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NEW YORK — Shares of General Electric Co. rose sharply Thursday after Goldman Sachs upgraded the stock and said it appears unlikely the industrial conglomerate will have to split off its giant lending arm due to a financial sector reform proposal in Congress.
GE shares jumped 85 cents, or nearly 7 percent, to close at $13.11, with more than 168 million shares changing hands during the session. It marked the biggest one-day increase for the stock since March.
Terry Darling moved Goldman's recommendation on GE to "Buy" from "Neutral" and raised the 12-month target to $15 per share, a $2 per share increase.
The reform legislation, proposed by the Obama administration, includes terms that could force industrial companies to sever their finance units. It is part of an effort to tighten regulation of lending institutions in the wake of the financial crisis.
That could affect GE Capital, GE's financial unit that provides a wide range of loans in areas such as commercial equipment, real estate, credit cards, and mortgages.
GE has been fighting the legislation in Congress, and said Tuesday that the provision that would have forced a spin off of GE Capital appeared to be losing steam.
Bloomberg News reported Wednesday that Rep. Barney Frank, a Massachusetts Democrat who chairs the House Financial Services Committee, said that manufacturers should be allowed to keep finance units despite the reform effort.
Darling wrote in an investor note that the probability of a GE Capital separation was only about 25 percent, lower than the 50 percent odds Goldman forecast earlier.
"Greater potential for a manageable regulatory outcome should prompt investors to focus on longer-term benefits of economic and credit stabilization to GE shares," he wrote.
Nigel Coe of Deutsche Bank said Frank's reported comments are the first time Congressional leaders have voiced support for what Coe characterized as a grandfather clause, shielding industrial companies with existing finance arms from any changes. GE has been lobbying for such a clause.
But Coe also noted that Frank's statements also leave the option open for greater government regulation of GE Capital.
"That leaves the door wide open to the possibility that GE Capital could be subject to more stringent capital, leverage and accounting requirements," he wrote in an investor note.
GE Capital has struggled with growing losses and defaults on its loans as consumers and commercial borrowers suffer the stress of the recession. The company said this week that GE Capital should be profitable this year and won't need new infusions of outside cash, but that high levels of losses could continue into next year.
