But whether it’s GE or the latest economic data, it’s largely going to be ignored in an environment when all we care about is the passage of the rescue plan. That’s why we’re not overreacting to the GE news.”

It is not the first profit warning from Mr Immelt, who in the past was criticised by his predecessor, Jack Welch, for having a “credibility problem”.

GE estimates that its third-quarter earnings per share will be between 43 cents and 48 cents, down from the 50 cents to 54 cents previously forecast. The group also said that it was reducing GE Capital’s commercial paper to 10 per cent to 15 per cent of its debt. The company said that it was maintaining its $1.24-a-share dividend.

Standard & Poor’s, the credit rating agency, confirmed the company’s AAA credit rating. In a statement, it said: “We believe there is sufficient leeway in GE Capital’s rating to sustain a period of cyclically weak profitability. Crucial to the rating affirmation, in our view, are the steps GE intends to take to reduce financial risk at GE Capital.”

Not all right, Jack

April 12 Jeff Immelt, chief executive of General Electric, shocks investors with a profit warning

April 16 Jack Welch, his predecessor as chief executive, says that Mr Immelt has a “credibility issue” and that he will “get a gun out and shoot” him if the company misses earnings targets again

September 25 Mr Immelt says that earnings will be lower than forecasts, and suspends GE’s share buyback programme

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