March 13 (Bloomberg) -- The credit crisis is thinning the ranks of AAA companies, after General Electric Co. and Warren Buffett’s Berkshire Hathaway Inc. lost top-level debt ratings on concern about losses on financial instruments.

Fitch Ratings yesterday stripped Berkshire of its AAA grade, citing risks stemming from derivative bets and Buffett’s role as chief investment officer. Hours earlier, GE lost the top rating at Standard & Poor’s that it’s held since 1956. S&P and Moody’s still rate Berkshire triple-A.

The downgrades underscore how the credit seizure is hurting perceptions of even the strongest companies, said Michael Yoshikami, chief investment strategist at YCMNet Advisors. Five non-financial U.S. companies, including Microsoft Corp., now hold S&P’s AAA grade, down from more than 60 in 1982, according to the ratings firm.

“Triple-A in the end is probably going to be left for the Treasury when it’s all said and done,” said Yoshikami, whose Walnut Creek, California-based firm oversees $800 million and owns Berkshire Hathaway shares. “You’re seeing the rating agencies taking an abundance of caution at this point.”

U.S. companies aren’t alone in losing triple-A status, as the weakest world economy in six decades strips them of sales. Toyota Motor Corp., the Japanese company that ended General Motors Corp.’s 77-year reign as the world’s largest carmaker in 2008, had its credit rating cut to Aa1 from Aaa at Moody’s on Feb. 6. Toyota is forecasting its first loss in 59 years as auto sales slump.

‘Oracle of Omaha’

Buffett’s stock-picking acumen has gained him a following among investors worldwide and the moniker “Oracle of Omaha.” Forbes magazine this week ranked him the world’s second-richest person after Microsoft Chairman -- and Berkshire board member -- Bill Gates, with $37 billion.

Berkshire has outperformed the S&P 500 Index in 38 of the 44 years Buffett has run the firm, according to the company’s 2008 annual report. Buffett measures the performance by comparing Berkshire’s book value per share, a measure of assets minus liabilities, against the total return of the S&P. The increase in liabilities on 251 derivatives, coupled with a drop in equity holdings, last year caused the steepest book value decline of Buffett’s tenure.

“Major fans of Mr. Buffett, of which there are many, may view this downgrade as a sign of just how pervasive this downturn is and that nobody is immune,” said Kirby Daley, senior strategist and head of capital introductions at Newedge Group in Hong Kong.

Stock Drop

Berkshire stock has fallen about 36 percent in 12 months on concern that Buffett’s bets on derivatives -- instruments he has called “financial weapons of mass destruction” -- will crush profit at the firm. The performance still beat the 42 percent drop in the S&P 500. Berkshire shares fell $2,150, or 2.5 percent, to $83,550 at 4:15 a.m. in New York Stock Exchange composite trading.

Buffett’s role as chief investment officer puts the company at risk if he becomes unable to do the job, Fitch said in a statement. Fitch cut the so-called issuer default rating on Berkshire to AA+, and senior unsecured debt to AA. The insurance and reinsurance units kept their AAA status, with a negative outlook for all entities, Fitch said.

“Fitch views this risk as unrelated to Mr. Buffett’s age, but rather Fitch’s belief that Berkshire’s record of outstanding long-term investment results and the company’s ability to identify and purchase attractive operating companies is intimately tied to Mr. Buffett,” Fitch said. Buffett is 78.

‘They’re Not Crackpots’

Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha” and founder of hedge fund Ram Partners LP, said investors may give more weight to analysis by S&P or Moody’s.

“They’re not crackpots, and this is not something that will be dismissed out of hand by credit markets, but I don’t think anybody who does business with Berkshire is going to think twice about it because of this,” Matthews said.

Credit-default swaps that protect Berkshire bondholders against default fell 23 basis points to 415 basis points in New York today, according to CMA DataVision. The price last week reached 535 basis points, indicating that a credit-default swap contract protecting $10 million of Berkshire debt from default for five years would cost $535,000 a year.

Insurers depend on high credit ratings to keep down the cost of raising capital and reassure policy holders that their claims will be covered.

Moody’s and S&P give Berkshire their top rating, and have “stable” outlooks on the firm. Berkshire owns 20 percent of Moody’s shares, an investment Buffett has described as a “passive” stake in which he sees “no conflict.”

Owning Moody’s

“If Berkshire isn’t triple A, I’m not sure which company would be,” Buffett said in a Bloomberg interview at last year’s annual shareholders’ meeting. Buffett didn’t respond today to a request for comment left with his assistant, Carrie Kizer.

Berkshire is backing derivatives tied to corporate junk bonds, municipal debt and the performance of stock indexes on three continents, with liability of more than $14 billion as of Dec. 31. The company’s liability could grow, or shrink to zero, by the time the contracts come due at set dates as many as 19 years away.

The maximum loss on those bets was $63.4 billion as of Dec. 31, a figure that Berkshire would pay only if the markets fall to zero and all states and municipalities fail to pay their obligations. Berkshire has received more than $8 billion from unidentified firms that purchased the derivatives.

‘Handcuffed’

“I do think Buffett handcuffed himself with the derivatives,” Matthews said. “He doubled down on the market at the peak and left himself without a lot of flexibility. However the odds are he’ll likely make money on at least the index put contracts. Even if he didn’t, his balance sheet would in no way be as weak as GE’s.”

Buffett said in an e-mail in November that collateral calls from the institutions on the opposite side of his derivative bets are “under any circumstances, very minor.” In a Bloomberg Television interview conducted last week, Buffett said he plans to sell more derivative contracts, which he personally negotiates.

“Oh, we’ll continue,” Buffett said. “We do anything that I think I understand and where I think that the odds strongly favor making money, which doesn’t mean you make money every time.”

Fitch, which covers fewer companies than rivals S&P and Moody’s Corp, is growing in importance because it is faster with downgrades, said Georg Grodzki, London-based head of credit research at Legal & General Group Plc, which manages more than 110 billion pounds ($156 billion) of assets.

‘More Proactive’

“Fitch has significantly narrowed the gap between itself and the other two big agencies in the past few years,” Grodzki said. “That is because they have been quicker and more proactive in downgrades.”

The loss of GE’s AAA is a setback for Chief Executive Officer Jeffrey Immelt, who was born the year the company got the rating and said as recently as January that GE deserved the top credit grade.

The company has come under attack from some investors and analysts for a lack of transparency at GE Capital, the finance arm. Investors are concerned that the unit, already facing rising credit card-delinquencies and $4 billion in unrealized property losses, will require more capital than GE anticipates.

Moody’s Review

GE shares traded below $6 on March 4, the lowest since December 1991, while credit-default swaps that investors buy as protection against a default by GE Capital surged. The stock jumped 13 percent to $9.57 yesterday in New York after S&P put a “stable” outlook on the rating, comforting investors concerned about a possible sharper cut.

“It takes away that ambiguity,” said Peter Sorrentino, who helps manage $15 billion at Huntington Asset Advisors in Cincinnati.

Moody’s Investors Service, which said in January it was reviewing GE for a potential downgrade, has yet to complete its assessment. That review should be done in less than the typical 90 days, Moody’s said in January.

Immelt, 53, said in a March 5 interview that a ratings drop won’t change the way he runs the company or alter his plan to shrink GE Capital to produce a lower percentage of the parent’s profit. Until January, Immelt was saying GE had earnings power to support both the AAA rating and maintain its annual dividend. He trimmed the dividend last month for the first time since 1938.

GE shares rose 5 cents to $9.62 at 4:15 p.m. in New York Stock Exchange composite trading.

To contact the reporter on this story: Erik Holm in New York at eholm2@bloomberg.net.

Last Updated: March 13, 2009 17:34 EDT