Edgar Filing: GENERAL ELECTRIC CAPITAL CORP

geccform10q1q13.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, 2013
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, CT		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 1, 2013, 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.

REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION h(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.

(1)

General Electric Capital Corporation

Part I – Financial Information		Page

Item 1.	Financial Statements
	Condensed Statement of Earnings	3
	Condensed Statement of Comprehensive Income	4
	Condensed Statement of Changes in Shareowners’ Equity	4
	Condensed Statement of Financial Position	5
	Condensed Statement of Cash Flows	6
	Summary of Operating Segments	7
	Notes to Condensed Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	67
Item 4.	Controls and Procedures	68

Part II – Other Information

Item 1.	Legal Proceedings	68
Item 6.	Exhibits	69
Signatures		70

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, equity prices and the value of financial assets; potential market disruptions or other impacts arising in the United States or Europe from developments in sovereign debt situations; 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 (GE Money Japan); pending and future mortgage securitization claims and litigation in connection with WMC, which may affect our estimates of liability, including possible loss estimates; 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 ability to pay dividends to GE at the planned level; the level of demand and financial performance of the major industries GE serves, including, without limitation, air transportation, energy generation, 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; 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.

GE’s Investor Relations website at www.ge.com/investor and our corporate blog at www.gereports.com, as well as GE’s Facebook page and Twitter accounts, contain a significant amount of information about GE, including financial and other information for investors. GE encourages investors to visit these websites from time to time, as information is updated and new information is posted.

(2)

Part I. Financial Information

Item 1. Financial Statements

General Electric Capital Corporation and consolidated affiliates

Condensed Statement of Earnings

(Unaudited)

	Three months ended March 31,
(In millions)		2013		2012

Revenues
Revenues from services (a)	$	11,787	$	11,342
Other-than-temporary impairment on investment securities:
Total other-than-temporary impairment on investment securities		(289)		(32)
Less: portion of other-than-temporary impairment recognized in
accumulated other comprehensive income		11		–
Net other-than-temporary impairment on investment securities
recognized in earnings		(278)		(32)
Revenues from services (Note 9)		11,509		11,310
Sales of goods		26		30
Total revenues		11,535		11,340

Costs and expenses
Interest		2,400		3,185
Operating and administrative		3,219		2,845
Cost of goods sold		21		25
Investment contracts, insurance losses and insurance annuity benefits		689		771
Provision for losses on financing receivables		1,488		863
Depreciation and amortization		1,698		1,652
Total costs and expenses		9,515		9,341

Earnings from continuing operations before income taxes		2,020		1,999
Benefit (provision) for income taxes		(82)		(215)

Earnings from continuing operations		1,938		1,784
Earnings (loss) from discontinued operations, net of taxes (Note 2)		(109)		(197)
Net earnings		1,829		1,587
Less: net earnings (loss) attributable to noncontrolling interests		11		12
Net earnings attributable to GECC	$	1,818	$	1,575

Amounts attributable to GECC
Earnings from continuing operations	$	1,927	$	1,772
Earnings (loss) from discontinued operations, net of taxes		(109)		(197)
Net earnings attributable to GECC	$	1,818	$	1,575

(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)		2013		2012

Net earnings	$	1,829	$	1,587
Less: net earnings (loss) attributable to noncontrolling interests		11		12
Net earnings attributable to GECC	$	1,818	$	1,575

Other comprehensive income
Investment securities	$	66	$	332
Currency translation adjustments		8		133
Cash flow hedges		92		72
Benefit plans		13		(24)
Other comprehensive income		179		513
Less: other comprehensive income (loss) attributable to noncontrolling interests		(3)		10
Other comprehensive income attributable to GECC	$	182	$	503

Comprehensive income		2,008		2,100
Less: comprehensive income (loss) attributable to noncontrolling interests		8		22
Comprehensive income attributable to GECC	$	2,000	$	2,078

Amounts presented net of taxes. See Note 8 for further information about other comprehensive income and noncontrolling interests.

See accompanying notes.

General Electric Capital Corporation and consolidated affiliates

Statement of Changes in Shareowners’ Equity

(Unaudited)

	Three months ended March 31,
(In millions)		2013		2012

GECC shareowners' equity balance at January 1	$	81,890	$	77,110
Increases from net earnings attributable to GECC		1,818		1,575
Other comprehensive income (loss) attributable to GECC		182		504
Changes in additional paid-in capital		(8)		3
Ending balance at March 31		83,882		79,192
Noncontrolling interests		587		767
Total equity balance at March 31	$	84,469	$	79,959

See Note 8 for further information about changes in shareowners’ equity.

See accompanying notes.

(4)

General Electric Capital Corporation and consolidated affiliates

Condensed Statement of Financial Position

	March 31,		December 31,
(In millions, except share information)	2013		2012
	(Unaudited)
Assets
Cash and equivalents	$	67,721	$	61,942
Investment securities (Note 3)		48,261		48,439
Inventories		80		79
Financing receivables – net (Notes 4 and 12)		258,324		268,951
Other receivables		14,400		13,917
Property, plant and equipment, less accumulated amortization of $26,009
and $26,113		52,452		52,974
Goodwill (Note 5)		26,895		27,032
Other intangible assets – net (Note 5)		1,311		1,294
Other assets		58,047		62,201
Assets of businesses held for sale (Note 2)		171		211
Assets of discontinued operations (Note 2)		1,856		2,299
Total assets(a)	$	529,518	$	539,339

Liabilities and equity
Short-term borrowings (Note 6)	$	82,662	$	95,940
Accounts payable		7,079		6,259
Non-recourse borrowings of consolidated securitization entities (Note 6)		30,488		30,123
Bank deposits (Note 6)		49,427		46,461
Long-term borrowings (Note 6)		223,001		224,776
Investment contracts, insurance liabilities and insurance annuity benefits		28,681		28,696
Other liabilities		15,878		15,961
Deferred income taxes		5,522		5,988
Liabilities of businesses held for sale (Note 2)		4		157
Liabilities of discontinued operations (Note 2)		2,307		2,381
Total liabilities(a)		445,049		456,742

Preferred stock, $0.01 par value (750,000 shares authorized at both March 31, 2013
and December 31, 2012 and 40,000 shares issued and outstanding		–		–
at both March 31, 2013 and December 31, 2012, respectively)
Common stock, $14 par value (4,166,000 shares authorized at
both March 31, 2013 and December 31, 2012 and 1,000 shares
issued and outstanding at both March 31, 2013 and December 31, 2012, respectively)		–		–
Accumulated other comprehensive income (loss) – net(b)
Investment securities		738		673
Currency translation adjustments		(119)		(131)
Cash flow hedges		(654)		(746)
Benefit plans		(723)		(736)
Additional paid-in capital		31,578		31,586
Retained earnings		53,062		51,244
Total GECC shareowners' equity		83,882		81,890
Noncontrolling interests(c)(Note 8)		587		707
Total equity		84,469		82,597
Total liabilities and equity	$	529,518	$	539,339

(a)

Our consolidated assets at March 31, 2013 include total assets of $47,033 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 $40,079 million and investment securities of $4,494 million. Our consolidated liabilities at March 31, 2013 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 $29,187 million. See Note 13.

(b)	The sum of accumulated other comprehensive income (loss) attributable to GECC was $(758) million and $(940) million at March 31, 2013 and December 31, 2012, respectively.

(c)	Included accumulated other comprehensive income (loss) attributable to noncontrolling interests of $(131) million and $(129) million at March 31, 2013 and December 31, 2012, 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)	2013		2012

Cash flows – operating activities
Net earnings	$	1,829	$	1,587
Less: net earnings (loss) attributable to noncontrolling interests		11		12
Net earnings attributable to GECC		1,818		1,575
(Earnings) loss from discontinued operations		109		197
Adjustments to reconcile net earnings attributable to GECC
to cash provided from operating activities
Depreciation and amortization of property, plant and equipment		1,698		1,652
Increase (decrease) in accounts payable		611		574
Provision for losses on financing receivables		1,488		863
All other operating activities		(2,557)		(180)
Cash from (used for) operating activities – continuing operations		3,167		4,681
Cash from (used for) operating activities – discontinued operations		(112)		(27)
Cash from (used for) operating activities		3,055		4,654

Cash flows – investing activities
Additions to property, plant and equipment		(2,696)		(2,328)
Dispositions of property, plant and equipment		829		1,819
Increase in loans to customers		(69,805)		(74,327)
Principal collections from customers – loans		73,474		76,912
Investment in equipment for financing leases		(1,899)		(1,941)
Principal collections from customers – financing leases		3,015		3,454
Net change in credit card receivables		1,504		2,468
Proceeds from principal business dispositions		161		84
Net cash from (payments for) principal businesses purchased		6,392		-
All other investing activities		6,231		284
Cash from (used for) investing activities – continuing operations		17,206		6,425
Cash from (used for) investing activities – discontinued operations		113		26
Cash from (used for) investing activities		17,319		6,451

Cash flows – financing activities
Net increase (decrease) in borrowings (maturities of 90 days or less)		(9,457)		(1,259)
Net increase (decrease) in bank deposits		(3,252)		(2,641)
Newly issued debt (maturities longer than 90 days)
Short-term (91 to 365 days)		190		9
Long-term (longer than one year)		17,240		16,758
Repayments and other debt reductions (maturities longer than 90 days)
Short-term (91 to 365 days)		(16,541)		(22,551)
Long-term (longer than one year)		(1,642)		(2,477)
Non-recourse, leveraged lease		(269)		(254)
All other financing activities		(166)		(153)
Cash from (used for) financing activities – continuing operations		(13,897)		(12,568)
Cash from (used for) financing activities – discontinued operations		-		-
Cash from (used for) financing activities		(13,897)		(12,568)

Effect of currency exchange rate changes on cash and equivalents		(697)		925

Increase (decrease) in cash and equivalents		5,780		(538)
Cash and equivalents at beginning of year		62,044		76,823
Cash and equivalents at March 31		67,824		76,285
Less: cash and equivalents of discontinued operations at March 31		103		120
Cash and equivalents of continuing operations at March 31	$	67,721	$	76,165

See accompanying notes.

(6)

General Electric Capital Corporation and consolidated affiliates

Summary of Operating Segments

(Unaudited)


	Three months ended March 31,
(In millions)	2013		2012

Revenues
CLL	$	3,507	$	4,340
Consumer		3,891		3,877
Real Estate		1,657		836
Energy Financial Services		343		239
GECAS		1,379		1,331
Total segment revenues		10,777		10,623
Corporate items and eliminations		758		717
Total revenues	$	11,535	$	11,340

Segment profit
CLL	$	398	$	664
Consumer		523		829
Real Estate		690		56
Energy Financial Services		83		71
GECAS		348		318
Total segment profit		2,042		1,938
Corporate items and eliminations		(115)		(166)
Earnings from continuing operations
attributable to GECC		1,927		1,772
Earnings (loss) from discontinued operations,
net of taxes, attributable to GECC		(109)		(197)
Total net earnings attributable to GECC	$	1,818	$	1,575

See accompanying notes.

(7)

Notes to Condensed Financial Statements (Unaudited)

1. BASIS OF PRESENTATION AND 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, 2012 (2012 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).

Effects of transactions between related companies are made on an arms-length basis and are eliminated. As a wholly-owned subsidiary, GECC enters into various operating and financing arrangements with its parent, GE. These arrangements are made on an arms-length basis and consist primarily of GECC dividends to GE; 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 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 introduced a new statement, the Consolidated Statement of Comprehensive Income. 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.

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 2012 consolidated financial statements.

See Note 1 in our 2012 consolidated financial statements for a summary of our significant accounting policies.

(8)

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 2012 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 for 2013 is available on our website, www.ge.com/secreports.

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

Assets and Liabilities of Businesses Held for Sale

In the first quarter of 2013, we committed to sell our Consumer auto and personal loan business in Portugal.

In the second quarter of 2012, we committed to sell a portion of our Business Properties portfolio (Business Property) in Real Estate, including certain commercial loans, the origination and servicing platforms and the servicing rights on loans previously securitized by GECC. We completed the sale of Business Property on October 1, 2012 for proceeds of $2,406 million. We deconsolidated substantially all Real Estate securitization entities in the fourth quarter of 2012 as servicing rights related to these entities were transferred to the buyer at closing.

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

	March 31,		December 31,
(In millions)	2013		2012

Assets
Cash and equivalents	$	10	$	74
Financing receivables – net		117		47
Property, plant and equipment – net		–		31
All other		44		59
Assets of businesses held for sale	$	171	$	211

Liabilities
Short-term borrowings	$	–	$	138
All other		4		19
Liabilities of businesses held for sale	$	4	$	157

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 Consumer mortgage lending business in Ireland (Consumer Ireland) and our CLL trailer services business in Europe (CLL Trailer Services). Associated results of operations, financial position and cash flows are separately reported as discontinued operations for all periods presented.

(9)

Summarized financial information for discontinued operations is shown below.

	Three months ended March 31,
(In millions)	2013		2012

Operations
Total revenues (loss)	$	(13)	$	101

Earnings (loss) from discontinued operations before income taxes	$	(128)	$	(66)
Benefit (provision) for income taxes		121		34
Earnings (loss) from discontinued operations, net of taxes	$	(7)	$	(32)

Disposal
Gain (loss) on disposal before income taxes	$	(187)	$	(194)
Benefit (provision) for income taxes		85		29
Gain (loss) on disposal, net of taxes	$	(102)	$	(165)

Earnings (loss) from discontinued operations, net of taxes	$	(109)	$	(197)

	March 31,		December 31,
(In millions)	2013		2012

Assets
Cash and equivalents	$	103	$	102
Property, plant and equipment – net		520		699
All other		1,233		1,498
Assets of discontinued operations	$	1,856	$	2,299

Liabilities
Deferred income taxes	$	374	$	374
All other		1,933		2,007
Liabilities of discontinued operations	$	2,307	$	2,381

Assets at March 31, 2013 and December 31, 2012 primarily comprised cash, property, plant and equipment - net 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 2008, we completed the sale of GE Money Japan, which included our Japanese personal loan business. Under the terms of the sale, we reduced the proceeds for estimated 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 were required to begin making reimbursements under this arrangement.

Overall, excess interest refund claims experience has been difficult to predict and subject to several adverse factors, including the challenging global economic conditions over the last few years, the financial status of other Japanese personal lenders (including the 2010 bankruptcy of a large independent personal loan company), substantial ongoing legal advertising, and consumer behavior. Our reserves declined from $700 million at December 31, 2012 to $561 million at March 31, 2013, as the effects of a strengthening U.S. dollar against the Japanese yen and claim payments were partially offset by a first quarter increase to reserves of $50 million. In determining reserve levels, we consider analyses of recent and historical claims experience, as well as pending and estimated future refund requests, adjusted for the estimated percentage of customers who present valid requests and associated estimated payments. We determined our reserve assuming the pace of incoming claims will decelerate, that average exposure per claim remains consistent with recent experience, and that we continue to see the impact of loss mitigation efforts. Since our disposition of the business, incoming claims have continued to decline, however, it is highly variable and difficult to predict the pace and pattern of that decline and such assumptions have a significant effect on the total amount of our liability. Holding all other assumptions constant, an adverse change of 20% and 50% in assumed incoming daily claim rate reduction (resulting in an extension of the claim period and higher incoming claims), would result in an increase to our reserve of approximately $75 million and $400 million, respectively. We continue to closely monitor and evaluate claims activity.

(10)

Based on the uncertainties discussed above, and considering other environmental factors in Japan, including the runoff status of the underlying book of business, challenging economic conditions, the impact of laws and regulations (including consideration of proposed legislation that could impose a framework for collective legal action proceedings), and the financial status of other local personal lending companies, it is difficult to develop a meaningful estimate of the aggregate possible claims exposure. These uncertainties and factors could have an adverse effect on claims development.

GE Money Japan earnings (loss) from discontinued operations, net of taxes, were $(51) million and $(27) million in the three months ended March 31, 2013 and 2012, 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 by WMC for early payment default have either been resolved or are no longer being pursued.

Pending repurchase claims based upon representations and warranties made in connection with loan sales were $6,210 million at March 31, 2013, $5,357 million at December 31, 2012 and $705 million at December 31, 2011. 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. As such, they do not include unspecified repurchase claims, such as the Litigation Claims discussed below, or claims relating to breaches of representations that were made more than six years before WMC was notified of the claim. WMC believes that these repurchase claims do not meet the substantive and procedural requirements for tender under the governing agreements, would be barred from being enforced in legal proceedings under applicable statutes of limitations or are otherwise invalid. The amounts reported in pending claims reflect the purchase price or unpaid principal balances of the loans at the time of purchase and do not give effect to pay downs, accrued interest or fees, or potential recoveries based upon the underlying collateral. Historically, a small percentage of the total loans WMC originated and sold have qualified as “validly tendered,” meaning there was a breach of a representation and warranty that materially and adversely affects the value of the loan, and the demanding party met all other procedural and substantive requirements for repurchase.

Reserves related to WMC pending and estimated future loan repurchase claims were $740 million at March 31, 2013, reflecting an increase to reserves in the first quarter of 2013 of $107 million due to incremental claim activity and updates to WMC’s estimate of future losses. The amount of these reserves is based upon pending and estimated future loan repurchase requests and WMC’s historical loss experience and evaluation of claim activity on loans tendered for repurchase.

The following table provides a roll forward of the reserve and pending claims for WMC representation and warranty obligations.

		Reserve at		Pending claims at
(In millions)	March 31, 2013		(In millions)	March 31, 2013

Reserve, beginning of period	$	633	Pending claims, beginning of period	$	5,357
Provision		107	New claims		853
Claim resolutions		–	Claim resolutions		–
Reserve, end of period	$	740	Pending claims, end of period	$	6,210

Given the significant recent activity in pending claims and related litigation filed in connection with such claims, it is difficult to assess whether future losses will be consistent with WMC’s past experience. Adverse changes to WMC’s assumptions supporting the reserve for pending and estimated future loan repurchase claims may result in an increase to these reserves. For example, a 50% increase to the estimate of future loan repurchase requests and a 100% increase to the estimated loss rate on loans tendered, would result in an increase to the reserves of approximately $700 million.

(11)

There are 16 lawsuits involving pending repurchase claims on loans included in 13 securitizations. WMC initiated four of the cases as the plaintiff; in the other cases WMC is a defendant. The adverse parties in these cases are securitization trustees or parties claiming to act on their behalf. In nine of these lawsuits, the adverse parties seek relief for mortgage loans beyond those included in WMC’s previously discussed pending claims at March 31, 2013 (Litigation Claims). These Litigation Claims consist of sampling-based claims in two cases on approximately $900 million of mortgage loans and, in the other seven cases, claims for repurchase or damages based on the alleged failure to provide notice of defective loans, breach of a corporate representation and warranty, and/or non-specific claims for rescissionary damages on approximately $3,100 million of mortgage loans. These claims reflect the purchase price or unpaid principal balances of the loans at the time of purchase and do not give effect to pay downs, accrued interest or fees, or potential recoveries based upon the underlying collateral. As noted above, WMC believes that the Litigation Claims are disallowed by the governing agreements and applicable law. As a result, WMC has not included the Litigation Claims in its pending claims or in its estimates of future loan repurchase requests and holds no related reserve as of March 31, 2013.

At this point, WMC is unable to develop a meaningful estimate of reasonably possible loss in connection with the Litigation Claims described above due to a number of factors, including the extent to which courts will agree with the theories supporting the Litigation Claims. Specifically, while several courts in cases not involving WMC have supported some of those theories, other courts have rejected them. In addition, WMC lacks experience resolving such claims, and there are few public industry settlements that may serve as benchmarks to estimate a reasonably possible loss. An adverse court decision on any of the theories supporting the Litigation Claims could increase WMC’s exposure in some or all of the 16 lawsuits and result in additional claims and lawsuits. However, WMC believes that it has defenses to all the claims asserted in litigation, including for example, causation and materiality requirements, limitations on remedies for breach of representations and warranties, and the applicable statutes of limitations. To the extent WMC is required to repurchase loans, WMC’s loss also would be affected by several factors, including pay downs, accrued interest and fees, and the value of the underlying collateral. It is not possible to predict the outcome or impact of these defenses and other factors, any one of which could materially affect the amount of any loss ultimately incurred by WMC on these claims.

WMC has received claims on approximately $900 million of mortgage loans after the expiration of the six-year statute of limitations as of March 31, 2013. WMC has also received unspecified indemnification demands from depositors/underwriters/sponsors of residential mortgage-backed securities (RMBS) in connection with lawsuits brought by RMBS investors concerning alleged misrepresentations in the securitization offering documents to which WMC is not a party. WMC believes that it has defenses to these demands.

The reserve estimates reflect judgment, based on currently available information, and a number of assumptions, including economic conditions, claim activity, pending and threatened litigation, indemnification demands, estimated repurchase rates, and other activity in the mortgage industry. Actual losses arising from claims against WMC could exceed the reserve amount if actual claim rates, governmental actions, litigation and indemnification activity, adverse court decisions, settlement activity, actual repurchase rates or losses WMC incurs on repurchased loans differ from its assumptions. It is difficult to develop a meaningful estimate of aggregate possible claims exposure because of uncertainties surrounding economic conditions, the ability and propensity of mortgage holders to present valid claims, governmental actions, mortgage industry activity and litigation, as well as pending and threatened litigation and indemnification demands against WMC.

WMC revenues (loss) from discontinued operations were $(107) million and $(7) million in the three months ended March 31, 2013 and 2012, respectively. WMC’s losses from discontinued operations, net of taxes, were $71 million and $9 million in the three months ended March 31, 2013 and 2012, respectively.

Other

In the first quarter of 2013, we announced the planned disposition of CLL Trailer Services and classified the business as discontinued operations. CLL Trailer Services revenues from discontinued operations were $93 million and $102 million in the three months ended March 31, 2013 and 2012, respectively. CLL Trailer Services earnings (loss) from discontinued operations, net of taxes, were $14 million (including a $53 million loss on disposal) and $20 million in the three months ended March 31, 2013 and 2012, respectively.

(12)

In the first quarter of 2012, we announced the planned disposition of Consumer Ireland and classified the business as discontinued operations. We completed the sale in the third quarter of 2012 for proceeds of $227 million. Consumer Ireland revenues from discontinued operations were an insignificant amount and $4 million in the three months ended March 31, 2013 and 2012, respectively. Consumer Ireland earnings (loss) from discontinued operations, net of taxes, were $1 million and $(188) million (including a $147 million loss on disposal) in the three months ended March 31, 2013 and 2012, respectively.

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.

	March 31, 2013								December 31, 2012
			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	$	20,098	$	3,889	$	(88)	$	23,899	$	20,233	$	4,201	$	(302)	$	24,132
State and municipal		4,207		553		(112)		4,648		4,084		575		(113)		4,546
Residential mortgage-backed(a)		2,123		184		(90)		2,217		2,198		183		(119)		2,262
Commercial mortgage-backed		2,941		263		(78)		3,126		2,930		259		(95)		3,094
Asset-backed		5,621		36		(55)		5,602		5,784		31		(77)		5,738
Corporate – non-U.S.		2,409		155		(110)		2,454		2,391		150		(126)		2,415
Government – non-U.S.		1,904		131		(3)		2,032		1,617		149		(3)		1,763
U.S. government and
federal agency		3,404		86		–		3,490		3,462		103		–		3,565
Retained interests		74		17		–		91		76		7		–		83
Equity
Available-for-sale		404		122		(10)		516		513		86		(3)		596
Trading		186		–		–		186		245		–		–		245
Total	$	43,371	$	5,436	$	(546)	$	48,261	$	43,533	$	5,744	$	(838)	$	48,439

(a)

Substantially collateralized by U.S. mortgages. Of our total RMBS portfolio at March 31, 2013, $1,413 million relates to securities issued by government sponsored entities and $804 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 decreased to $48,261 million at March 31, 2013, from $48,439 million at December 31, 2012, primarily due to the impact of higher interest rates.

(13)

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, 2013
Debt
U.S. corporate	$	722	$	(15)		$	414	$	(73)
State and municipal		232		(4)			327		(108)
Residential mortgage-backed		96		(1)			663		(89)
Commercial mortgage-backed		117		(1)			921		(77)
Asset-backed		11		(1)			568		(54)
Corporate – non-U.S.		240		(4)			606		(106)
Government – non-U.S.		554		(1)			38		(2)
U.S. government and federal agency		253		–			–		–
Retained interests		5		–			–		–
Equity		22		(10)			–		–
Total	$	2,252	$	(37)		$	3,537	$	(509)

December 31, 2012
Debt
U.S. corporate	$	434	$	(7)		$	813	$	(295)
State and municipal		146		(2)			326		(111)
Residential mortgage-backed		98		(1)			691		(118)
Commercial mortgage-backed		37		–			979		(95)
Asset-backed		18		(1)			658		(76)
Corporate – non-U.S.		167		(8)			602		(118)
Government – non-U.S.		201		(1)			37		(2)
U.S. government and federal agency		–		–			–		–
Retained interests		3		–			–		–
Equity		26		(3)			–		–
Total	$	1,130	$	(23)		$	4,106	$	(815)

(a)	Includes gross unrealized losses at March 31, 2013 of $(111) million related to securities that had other-than-temporary impairments previously recognized.

We regularly review investment securities for impairment using both qualitative and quantitative criteria. We presently do not intend to sell the vast majority of our debt securities that are in an unrealized loss position and believe that it is not more likely than not that we will be required to sell these securities before recovery of our amortized cost. We believe that the unrealized loss associated with our equity securities will be recovered within the foreseeable future. The methodologies and significant inputs used to measure the amount of credit loss for our investment securities during the three months ended March 31, 2013 have not changed from those described in Note 3 in our 2012 consolidated financial statements.

During the three months ended March 31, 2013, we recognized pre-tax, other-than-temporary impairments of $289 million, of which $278 million was recorded through earnings ($1 million relates to equity securities) and $11 million was recorded in accumulated other comprehensive income (loss) (AOCI). At January 1, 2013, cumulative impairments recognized in earnings associated with debt securities still held were $420 million. During the three months ended March 31, 2013, we recognized first-time impairments of $263 million and incremental charges on previously impaired securities of $12 million. These amounts included $1 million related to securities that were subsequently sold.

During the three months ended March 31, 2012, we recognized pre-tax, other-than-temporary impairments of $32 million, which were recorded through earnings, of which $7 million relates to equity securities. At January 1, 2012, cumulative impairments recognized in earnings associated with debt securities still held were $558 million. During the three months ended March 31, 2012, we recognized first-time impairments of $7 million and incremental charges on previously impaired securities of $5 million. These amounts included $136 million related to securities that were subsequently sold.

(14)

Contractual Maturities of Investment in Available-for-Sale Debt Securities (Excluding Mortgage-Backed and Asset-Backed Securities)


(In millions)	Amortized		Estimated
	cost		fair value
Due
Within one year	$	2,957	$	2,972
After one year through five years		5,962		6,212
After five years through ten years		5,271		5,762
After ten years		17,832		21,577

We expect actual maturities to differ from contractual maturities because borrowers have the right to call or prepay certain obligations.

Supplemental information about gross realized gains and losses on available-for-sale investment securities follows.

	Three months ended March 31,
(In millions)	2013		2012

Gains	$	62	$	38
Losses, including impairments		(278)		(70)
Net	$	(216)	$	(32)

Although we generally do not have the intent to sell any specific securities at the end of the period, in the ordinary course of managing our investment securities portfolio, we may sell securities prior to their maturities for a variety of reasons, including diversification, credit quality, yield and liquidity requirements and the funding of claims and obligations to policyholders. In some of our bank subsidiaries, we maintain a certain level of purchases and sales volume principally of non-U.S. government debt securities. In these situations, fair value approximates carrying value for these securities.

Proceeds from investment securities sales and early redemptions by issuers totaled $2,788 million and $3,762 million in the three months ended March 31, 2013 and 2012, respectively, principally from the sales of short-term securities in our bank subsidiaries and treasury operations.

We recognized pre-tax gains (losses) on trading securities of $36 million and $(23) million in the three months ended March 31, 2013 and 2012, respectively.

(15)

4. FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES

	March 31,		December 31,
(In millions)	2013		2012

Loans, net of deferred income(a)	$	232,456	$	241,465
Investment in financing leases, net of deferred income		31,227		32,471
		263,683		273,936
Less allowance for losses		(5,359)		(4,985)
Financing receivables – net(b)	$	258,324	$	268,951

(a)	Deferred income was $1,945 million and $2,182 million at March 31, 2013 and December 31, 2012, respectively.

(b)	Financing receivables at March 31, 2013 and December 31, 2012 included $699 million and $750 million, respectively, relating to loans that had been acquired in a transfer but have been subject to credit deterioration since origination per ASC 310, Receivables.

The following tables provide additional information about our financing receivables and related activity in the allowance for losses for our Commercial, Real Estate and Consumer portfolios.

	March 31,		December 31,
(In millions)	2013		2012

Commercial
CLL
Americas	$	72,318	$	72,517
Europe		35,435		37,035
Asia		10,158		11,401
Other		534		605
Total CLL		118,445		121,558

Energy Financial Services		4,734		4,851

GECAS		10,557		10,915

Other		456		486
Total Commercial		134,192		137,810

Real Estate		19,733		20,946

Consumer
Non-U.S. residential mortgages		31,689		33,451
Non-U.S. installment and revolving credit		18,050		18,546
U.S. installment and revolving credit		48,523		50,853
Non-U.S. auto		3,937		4,260
Other		7,559		8,070
Total Consumer		109,758		115,180

Total financing receivables		263,683		273,936

Less allowance for losses		(5,359)		(4,985)
Total financing receivables – net	$	258,324	$	268,951

(16)

Allowance for Losses on Financing Receivables

	Balance at		Provision											Balance at
	January 1,		charged to					Gross						March 31,
(In millions)	2013		operations		Other		(a)	write-offs		(b)	Recoveries		(b)	2013

Commercial
CLL
Americas	$	490	$	74	$	(1)		$	(103)		$	30		$	490
Europe		445		83		(5)			(132)			20			411
Asia		80		11		(5)			(18)			4			72
Other		6		(3)		–			–			–			3
Total CLL		1,021		165		(11)			(253)			54			976


Energy Financial Services		9		(1)		–			–			–			8

GECAS		8		(1)		–			–			–			7

Other		3		–		–			(1)			–			2
Total Commercial		1,041		163		(11)			(254)			54			993

Real Estate		320		(20)		(6)			(29)			–			265

Consumer
Non-U.S. residential
mortgages		480		56		(16)			(55)			12			477
Non-U.S. installment
and revolving credit		623		211		(15)			(252)			145			712
U.S. installment and
revolving credit		2,282		1,014		(50)			(744)			163			2,665
Non-U.S. auto		67		17		(5)			(30)			17			66
Other		172		47		7			(52)			7			181
Total Consumer		3,624		1,345		(79)			(1,133)			344			4,101
Total	$	4,985	$	1,488	$	(96)		$	(1,416)		$	398		$	5,359

(a)	Other primarily included the effects of currency exchange.

(b)

Net write-offs (gross write-offs less recoveries) in certain portfolios may exceed the beginning allowance for losses as a result of losses that are incurred subsequent to the beginning of the fiscal year due to information becoming available during the current year, which may identify further deterioration on existing financing receivables.

(17)

	Balance at		Provision											Balance at
	January 1,		charged to					Gross						March 31,
(In millions)	2012		operations		Other		(a)	write-offs		(b)	Recoveries		(b)	2012

Commercial
CLL
Americas	$	889	$	66	$	(20)		$	(156)		$	23		$	802
Europe		400		83		1			(45)			19			458
Asia		157		11		(5)			(56)			5			112
Other		4		–		–			(2)			–			2
Total CLL		1,450		160		(24)			(259)			47			1,374


Energy Financial Services		26		(1)		–			–			–			25

GECAS		17		(3)		–			–			–			14

Other		37		2		(19)			–			–			20
Total Commercial		1,530		158		(43)			(259)			47			1,433

Real Estate		1,089		38		(12)			(188)			2			929

Consumer
Non-U.S. residential
mortgages		546		29		8			(103)			18			498
Non-U.S. installment
and revolving credit		717		124		28			(273)			130			726
U.S. installment and
revolving credit		2,008		478		–			(772)			131			1,845
Non-U.S. auto		101		10		(6)			(41)			24			88
Other		199		26		16			(66)			20			195
Total Consumer		3,571		667		46			(1,255)			323			3,352
Total	$	6,190	$	863	$	(9)		$	(1,702)		$	372		$	5,714