Edgar Filing: GENERAL ELECTRIC CAPITAL CORP

gecc10q03312012.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


	FORM 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
	THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012
OR
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________to ___________
_____________________________ Commission file number 001-06461 _____________________________

GENERAL ELECTRIC CAPITAL CORPORATION (Exact name of registrant as specified in its charter)

Delaware		13-1500700
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

901 Main Avenue, Norwalk, Connecticut		06851-1168
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number, including area code) (203) 840-6300

(Former name, former address and former fiscal year,

if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þNo ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer þ

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

At May 4, 2012, 1,000 shares of voting common stock, which constitute all of the outstanding common equity, with a par value of $14 per share were outstanding.

(1)

General Electric Capital Corporation

Part I – Financial Information		Page

Item 1.	Financial Statements
	Condensed Statement of Current and Retained Earnings	3
	Condensed Statement of Comprehensive Income	4
	Condensed Statement of Changes in Shareowner’s Equity	4
	Condensed Statement of Financial Position	5
	Condensed Statement of Cash Flows	6
	Summary of Operating Segments	7
	Notes to Condensed, Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	67
Item 4.	Controls and Procedures	67

Part II – Other Information

Item 1.	Legal Proceedings	67
Item 6.	Exhibits	68
Signatures		69

Forward-Looking Statements

This document contains “forward-looking statements” – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include: current economic and financial conditions, including volatility in interest and exchange rates, commodity and equity prices and the value of financial assets; potential market disruptions or other impacts arising in the United States or Europe from developments in the European sovereign debt situation; the impact of conditions in the financial and credit markets on the availability and cost of our funding and on our ability to reduce our asset levels as planned; the impact of conditions in the housing market and unemployment rates on the level of commercial and consumer credit defaults; changes in Japanese consumer behavior that may affect our estimates of liability for excess interest refund claims (Grey Zone); pending and threatened litigation against WMC, including increased activity by securitization trustees; our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so; our plan to resume dividends to our parent, General Electric Company, which is subject to Federal Reserve review; the level of demand and financial performance of the major industries we serve, including, without limitation, air transportation, real estate and healthcare; the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks, including the impact of financial services regulation; strategic actions, including acquisitions, joint ventures and dispositions and our success in completing announced transactions and integrating acquired businesses; the impact of potential information technology or data security breaches; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.

(2)

Part I. Financial Information

Item 1. Financial Statements.

General Electric Capital Corporation and consolidated affiliates

Condensed Statement of Current and Retained Earnings

(Unaudited)

	Three months ended March 31,
(In millions)		2012		2011

Revenues
Revenues from services (a)	$	11,444	$	13,058
Other-than-temporary impairment on investment securities:
Total other-than-temporary impairment on investment securities		(32)		(71)
Less: Portion of other-than-temporary impairment recognized in
accumulated other comprehensive income		–		7
Net other-than-temporary impairment on investment securities
recognized in earnings		(32)		(64)
Revenues from services (Note 9)		11,412		12,994
Sales of goods		30		42
Total revenues		11,442		13,036

Costs and expenses
Interest		3,196		3,584
Operating and administrative		2,901		3,477
Cost of goods sold		25		40
Investment contracts, insurance losses and insurance annuity benefits		771		769
Provision for losses on financing receivables		863		1,140
Depreciation and amortization		1,695		1,776
Total costs and expenses		9,451		10,786

Earnings from continuing operations before income taxes		1,991		2,250
Benefit (provision) for income taxes		(187)		(429)

Earnings from continuing operations		1,804		1,821
Earnings (loss) from discontinued operations, net of taxes (Note 2)		(217)		35
Net earnings (loss)		1,587		1,856
Less net earnings (loss) attributable to noncontrolling interests		12		31
Net earnings (loss) attributable to GECC		1,575		1,825
Dividends		–		–
Retained earnings at beginning of period		51,578		45,068
Retained earnings at end of period	$	53,153	$	46,893

Amounts attributable to GECC
Earnings from continuing operations	$	1,792	$	1,790
Earnings (loss) from discontinued operations, net of taxes		(217)		35
Net earnings (loss) attributable to GECC	$	1,575	$	1,825

(a)	Excluding net other-than-temporary impairment on investment securities.

See accompanying notes.

(3)

General Electric Capital Corporation and consolidated affiliates

Condensed Statement of Comprehensive Income

(Unaudited)

	Three months ended March 31,
(In millions)		2012		2011

Net earnings	$	1,587	$	1,856
Less: Net earnings attributable to noncontrolling interests		12		31
Net earnings attributable to GECC	$	1,575	$	1,825

Other comprehensive income, net of tax
Investment securities	$	330	$	(188)
Currency translation adjustments		116		1,557
Cash flow hedges		72		(72)
Benefit plans		(24)		(1)
Other comprehensive income, net of tax		494		1,296
Less: Other comprehensive income attributable to noncontrolling interests		(10)		2
Other comprehensive income attributable to GECC	$	504	$	1,294

Comprehensive income, net of tax		2,081		3,152
Less: Comprehensive income attributable to noncontrolling interests		2		33
Comprehensive income attributable to GECC	$	2,079	$	3,119

General Electric Capital Corporation and consolidated affiliates

Condensed Statement of Changes in Shareowner’s Equity

(Unaudited)

	Three months ended March 31,
(In millions)		2012		2011

Balance at January 1	$	77,110	$	68,984
Dividends and other transactions with shareowners		3		1
Other comprehensive income, net of tax		504		1,294
Increases from net earnings attributable to the company		1,575		1,825
Balance at March 31		79,192		72,104
Noncontrolling interests		767		1,178
Total equity at March 31	$	79,959	$	73,282

(4)

General Electric Capital Corporation and consolidated affiliates

Condensed Statement of Financial Position

	March 31,		December 31,
(In millions)	2012		2011
	(Unaudited)
Assets
Cash and equivalents	$	76,165	$	76,702
Investment securities (Note 3)		47,814		47,359
Inventories		42		51
Financing receivables – net (Notes 4 and 12)		281,383		288,847
Other receivables		14,000		13,390
Property, plant and equipment, less accumulated amortization of $23,864
and $23,615		51,520		51,419
Goodwill (Note 5)		27,326		27,230
Other intangible assets – net (Note 5)		1,468		1,546
Other assets		71,672		75,612
Assets of businesses held for sale (Note 2)		640		711
Assets of discontinued operations (Note 2)		1,332		1,669
Total assets(a)	$	573,362	$	584,536

Liabilities and equity
Short-term borrowings (Note 6)	$	132,028	$	136,333
Accounts payable		8,150		7,239
Non-recourse borrowings of consolidated securitization entities (Note 6)		29,544		29,258
Bank deposits (Note 6)		41,106		43,115
Long-term borrowings (Note 6)		229,195		234,391
Investment contracts, insurance liabilities and insurance annuity benefits		30,227		30,198
Other liabilities		14,354		17,334
Deferred income taxes		7,268		7,052
Liabilities of businesses held for sale (Note 2)		305		345
Liabilities of discontinued operations (Note 2)		1,226		1,471
Total liabilities(a)		493,403		506,736

Common stock, $14 par value (4,166,000 share authorized at March 31, 2012 and
December 31, 2011, respectively, and 1,000 shares issued and outstanding
at March 31, 2012 and December 31, 2011, respectively)		–		–
Accumulated other comprehensive income – net(b)
Investment securities		298		(33)
Currency translation adjustments		(274)		(399)
Cash flow hedges		(1,029)		(1,101)
Benefit plans		(587)		(563)
Additional paid-in capital		27,631		27,628
Retained earnings		53,153		51,578
Total GECC shareowner's equity		79,192		77,110
Noncontrolling interests(c)(Note 8)		767		690
Total equity		79,959		77,800
Total liabilities and equity	$	573,362	$	584,536

(a)

Our consolidated assets at March 31, 2012 include total assets of $46,412 million of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs. These assets include net financing receivables of $37,733 million and investment securities of $5,146 million. Our consolidated liabilities at March 31, 2012 include liabilities of certain VIEs for which the VIE creditors do not have recourse to GECC. These liabilities include non-recourse borrowings of consolidated securitization entities (CSEs) of $28,844 million. See Note 13.

(b)	The sum of accumulated other comprehensive income − net was $(1,592) million and $(2,096) million at March 31, 2012 and December 31, 2011, respectively.

(c)	Included accumulated other comprehensive income − net attributable to noncontrolling interests of $(131) million and $(141) million at March 31, 2012 and December 31, 2011, respectively.

See accompanying notes.

(5)

General Electric Capital Corporation and consolidated affiliates

Condensed Statement of Cash Flows

(Unaudited)

	Three months ended March 31,
(In millions)	2012		2011

Cash flows – operating activities
Net earnings	$	1,587	$	1,856
Less net earnings (loss) attributable to noncontrolling interests		12		31
Net earnings attributable to GECC		1,575		1,825
(Earnings) loss from discontinued operations		217		(35)
Adjustments to reconcile net earnings attributable to GECC
to cash provided from operating activities
Depreciation and amortization of property, plant and equipment		1,695		1,776
Increase (decrease) in accounts payable		572		1,290
Provision for losses on financing receivables		863		1,140
All other operating activities		(205)		(1,191)
Cash from (used for) operating activities – continuing operations		4,717		4,805
Cash from (used for) operating activities – discontinued operations		(63)		217
Cash from (used for) operating activities		4,654		5,022

Cash flows – investing activities
Additions to property, plant and equipment		(2,337)		(2,292)
Dispositions of property, plant and equipment		1,825		1,773
Increase in loans to customers		(74,327)		(71,728)
Principal collections from customers – loans		76,912		79,132
Investment in equipment for financing leases		(1,941)		(1,912)
Principal collections from customers – financing leases		3,454		3,833
Net change in credit card receivables		2,468		2,513
Proceeds from sale of discontinued operations		–		1,775
Proceeds from principal business dispositions		84		1,378
Payments for principal businesses purchased		–		(85)
All other investing activities		251		4,218
Cash from (used for) investing activities – continuing operations		6,389		18,605
Cash from (used for) investing activities – discontinued operations		62		(164)
Cash from (used for) investing activities		6,451		18,441

Cash flows – financing activities
Net increase (decrease) in borrowings (maturities of 90 days or less)		(1,259)		(2,062)
Net increase (decrease) in bank deposits		(2,641)		1,233
Newly issued debt (maturities longer than 90 days)
Short-term (91 to 365 days)		9		10
Long-term (longer than one year)		16,758		15,498
Non-recourse, leveraged lease		–		–
Repayments and other debt reductions (maturities longer than 90 days)
Short-term (91 to 365 days)		(22,551)		(31,011)
Long-term (longer than one year)		(2,477)		(157)
Non-recourse, leveraged lease		(254)		(423)
All other financing activities		(153)		(306)
Cash from (used for) financing activities – continuing operations		(12,568)		(17,218)
Cash from (used for) financing activities – discontinued operations		–		(42)
Cash from (used for) financing activities		(12,568)		(17,260)

Effect of currency exchange rate changes on cash and equivalents		925		804

Increase (decrease) in cash and equivalents		(538)		7,007
Cash and equivalents at beginning of year		76,823		60,399
Cash and equivalents at March 31		76,285		67,406
Less cash and equivalents of discontinued operations at March 31		120		153
Cash and equivalents of continuing operations at March 31	$	76,165	$	67,253

See accompanying notes.

(6)

General Electric Capital Corporation and consolidated affiliates

Summary of Operating Segments

	Three months ended March 31,
	(Unaudited)
(In millions)	2012		2011

Revenues
CLL	$	4,442	$	4,608
Consumer		3,877		4,823
Real Estate		836		907
Energy Financial Services		239		345
GECAS		1,331		1,325
Total segment revenues		10,725		12,008
GECC corporate items and eliminations		717		1,028
Total revenues in GECC	$	11,442	$	13,036

Segment profit
CLL	$	685	$	554
Consumer		829		1,241
Real Estate		56		(358)
Energy Financial Services		71		112
GECAS		318		306
Total segment profit		1,959		1,855
GECC corporate items and eliminations		(167)		(65)
Earnings from continuing operations
attributable to GECC		1,792		1,790
Earnings (loss) from discontinued operations,
net of taxes, attributable to GECC		(217)		35
Total net earnings attributable to GECC	$	1,575	$	1,825

See accompanying notes.

(7)

Notes to Condensed, Consolidated Financial Statements (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General Electric Company (GE Company or GE) owns all of the common stock of General Electric Capital Corporation (GECC). Our financial statements consolidate all of our affiliates – companies that we control and in which we hold a majority voting interest. We also consolidate the economic interests we hold in certain businesses within companies in which we hold a voting equity interest and are majority owned by our parent, but which we have agreed to actively manage and control. See Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (2011 consolidated financial statements), which discusses our consolidation and financial statement presentation. GECC includes Commercial Lending and Leasing (CLL), Consumer, Real Estate, Energy Financial Services and GE Capital Aviation Services (GECAS).

On February 22, 2012, our former parent, General Electric Capital Services, Inc. (GECS), merged with and into GECC. The merger simplified GE’s corporate structure by consolidating financial services entities and assets within our organization and simplifying Securities and Exchange Commission and regulatory reporting. Upon the completion of the merger, (i) all outstanding shares of GECC common stock were cancelled, (ii) all outstanding shares of common stock of GECS and all outstanding shares of preferred stock of GECS held by GE were converted into an aggregate of 1,000 shares of common stock of GECC and (iii) all treasury shares of GECS and all outstanding shares of preferred stock of GECS held by GECC were cancelled. As a result, GECC, which previously has been an indirect wholly-owned subsidiary of GE, became a direct wholly-owned subsidiary of GE. As a result of the merger, GECC became the surviving corporation and assumed all of GECS’ rights and obligations and became wholly-owned directly by GE.

Because both GECS and GECC were wholly-owned either directly or indirectly by GE, the merger was accounted for as a transfer of assets between entities under common control. Transfers of net assets or exchanges of shares between entities under common control are accounted for at historical value, and as if the transfer occurred at the beginning of the period. Prior period results are retrospectively adjusted to furnish comparative information. GECC’s continuing operations now include the run-off insurance operations previously held and managed in our former parent, GECS, and which are reported in corporate items and eliminations. The operating businesses that are reported as segments, including CLL, Consumer, Real Estate, Energy Financial Services and GECAS, are not affected by the merger. Unless otherwise indicated, references to GECC and GE Capital relate to the entities as they exist subsequent to the February 22, 2012 merger. In addition, during the first quarter of 2012, we announced the planned disposition of the Consumer mortgage lending business in Ireland (Consumer Ireland). This disposition is reported as a discontinued operation, which requires retrospective restatement of prior periods to classify the assets, liabilities and results of operations as discontinued operations.

As a wholly-owned subsidiary, GECC enters into various operating and financing arrangements with GE. Transactions between related companies are made on an arms-length basis, are eliminated and consist primarily of capital contributions from GE to GECC; GE customer receivables sold to GECC; GECC services for trade receivables management and material procurement; buildings and equipment (including automobiles) leased between GE and GECC; information technology (IT) and other services sold to GECC by GE; aircraft engines manufactured by GE that are installed on aircraft purchased by GECC from third-party producers for lease to others; and various investments, loans and allocations of GE corporate overhead costs.

We have reclassified certain prior-period amounts to conform to the current-period presentation. Unless otherwise indicated, information in these notes to the condensed, consolidated financial statements relates to continuing operations.

Accounting Changes

On January 1, 2012, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2011-05, an amendment to Accounting Standards Codification (ASC) 220, Comprehensive Income. ASU 2011-05 introduces a new statement, the Consolidated Statement of Comprehensive Income, which begins with net earnings and adds or deducts other recognized changes in assets and liabilities that are not included in net earnings, but are reported directly to equity, under GAAP. For example, unrealized changes in currency translation adjustments are included in the measure of comprehensive income but are excluded from net earnings. The amendments became effective for the first quarter 2012 financial statements. The amendments affect only the display of those components of equity categorized as other comprehensive income and do not change existing recognition and measurement requirements that determine net earnings.

(8)

On January 1, 2012, we adopted FASB ASU 2011-04, an amendment to ASC 820, Fair Value Measurements. ASU 2011-04 clarifies or changes the application of existing fair value measurements, including: that the highest and best use valuation premise in a fair value measurement is relevant only when measuring the fair value of nonfinancial assets; that a reporting entity should measure the fair value of its own equity instrument from the perspective of a market participant that holds that instrument as an asset; to permit an entity to measure the fair value of certain financial instruments on a net basis rather than based on its gross exposure when the reporting entity manages its financial instruments on the basis of such net exposure; that in the absence of a Level 1 input, a reporting entity should apply premiums and discounts when market participants would do so when pricing the asset or liability consistent with the unit of account; and that premiums and discounts related to size as a characteristic of the reporting entity’s holding are not permitted in a fair value measurement. Adopting these amendments had no effect on the financial statements. For a description of how we estimate fair value and our process for reviewing fair value measurements classified as Level 3 in the fair value hierarchy, see Note 1 in our 2011 consolidated financial statements.

See Note 1 in our 2011 consolidated financial statements for a summary of our significant accounting policies.

Interim Period Presentation

The condensed, consolidated financial statements and notes thereto are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these condensed, consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. It is suggested that these condensed, consolidated financial statements be read in conjunction with the financial statements and notes thereto included in our 2011 consolidated financial statements. We label our quarterly information using a calendar convention, that is, first quarter is labeled as ending on March 31, second quarter as ending on June 30, and third quarter as ending on September 30. It is our longstanding practice to establish interim quarterly closing dates using a fiscal calendar, which requires our businesses to close their books on either a Saturday or Sunday, depending on the business. The effects of this practice are modest and only exist within a reporting year. The fiscal closing calendar from 1993 through 2013 is available on our website, www.ge.com/secreports.

(9)

2. ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS

Assets and Liabilities of Businesses Held for Sale

In the second quarter of 2011, we committed to sell our Consumer business banking operations in Latvia.

Summarized financial information for businesses held for sale is shown below.

	At
	March 31,		December 31,
(In millions)	2012		2011

Assets
Cash and equivalents	$	134	$	149
Financing receivables – net		399		412
Property, plant and equipment – net		62		81
Goodwill		20		20
Other intangible assets – net		1		7
Other assets		6		8
Other		18		34
Assets of businesses held for sale	$	640	$	711

Liabilities
Short-term borrowings	$	249	$	252
Accounts payable		26		21
Long-term borrowings		4		8
Other liabilities		26		64
Liabilities of businesses held for sale	$	305	$	345

Discontinued Operations

Discontinued operations primarily comprised GE Money Japan (our Japanese personal loan business, Lake, and our Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd.), our U.S. mortgage business (WMC), our U.S. recreational vehicle and marine equipment financing business (Consumer RV Marine), Consumer Mexico, Consumer Singapore, our Consumer home lending operations in Australia and New Zealand (Australian Home Lending), and Consumer Ireland. Associated results of operations, financial position and cash flows are separately reported as discontinued operations for all periods presented.

(10)

Summarized financial information for discontinued operations is shown below.

	Three months ended March 31,
(In millions)	2012		2011

Operations
Total revenues	$	(1)	$	207

Earnings (loss) from discontinued operations before income taxes	$	(58)	$	–
Benefit (provision) for income taxes		6		(4)
Earnings (loss) from discontinued operations, net of taxes	$	(52)	$	(4)

Disposal
Gain (loss) on disposal before income taxes	$	(194)	$	11
Benefit (provision) for income taxes		29		28
Gain (loss) on disposal, net of taxes	$	(165)	$	39

Earnings (loss) from discontinued operations, net of taxes	$	(217)	$	35

	At
	March 31,		December 31,
(In millions)	2012		2011

Assets
Cash and equivalents	$	120	$	121
Financing receivables - net		274		521
Other assets		6		6
Other		932		1,021
Assets of discontinued operations	$	1,332	$	1,669

Liabilities
Accounts payable	$	9	$	7
Deferred income taxes		212		207
Other		1,005		1,257
Liabilities of discontinued operations	$	1,226	$	1,471

Assets at March 31, 2012 and December 31, 2011, primarily comprised cash, financing receivables and a deferred tax asset for a loss carryforward, which expires principally in 2017 and in part in 2019, related to the sale of our GE Money Japan business.

GE Money Japan

During the third quarter of 2007, we committed to a plan to sell our Japanese personal loan business, Lake, upon determining that, despite restructuring, Japanese regulatory limits for interest charges on unsecured personal loans did not permit us to earn an acceptable return. During the third quarter of 2008, we completed the sale of GE Money Japan, which included Lake, along with our Japanese mortgage and card businesses, excluding our investment in GE Nissen Credit Co., Ltd. In connection with the sale, we reduced the proceeds from the sale for estimated interest refund claims in excess of the statutory interest rate. Proceeds from the sale were to be increased or decreased based on the actual claims experienced in accordance with loss-sharing terms specified in the sale agreement, with all claims in excess of 258 billion Japanese yen (approximately $3,000 million) remaining our responsibility. The underlying portfolio to which this obligation relates is in runoff and interest rates were capped for all designated accounts by mid-2009. In the third quarter of 2010, we began making reimbursements under this arrangement.

(11)

Our overall claims experience developed unfavorably through 2010. We believe that the level of excess interest refund claims was impacted by the challenging global economic conditions, in addition to Japanese legislative and regulatory changes. In September 2010, a large independent personal loan company in Japan filed for bankruptcy, which precipitated a significant amount of publicity surrounding excess interest refund claims in the Japanese marketplace, along with substantial legal advertising. We observed an increase in claims during the latter part of 2010 and the first two months of 2011. Since February and through the end of 2011, we have experienced substantial declines in the rate of incoming claims, though the overall rate of reduction was slower than we expected. During the first quarter of 2012, we recorded an increase to our reserve of $26 million to reflect an excess of first quarter claims activity over our previous estimate. We continue to monitor claims activities and our estimates of the pace of decline in incoming claims. At March 31, 2012, our reserve for reimbursement of claims in excess of the statutory interest rate was $496 million.

The amount of these reserves is based on analyses of recent and historical claims experience, pending and estimated future excess interest refund requests, the estimated percentage of customers who present valid requests, and our estimated payments related to those requests. Our estimated liability for excess interest refund claims at March 31, 2012 assumes the pace of incoming claims will continue to decelerate, average exposure per claim remains consistent with recent experience, and we continue to see the impact of our loss mitigation efforts. Estimating the pace of decline in incoming claims has a significant effect on the total amount of our liability. While the pace of incoming claims continues to decline, it is highly variable and difficult to predict. Holding all other assumptions constant, for example, a 20% adverse change in assumed incoming daily claim rate reduction would result in an increase to our reserves of approximately $110 million.

Uncertainties about the likelihood of consumers to present valid claims, the runoff status of the underlying book of business, the financial status of other personal lending companies in Japan, challenging economic conditions and the impact of laws and regulations make it difficult to develop a meaningful estimate of the aggregate possible claims exposure. Additionally, the Japanese government is currently considering the introduction of proposed legislation to develop a framework for collective legal action proceedings. Recent trends, including the effect of consumer activity, market activity regarding other personal loan companies, higher claims severity and potential Japanese legislative actions, may continue to have an adverse effect on claims development.

GE Money Japan losses from discontinued operations, net of taxes, were $27 million and $1 million in the three months ended March 31, 2012 and 2011, respectively.

WMC

During the fourth quarter of 2007, we completed the sale of WMC, our U.S. mortgage business. WMC substantially discontinued all new loan originations by the second quarter of 2007, and is not a loan servicer. In connection with the sale, WMC retained certain representation and warranty obligations related to loans sold to third parties prior to the disposal of the business and contractual obligations to repurchase previously sold loans as to which there was an early payment default. All claims received for early payment default have either been resolved or are no longer being pursued.

(12)

Pending repurchase claims based upon representations and warranties made in connection with loan sales were $562 million at March 31, 2012, $705 million at December 31, 2011 and $347 million at December 31, 2010. Pending claims represent those active repurchase claims that identify the specific loans tendered for repurchase and, for each loan, the alleged breach of a representation or warranty. The amounts reported reflect the original principal balances of the loans and do not give effect to pay downs, accrued interest or fees, or potential recoveries based upon the underlying collateral. Reserves related to contractual representations and warranties were $140 million and $143 million at March 31, 2012 and December 31, 2011, respectively. The amount of these reserves is based upon pending and estimated future loan repurchase requests, the estimated percentage of loans validly tendered for repurchase, and WMC’s estimated losses on loans repurchased. A ten percent adverse change in these key assumptions would result in an increase in reserves of approximately $25 million. Historically, a small percentage of the total loans WMC originated and sold has been tendered for repurchase, and of those loans tendered, only a limited amount has qualified as “validly tendered,” meaning the loans sold did not satisfy contractual obligations. In the second half of 2011, a lawsuit was filed against WMC relating to representations and warranties on certain mortgages and in the second quarter of 2012, through May 3, 2012, we have received additional repurchase claims of $689 million. Uncertainties surrounding economic conditions, the ability and propensity of mortgage holders to present valid claims, governmental actions, pending and threatened litigation against WMC, including increased activity by securitization trustees, and other activity in the mortgage industry make it difficult to develop a meaningful estimate of aggregate possible claim exposure. Actual losses could exceed the reserve amount if actual claim rates, investigative or litigation activity, valid tenders or losses WMC incurs on repurchased loans are higher than have been historically observed with respect to WMC.

WMC revenues (loss) from discontinued operations were $(7) million and an insignificant amount in the three months ended March 31, 2012 and 2011, respectively. In total, WMC’s losses from discontinued operations, net of taxes, were $9 million and $2 million in the three months ended March 31, 2012 and 2011, respectively.

Other

In the first quarter of 2012, we announced the planned disposition of Consumer Ireland and classified the business as discontinued operations. Consumer Ireland revenues from discontinued operations were $4 million in both the three months ended March 31, 2012 and 2011. Consumer Ireland loss from discontinued operations, net of taxes, were $188 million (including a $147 million loss on disposal) and $21 million in the three months ended March 31, 2012 and 2011, respectively.

In the second quarter of 2011, we entered into an agreement to sell our Australian Home Lending operations and classified it as discontinued operations. As a result, we recognized an after-tax loss of $148 million in 2011. We completed the sale in the third quarter of 2011 for proceeds of approximately $4,577 million. Australian Home Lending revenues from discontinued operations were $1 million and $114 million in the three months ended March 31, 2012 and 2011, respectively. Australian Home Lending earnings from discontinued operations, net of taxes, were $2 million and $37 million in the three months ended March 31, 2012 and 2011, respectively.

In the first quarter of 2011, we entered into an agreement to sell our Consumer Singapore business for $692 million. The sale was completed in the second quarter of 2011 and resulted in the recognition of a gain on disposal, net of taxes, of $319 million. Consumer Singapore revenues from discontinued operations were an insignificant amount and $29 million in the three months ended March 31, 2012 and 2011, respectively. Consumer Singapore earnings from discontinued operations, net of taxes, were an insignificant amount and $7 million in the three months ended March 31, 2012 and 2011, respectively.

In the fourth quarter of 2010, we entered into agreements to sell our Consumer RV Marine portfolio and Consumer Mexico business. The Consumer RV Marine and Consumer Mexico dispositions were completed during the first quarter and the second quarter of 2011, respectively, for proceeds of $2,365 million and $1,943 million, respectively. Consumer RV Marine revenues from discontinued operations were an insignificant amount and $5 million in the three months ended March 31, 2012 and 2011, respectively. Consumer RV Marine earnings (loss) from discontinued operations, net of taxes, were $(1) million and an insignificant amount in the three months ended March 31, 2012 and 2011, respectively. Consumer Mexico revenues from discontinued operations were $1 million and $55 million in the three months ended March 31, 2012 and 2011, respectively. Consumer Mexico earnings (loss) from discontinued operations, net of taxes, were $(2) million and $16 million in the three months ended March 31, 2012 and 2011, respectively.

(13)

3. INVESTMENT SECURITIES

Substantially all of our investment securities are classified as available-for-sale. These comprise mainly investment grade debt securities supporting obligations to annuitants, policyholders and holders of guaranteed investment contracts (GICs) in our run-off insurance operations and Trinity, investment securities at our treasury operations and investments held in our CLL business collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries. We do not have any securities classified as held to maturity.

	At
	March 31, 2012								December 31, 2011
			Gross		Gross						Gross		Gross
	Amortized		unrealized		unrealized		Estimated		Amortized		unrealized		unrealized		Estimated
(In millions)	cost		gains		losses		fair value		cost		gains		losses		fair value


Debt
U.S. corporate	$	20,758	$	3,236	$	(279)	$	23,715	$	20,748	$	3,432	$	(410)	$	23,770
State and municipal		3,179		385		(120)		3,444		3,027		350		(143)		3,234
Residential mortgage-backed(a)		2,555		175		(220)		2,510		2,711		184		(286)		2,609
Commercial mortgage-backed		2,989		169		(177)		2,981		2,913		162		(247)		2,828
Asset-backed		5,376		76		(133)		5,319		5,102		32		(164)		4,970
Corporate – non-U.S.		2,514		142		(136)		2,520		2,414		126		(207)		2,333
Government – non-U.S.		2,171		125		(23)		2,273		2,488		129		(86)		2,531
U.S. government and
federal agency		4,073		77		(1)		4,149		3,974		84		–		4,058
Retained interests		28		6		–		34		25		10		–		35
Equity
Available-for-sale		530		105		(16)		619		713		75		(38)		750
Trading		250		–		–		250		241		–		–		241
Total	$	44,423	$	4,496	$	(1,105)	$	47,814	$	44,356	$	4,584	$	(1,581)	$	47,359

(a)

Substantially collateralized by U.S. mortgages. Of our total residential mortgage-backed securities (RMBS) portfolio at March 31, 2012, $1,607 million relates to securities issued by government-sponsored entities and $903 million relates to securities of private label issuers. Securities issued by private label issuers are collateralized primarily by pools of individual direct mortgage loans of financial institutions.

The fair value of investment securities increased to $47,814 million at March 31, 2012, from $47,359 million at December 31, 2011, primarily due to the impact of lower interest rates and additional purchases in our CLL business of investments collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries.

(14)

The following tables present the estimated fair values and gross unrealized losses of our available-for-sale investment securities.

	In loss position for
	Less than 12 months					12 months or more
			Gross					Gross
	Estimated		unrealized			Estimated		unrealized
(In millions)	fair value		losses		(a)	fair value		losses		(a)

March 31, 2012
Debt
U.S. corporate	$	922	$	(155)		$	732	$	(124)
State and municipal		136		(2)			252		(118)
Residential mortgage-backed		68		–			804		(220)
Commercial mortgage-backed		165		(11)			1,111		(166)
Asset-backed		70		(2)			795		(131)
Corporate – non-U.S.		255		(10)			621		(126)
Government – non-U.S.		508		(2)			184		(21)
U.S. government and federal agency		231		(1)			–		–
Retained interests		5		–			–		–
Equity		87		(15)			7		(1)
Total	$	2,447	$	(198)		$	4,506	$	(907)

December 31, 2011