gecc10q09302010.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 September 30, 2010
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 ¨No ¨
 
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 October 30, 2010, 3,985,404 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 Current and Retained Earnings
  
3
 
Condensed Statement of Financial Position
  
4
 
Condensed Statement of Cash Flows
  
5
 
Notes to Condensed, Consolidated Financial Statements (Unaudited)
  
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  
38
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
  
60
Item 4.
Controls and Procedures
  
60
       
Part II – Other Information
    
       
Item 1.
Legal Proceedings
  
60
Item 6.
Exhibits
  
61
Signatures
  
62
     

 
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; 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); our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so; 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 and dispositions and our success in integrating acquired businesses; 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
  
Nine months ended
 
September 30
  
September 30
(In millions)
  
2010 
    
2009 
    
2010 
    
2009 
                       
Revenues
                      
Revenues from services (a)
$
 11,606 
  
$
 11,897 
  
$
 35,911 
  
$
 38,011 
Other-than-temporary impairment on investment securities:
                      
   Total other-than-temporary impairment on investment securities
  
 (36)
    
 (265)
    
 (283)
    
 (447)
      Less: Portion of other-than-temporary impairment recognized in
                      
         accumulated other comprehensive income
  
 6 
    
 160 
    
 127 
    
 261 
   Net other-than-temporary impairment on investment securities
                      
      recognized in earnings
  
 (30)
    
 (105)
    
 (156)
    
 (186)
Revenues from services (Note 9)
  
 11,576 
    
 11,792 
    
 35,755 
    
 37,825 
Sales of goods
  
 40 
    
 213 
    
 489 
    
 691 
   Total revenues
  
 11,616 
    
 12,005 
    
 36,244 
    
 38,516 
                       
Costs and expenses
                      
Interest
  
 3,782 
    
 4,135 
    
 11,574 
    
 13,723 
Operating and administrative
  
 3,509 
    
 3,673 
    
 10,822 
    
 11,070 
Cost of goods sold
  
 39 
    
 181 
    
 458 
    
 569 
Investment contracts, insurance losses and insurance annuity benefits
  
 36 
    
 47 
    
 109 
    
 165 
Provision for losses on financing receivables
  
 1,696 
    
 2,868 
    
 5,968 
    
 8,021 
Depreciation and amortization
  
 2,027 
    
 2,068 
    
 5,807 
    
 6,194 
   Total costs and expenses
  
 11,089 
    
 12,972 
    
 34,738 
    
 39,742 
                       
Earnings (loss) from continuing operations before income taxes
  
 527 
    
 (967)
    
 1,506 
    
 (1,226)
Benefit for income taxes
  
 367 
    
 1,116 
    
 815 
    
 2,898 
                       
Earnings from continuing operations
  
 894 
    
 149 
    
 2,321 
    
 1,672 
Earnings (loss) from discontinued operations, net of taxes (Note 2)
  
 (1,104)
    
 84 
    
 (1,678)
    
 (113)
Net earnings (loss)
  
 (210)
    
 233 
    
 643 
    
 1,559 
Less net earnings attributable to noncontrolling interests
  
 23 
    
 8 
    
 13 
    
 71 
Net earnings (loss) attributable to GECC
  
 (233)
    
 225 
    
 630 
    
 1,488 
Dividends
  
 – 
    
 (37)
    
 – 
    
 (84)
Retained earnings at beginning of period
  
 46,502 
    
 46,645 
    
 45,639 
    
 45,429 
Retained earnings at end of period
$
 46,269 
  
$
 46,833 
  
$
 46,269 
  
$
 46,833 
                       
Amounts attributable to GECC
                      
Earnings from continuing operations
$
 871 
  
$
 141 
  
$
 2,308 
  
$
 1,601 
Earnings (loss) from discontinued operations, net of taxes
  
 (1,104)
    
 84 
    
 (1,678)
    
 (113)
Net earnings (loss) attributable to GECC
$
 (233)
  
$
 225 
  
$
 630 
  
$
 1,488 
                       
                       
(a)  
Excluding net other-than-temporary impairment on investment securities.
 
See accompanying notes.
 

 
(3)
 

General Electric Capital Corporation and consolidated affiliates
 
Condensed Statement of Financial Position
 
 
September 30,
  
December 31,
(In millions)
2010 
  
2009 
   
(Unaudited)
      
Assets
          
Cash and equivalents
$
 65,359 
  
$
 63,696 
Investment securities (Note 3)
  
 18,506 
    
 27,509 
Inventories
  
 62 
    
 71 
Financing receivables – net (Note 4)
  
 331,343 
    
 336,926 
Other receivables
  
 12,787 
    
 17,876 
Property, plant and equipment, less accumulated amortization of $26,062
          
   and $26,307
  
 53,670 
    
 56,695 
Goodwill (Note 5)
  
 27,828 
    
 28,961 
Other intangible assets – net (Note 5)
  
 2,268 
    
 3,018 
Other assets
  
 82,206 
    
 86,355 
Assets of businesses held for sale (Note 2)
  
 786 
    
 125 
Assets of discontinued operations (Note 2)
  
 1,283 
    
 1,470 
Total assets(a)
$
 596,098 
  
$
 622,702 
           
Liabilities and equity
          
Short-term borrowings (Note 6)
$
 110,717 
  
$
 128,329 
Accounts payable
  
 8,227 
    
 11,162 
Non-recourse borrowings of consolidated securitization entities (Note 6)
  
 30,497 
    
 3,883 
Bank deposits (Note 6)
  
 41,928 
    
 38,923 
Long-term borrowings (Note 6)
  
 298,210 
    
 326,321 
Investment contracts, insurance liabilities and insurance annuity benefits
  
 6,663 
    
 8,687 
Other liabilities
  
 20,711 
    
 22,736 
Deferred income taxes
  
 5,067 
    
 5,831 
Liabilities of businesses held for sale (Note 2)
  
 446 
    
 55 
Liabilities of discontinued operations (Note 2)
  
 2,014 
    
 853 
Total liabilities(a)
  
 524,480 
    
 546,780 
           
Capital stock
  
 56 
    
 56 
Accumulated other comprehensive income – net(b)
          
   Investment securities
  
 (539)
    
 (676)
   Currency translation adjustments
  
 (1,714)
    
 1,228 
   Cash flow hedges
  
 (1,618)
    
 (1,816)
   Benefit plans
  
 (383)
    
 (434)
Additional paid-in capital
  
 28,421 
    
 28,431 
Retained earnings
  
 46,269 
    
 46,929 
Total GECC shareowner's equity
  
 70,492 
    
 73,718 
Noncontrolling interests(c)
  
 1,126 
    
 2,204 
Total equity
  
 71,618 
    
 75,922 
Total liabilities and equity
$
 596,098 
  
$
 622,702 
           
           
(a)  
Our consolidated assets at September 30, 2010 include total assets of $47,963 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 $40,168 million and investment securities of $6,248 million. Our consolidated liabilities at September 30, 2010 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 $29,833 million. See Note 12.
 
(b)  
The sum of accumulated other comprehensive income − net was $(4,254) million and $(1,698) million at September 30, 2010 and December 31, 2009, respectively.
 
(c)  
Included accumulated other comprehensive income − net attributable to noncontrolling interests of $(147) million and $(191) million at September 30, 2010 and December 31, 2009, respectively.
 
See accompanying notes.
 

 
(4)
 

General Electric Capital Corporation and consolidated affiliates
Condensed Statement of Cash Flows
(Unaudited)
 

 
Nine months ended September 30
(In millions)
  
2010 
    
2009 
           
Cash flows – operating activities
          
Net earnings
$
 643 
  
$
 1,559 
Less net earnings attributable to noncontrolling interests
  
 13 
    
71 
Net earnings attributable to GECC
  
 630 
    
 1,488 
Loss from discontinued operations
  
 1,678 
    
 113 
Adjustments to reconcile net earnings attributable to GECC
          
   to cash provided from operating activities
          
      Depreciation and amortization of property, plant and equipment
  
 5,807 
    
 6,194 
      Increase (decrease) in accounts payable
  
 2,557 
    
 (690)
      Provision for losses on financing receivables
  
 5,968 
    
 8,021 
      All other operating activities
  
 1,114 
    
 (12,781)
Cash from (used for) operating activities – continuing operations
  
 17,754 
    
 2,345 
Cash from (used for) operating activities – discontinued operations
  
 (147)
    
 (41)
Cash from (used for) operating activities
  
 17,607 
    
 2,304 
           
Cash flows – investing activities
          
Additions to property, plant and equipment
  
 (3,138)
    
 (4,227)
Dispositions of property, plant and equipment
  
 3,083 
    
 3,972 
Increase in loans to customers
  
 (224,377)
    
 (174,382)
Principal collections from customers – loans
  
 245,476 
    
 200,184 
Investment in equipment for financing leases
  
 (6,913)
    
 (6,152)
Principal collections from customers – financing leases
  
 11,796 
    
 13,444 
Net change in credit card receivables
  
 561 
    
 3,859 
Proceeds from principal business dispositions
  
 905 
    
 8,818 
Payments for principal businesses purchased
  
 (561)
    
 (5,637)
All other investing activities
  
 8,541 
    
 (1,792)
Cash from (used for) investing activities – continuing operations
  
 35,373 
    
 38,087 
Cash from (used for) investing activities – discontinued operations
  
 80 
    
 45 
Cash from (used for) investing activities
  
 35,453 
    
 38,132 
           
Cash flows – financing activities
          
Net increase (decrease) in borrowings (maturities of 90 days or less)
  
 (3,246)
    
 (25,488)
Net increase (decrease) in bank deposits
  
 4,159 
    
 (6,072)
Newly issued debt (maturities longer than 90 days)
          
   Short-term (91 to 365 days)
  
 464 
    
 4,008 
   Long-term (longer than one year)
  
 26,588 
    
 64,862 
   Non-recourse, leveraged lease
  
 – 
    
 – 
Repayments and other debt reductions (maturities longer than 90 days)
          
   Short-term (91 to 365 days)
  
 (73,304)
    
 (60,158)
   Long-term (longer than one year)
  
 (2,448)
    
 (4,173)
   Non-recourse, leveraged lease
  
 (544)
    
 (587)
Dividends paid to shareowner
  
 – 
    
 – 
Capital contribution and share issuance
  
 – 
    
 8,750 
All other financing activities
  
 (2,096)
    
 (1,514)
Cash from (used for) financing activities – continuing operations
  
 (50,427)
    
 (20,372)
Cash from (used for) financing activities – discontinued operations
  
 – 
    
 – 
Cash from (used for) financing activities
  
 (50,427)
    
 (20,372)
           
Effect of currency exchange rate changes on cash and equivalents
  
 (1,037)
    
 (231)
           
Increase (decrease) in cash and equivalents
  
 1,596 
    
 19,833 
Cash and equivalents at beginning of year
  
 63,880 
    
 36,605 
Cash and equivalents at September 30
  
 65,476 
    
 56,438 
Less cash and equivalents of discontinued operations at September 30
  
 117 
    
 184 
Cash and equivalents of continuing operations at September 30
$
 65,359 
  
$
 56,254 
           
           
See accompanying notes.
 

 
(5)
 

Notes to Condensed, Consolidated Financial Statements (Unaudited)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
All of the outstanding common stock of General Electric Capital Corporation (GECC) is owned by General Electric Capital Services, Inc. (GECS), all of whose common stock is owned by General Electric Company (GE Company or GE). 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 ultimate 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 year ended December 31, 2009 (2009 Form 10-K or 2009 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).

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.

Effective January 1, 2010, GE expanded the GE Capital Finance segment to include all of the continuing operations of GECC and renamed it GE Capital. In addition, the Transportation Financial Services business, previously reported in GECAS, is now included in CLL and our Consumer business in Italy, previously reported in Consumer, is now included in CLL. Details of total revenues and segment profit by operating segment can be found on page 40 of this report.

In connection with this reorganization, net financing and corporate assets of $3,746 million previously managed by the GE Capital Finance segment (but owned by GECS) were transferred to GECC on January 1, 2010. In addition, in order to align substantially all of GE’s insurance operations under GECS, GECC transferred net assets related to our run-off insurance operations of $690 million to GECS. These non-cash transfers were recorded at their carrying values and the net difference was recorded as a reduction in an intercompany payable between GECS and GECC. The financial statements of prior periods have been restated as if these transfers had occurred at the beginning of the earliest period presented. Combined prior period financial statements resulting from this restatement are referred to as consolidated in these financial statements. See Exhibit 99(b) in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2010.

Beginning in the first quarter of 2010, we have included a separate line on the statement of cash flows for the effect of currency exchange rate changes on cash and equivalents. We had previously included the effect of currency exchange rate changes on cash and equivalents in “All other investing activities”, as the effect was insignificant.

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, 2010, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2009-16 and ASU 2009-17, amendments to Accounting Standards Codification (ASC) 860, Transfers and Servicing, and ASC 810, Consolidation, respectively (ASU 2009-16 & 17). ASU 2009-16 eliminates the Qualified Special Purpose Entity (QSPE) concept, and ASU 2009-17 requires that all such entities be evaluated for consolidation as Variable Interest Entities (VIEs). Adoption of these amendments resulted in the consolidation of all of our sponsored QSPEs. In addition, we consolidated assets of VIEs related to direct investments in entities that hold loans and fixed income securities, and a small number of companies to which we have extended loans in the ordinary course of business and subsequently were subject to a troubled debt restructuring (TDR).
 

 
(6)
 


 
We consolidated the assets and liabilities of these entities at amounts at which they would have been reported in our financial statements had we always consolidated them. We also deconsolidated certain entities where we did not meet the definition of the primary beneficiary under the revised guidance; however the effect was insignificant at January 1, 2010. The incremental effect on total assets and liabilities, net of our investment in these entities, was an increase of $30,917 million and $32,359 million, respectively, at January 1, 2010. The net reduction of total equity (including noncontrolling interests) was $1,442 million at January 1, 2010, principally related to the reversal of previously recognized securitization gains as a cumulative effect adjustment to retained earnings. See Note 12 for additional information.
 
The amended guidance on ASC 860 changed existing derecognition criteria in a manner that significantly narrows the types of transactions that will qualify as sales. The revised criteria apply to transfers of financial assets occurring after December 31, 2009.

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 2009 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.

2. ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE AND DISCONTINUED OPERATIONS
 
Assets and Liabilities of Businesses Held for Sale
 
In June 2010, we committed to sell our Consumer businesses in Indonesia and Argentina. In September 2010, we committed to sell our Consumer business in Brazil. Assets of $756 million and liabilities of $396 million were classified as held for sale at September 30, 2010.

Discontinued Operations
 
Discontinued operations 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.) and our U.S. mortgage business (WMC). Associated results of operations, financial position and cash flows are separately reported as discontinued operations for all periods presented.

Summarized financial information for discontinued operations is shown below:

 
Three months ended September 30
  
Nine months ended September 30
(In millions)
2010 
  
2009 
  
2010 
  
2009 
                       
Total revenues
$
 (1)
  
$
 4 
  
$
 (4)
  
$
 (4)
                       
Earnings (loss) from discontinued operations, net of taxes
                      
    Loss from operations
$
 (4)
  
$
 (4)
  
$
 (12)
  
$
 (74)
    Earnings (loss) on disposal
  
 (1,100)
    
 88 
    
 (1,666)
    
 (39)
Total earnings (loss) from discontinued operations, net of taxes
$
 (1,104)
  
$
 84 
  
$
 (1,678)
  
$
 (113)
                       


 
(7)
 


Assets of discontinued operations were $1,283 million and $1,470 million at September 30, 2010 and December 31, 2009, respectively, and primarily comprised a deferred tax asset for a loss carryforward, which expires in 2015, related to the sale of our GE Money Japan business. Liabilities of discontinued operations were $2,014 million and $853 million at September 30, 2010 and December 31, 2009, respectively. During the nine months ended September 30, 2010, we recorded incremental reserves of $1,666 million for excess interest claims related to our loss-sharing arrangement on the 2008 sale of GE Money Japan. During the first quarter of 2010, we also reduced tax reserves by $325 million related to resolution of an uncertain tax position in Japan, but were required to record an offsetting valuation allowance on our deferred tax asset in Japan.

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. As a result, we recognized an after-tax loss of $908 million in 2007 and an incremental loss of $361 million in 2008. In connection with the sale, we reduced the proceeds on 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.

We update our estimate of our share of expected excess interest refund claim losses quarterly. We recorded a reserve of $132 million in the second quarter of 2009 for our estimated share of incremental losses under the loss-sharing provisions of the agreement based on our experience at that time. In 2010, our overall claims experience has developed unfavorably. While the number of new claims continues to decline from 2009, the pace of the decline has been slower than expected and claims severity has increased. We believe that the level of excess interest refund claims has been impacted by the challenging global economic conditions, in addition to Japanese legislative and regulatory changes. During the first six months of 2010, we accrued $566 million of incremental reserves for these claims.

While our average daily claims continued to decline through August 2010, we observed an increase in claims during September 2010 and higher call and claim volume in October 2010. Additionally, a large independent personal loan company in Japan filed for bankruptcy in September 2010. Based on these factors and additional analysis completed in the third quarter, we recorded an adjustment to our reserves of $1,100 million to bring the reserve to a better estimate of our probable loss. This adjustment primarily reflects revisions in our assumptions and calculations of the number of estimated probable future incoming claims, increases in claims severity assumptions, reflecting recent trends in amounts paid per claim, and higher estimates of loss for claims in process of settlement. As of September 30, 2010, our reserve for reimbursement of claims in excess of the statutory interest rate was $1,667 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 September 30, 2010 assumes the pace of incoming claims will decelerate (but at a lower rate than we had previously assumed), average exposure per claim remains consistent with recent experience, and we see the impact of our loss mitigation efforts. Estimating the pace of decline in incoming claims can have a significant effect on the total amount of our liability. For example, our estimate assumes incoming average daily claims will decline at a long-term average of four percent monthly. Holding all other assumptions constant, if claims declined at a rate of one percent higher or lower than assumed, our liability estimate would change by approximately $250 million.

Based on what we know today, we believe that our reserve for excess interest refund claims represents a better estimate of our probable loss.  Uncertainties around the impact of laws and regulations, challenging economic conditions, the runoff status of the underlying book of business and the effects of our mitigation efforts make it difficult to develop a meaningful estimate of the aggregate possible claims exposure. Recent trends, including the effect of governmental actions, market activity regarding other personal loan companies and consumer activity, may continue to have an adverse effect on claims development.

 
(8)
 


GE Money Japan revenues from discontinued operations were an insignificant amount in both the third quarter of 2010 and 2009 and both the nine months ended September 30, 2010 and 2009, respectively. In total, GE Money Japan losses from discontinued operations, net of taxes, were $1,101 million and $10 million in the third quarters of 2010 and 2009, respectively, and $1,672 million and $142 million for the nine months ended September 30, 2010 and 2009, 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 servicer of any loans. In connection with our sale transaction, WMC retained certain obligations related to loans sold prior to the disposal of the business, including WMC’s contractual obligations to repurchase previously sold loans as to which there was an early payment default or with respect to which certain contractual representation and warranties were not met. All claims received for early payment default have either been resolved or are no longer being pursued. 

Pending claims for unmet representations and warranties have declined from approximately $800 million at December 31, 2009 to approximately $250 million at September 30, 2010. Reserves related to unmet contractual representations and warranties were $101 million at September 30, 2010, and $205 million at December 31, 2009. 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 our estimated losses on loans repurchased. Based on our historical experience, we estimate that a small percentage of the total loans we originated and sold will be tendered for repurchase, and of those tendered, only a limited amount will qualify as “validly tendered,” meaning the loans sold did not satisfy specified contractual obligations.

Through September 30, 2010, WMC has not experienced a significant change in the trends related to repurchase requests and WMC’s current reserve represents our best estimate of losses with respect to WMC’s repurchase obligation. Actual losses could exceed the reserve amount if actual claim rates, valid tenders or losses WMC incurs on repurchased loans are higher than historically observed.

WMC revenues from discontinued operations were $(1) million and $4 million in the third quarters of 2010 and 2009, respectively, and $(4) million and $(5) million for the nine months ended September 30, 2010 and 2009, respectively. In total, WMC’s earnings (loss) from discontinued operations, net of taxes, were $(2) million and $3 million in the third quarters of 2010 and 2009, respectively, and $(5) million and $(8) million for the nine months ended September 30, 2010 and 2009, 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 holders of guaranteed investment contracts (GICs) in Trinity (which ceased issuing new investment contracts beginning in the first quarter of 2010), and investment securities held at our global banks. We do not have any securities classified as held to maturity.
 

 
(9)
 


 
At
 
September 30, 2010
  
December 31, 2009
     
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
$
 4,287 
  
$
 82 
  
$
 (67)
  
$
 4,302 
  
$
5,215 
  
$
83 
  
$
 (236)
  
$
 5,062 
   State and municipal
  
 865 
    
 11 
    
 (162)
    
 714 
    
887 
    
3 
    
 (216)
    
 674 
   Residential mortgage-backed(a)
  
 2,311 
    
 22 
    
 (417)
    
 1,916 
    
2,999 
    
21 
    
 (722)
    
 2,298 
   Commercial mortgage-backed
  
 1,512 
    
 27 
    
 (131)
    
 1,408 
    
1,599 
    
 5 
    
 (302)
    
 1,302 
   Asset-backed
  
 2,807 
    
 53 
    
 (230)
    
 2,630 
    
2,468 
    
 29 
    
 (298)
    
 2,199 
   Corporate – non-U.S.
  
 1,657 
    
 33 
    
 (72)
    
 1,618 
    
994 
    
 18 
    
 (26)
    
 986 
   Government – non-U.S.
  
 2,000 
    
 16 
    
 (48)
    
 1,968 
    
2,461 
    
 15 
    
 (25)
    
 2,451 
   U.S. government and
                                              
       federal agency
  
 2,343 
    
 5 
    
 –
    
 2,348 
    
1,865 
    
 - 
    
 - 
    
 1,865 
Retained interests(b)
  
 56 
    
 10 
    
 (25)
    
 41 
    
8,479 
    
 392 
    
 (40)
    
 8,831 
Equity
                                              
   Available-for-sale
  
 958 
    
 171 
    
 (26)
    
 1,103 
    
897 
    
 227 
    
 (3)
    
 1,121 
   Trading
  
 458 
    
 –
    
 –
    
 458 
    
720 
    
 - 
    
 - 
    
 720 
Total
$
 19,254 
  
$
 430 
  
$
 (1,178)
  
$
 18,506 
  
$
28,584 
  
$
793 
  
$
 (1,868)
  
$
 27,509 
                                               
                                               
(a)  
Substantially collateralized by U.S. mortgages. Of our total residential mortgage-backed securities (RMBS) portfolio at September 30, 2010, $999 million relates to securities issued by government sponsored entities and $917 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 individual financial institutions.
 
(b)  
Included $1,918 million of retained interests at December 31, 2009 accounted for at fair value in accordance with ASC 815, Derivatives and Hedging. See Note 12.
 

The fair value of investment securities decreased to $18,506 million at September 30, 2010, from $27,509 million at December 31, 2009, primarily driven by a decrease in retained interests as a result of our adoption of ASU 2009 -16 & 17 and maturities, partially offset by improved market conditions.

 
(10)
 


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
 (a)
    
Gross
  
 
Estimated
unrealized
Estimated
unrealized
  
(In millions)
fair value
losses
fair value
losses
(a)
                         
September 30, 2010
                        
Debt
                        
   U.S. corporate
$
 26 
  
$
 (1)
  
$
 894 
  
$
 (66)
  
   State and municipal
  
 100 
    
 (7)
    
 394 
    
 (155)
  
   Residential mortgage-backed
  
 30 
    
 (2)
    
 1,119 
    
 (415)
  
   Commercial mortgage-backed
  
 24 
    
 (1)
    
 668 
    
 (130)
  
   Asset-backed
  
 71 
    
 (16)
    
 931 
    
 (214)
  
   Corporate – non-U.S.
  
 281 
    
 (28)
    
 632 
    
 (44)
  
   Government – non-U.S.
  
 663 
    
 (3)
    
 135 
    
 (45)
  
   U.S. government and federal agency
  
 –
    
 –
    
 –
    
 –
  
Retained interests
  
 –
    
 –
    
 14 
    
 (25)
  
Equity
  
 162 
    
 (25)
    
 5 
    
 (1)
  
Total
$
 1,357 
  
$
 (83)
  
$
 4,792 
  
$
 (1,095)
  
                         
December 31, 2009
                        
Debt
                        
   U.S. corporate
$
 611 
  
$
 (20)
  
$
 1,365 
  
$
 (216)
  
   State and municipal
  
 237 
    
 (120)
    
 421 
    
 (96)
  
   Residential mortgage-backed
  
 74 
    
 (4)
    
 1,561 
    
 (718)
  
   Commercial mortgage-backed
  
 –
    
 –
    
 1,015 
    
 (302)
  
   Asset-backed
  
 68 
    
 (7)
    
 1,312 
    
 (291)
  
   Corporate – non-U.S.
  
 310 
    
 (14)
    
 346 
    
 (12)
  
   Government – non-U.S.
  
 370 
    
 (3)
    
 195 
    
 (22)
  
   U.S. government and federal agency
  
 –
    
 –
    
 –
    
 –
  
Retained interests
  
 208 
    
 (16)
    
 27 
    
 (24)
  
Equity
  
 23 
    
 (1)
    
 8 
    
 (2)
  
Total
$
 1,901 
  
$
 (185)
  
$
 6,250 
  
$
 (1,683)
  
                         
                         
(a)  
At September 30, 2010, other-than-temporary impairments previously recognized through other comprehensive income (OCI) on securities still held amounted to ($373) million, of which ($288) million related to RMBS. Gross unrealized losses related to those securities at September 30, 2010 amounted to $(258) million, of which $(181) million related to RMBS.
 

We adopted amendments to ASC 320 and recorded a cumulative effect adjustment to increase retained earnings as of April 1, 2009 of $58 million.

We regularly review investment securities for impairment using both qualitative and quantitative criteria. We presently do not intend to sell our debt securities and believe that it is not more likely than not that we will be required to sell these securities that are in an unrealized loss position 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 nine months ended September 30, 2010 have not changed from those described in our 2009 consolidated financial statements. See Note 3 in our 2009 consolidated financial statements for additional information regarding these methodologies and inputs.

During the third quarter of 2010, we recorded pre-tax, other-than-temporary impairments of $36 million, of which $30 million was recorded through earnings ($23 million relates to equity securities) and $6 million was recorded in accumulated other comprehensive income (AOCI). At July 1, 2010, cumulative impairments recognized in earnings associated with debt securities still held were $249 million. During the third quarter, we recognized first time impairments of $2 million which included $1 million related to securities that were subsequently sold.

 
(11)
 


During the nine months ended September 30, 2010, we recorded pre-tax, other-than-temporary impairments of $283 million, of which $156 million was recorded through earnings ($24 million relates to equity securities) and $127 million was recorded in AOCI. At January 1, 2010, cumulative impairments recognized in earnings associated with debt securities still held were $140 million. During the nine months ended September 30, 2010, we recognized first time impairments of $92 million and incremental charges on previously impaired securities of $34 million. These amounts included $15 million related to securities that were subsequently sold.

During the third quarter of 2009, we recorded pre-tax, other-than-temporary impairments of $265 million, of which $105 million was recorded through earnings ($18 million relates to equity securities), and $160 million was recorded in AOCI. At July 1, 2009 cumulative impairments recognized in earnings associated with debt securities still held were $291 million. During the third quarter, we recognized first time impairments of $29 million and incremental charges on previously impaired securities of $55 million. Previous credit impairments related to securities sold were $82 million.

During the nine months ended September 30, 2009, we recognized impairments of $609 million, of which $33 million was reclassified to retained earnings at April 1, 2009, as a result of the amendments to ASC 320, Investments – Debt and Equity Securities. Subsequent to April 1, 2009, first time and incremental credit impairments were $53 million and $96 million, respectively. Previous credit impairments related to securities sold were $82 million.

Contractual Maturities of our Investment in Available-for-Sale Debt Securities (Excluding Mortgage-Backed and Asset-Backed Securities)
 
 
Amortized
  
Estimated
(In millions)
cost
  
fair value
           
Due in
          
    2010
$
 3,860 
  
$
 3,870 
    2011-2014
  
 4,594 
    
 4,630 
    2015-2019
  
 1,844 
    
 1,732 
    2020 and later
  
 854 
    
 718 

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 September 30
  
Nine months ended September 30
(In millions)
2010 
  
2009 
  
2010 
  
2009 
                       
Gains
$
 30 
  
$
 37 
  
$
 143 
  
$
 64 
Losses, including impairments
  
 (32)
    
 (127)
    
 (161)
    
 (372)
   Net
$
 (2)
  
$
 (90)
  
$
 (18)
  
$
 (308)
                       

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 the issuer totaled $4,644 million and $3,393 million in the third quarters of 2010 and 2009, respectively, and $11,847 million and $6,671 million for the nine months ended September 30, 2010 and 2009, respectively, principally from the sales of short-term securities in our bank subsidiaries.

We recognized net pre-tax gains on trading securities of $33 million and $29 million in the third quarters of 2010 and 2009, respectively, and $52 million and $273 million for the nine months ended September 30, 2010 and 2009, respectively.

 
(12)
 

4. FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES
 
Financing receivables - net, consisted of the following.

 
At
 
September 30,
  
January 1,
  
December 31,
(In millions)
2010 
  
2010(a)
  
2009 
                 
Loans, net of deferred income
$
 293,133 
  
$
 331,710 
  
$
 290,586 
Investment in financing leases, net of deferred income
  
 47,357 
    
 55,209 
    
 54,445 
   
 340,490 
    
 386,919 
    
 345,031 
Less allowance for losses
  
 (9,147)
    
 (9,805)
    
 (8,105)
Financing receivables – net(b)
$
 331,343 
  
$
 377,114 
  
$
 336,926 
                 
                 
(a)
Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
 
(b)
Financing receivables at September 30, 2010 and December 31, 2009 included $1,631 million and $2,704 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.
 

Effective January 1, 2009, loans acquired in a business acquisition are recorded at fair value, which incorporates our estimate at the acquisition date of the credit losses over the remaining life of the portfolio. As a result, the allowance for loan losses is not carried over at acquisition. This may result in lower reserve coverage ratios prospectively. Details of financing receivables – net follow.
 

 
At
 
September 30,
  
January 1,
  
December 31,
(In millions)
2010 
  
2010(a)
  
2009 
                 
CLL(b)
                
Americas
$
 89,769 
  
$
 99,666 
  
$
 87,496 
Europe
  
 36,969 
    
 43,403 
    
 41,455 
Asia
  
 12,192 
    
 13,159 
    
 13,202 
Other
  
 2,651 
    
 2,836 
    
 2,836 
   
 141,581 
    
 159,064 
    
 144,989 
Consumer(b)
                
Non-U.S. residential mortgages
  
 49,239 
    
 58,345 
    
 58,345 
Non-U.S. installment and revolving credit
  
 22,729 
    
 24,976 
    
 24,976 
U.S. installment and revolving credit
  
 42,782 
    
 47,171 
    
 23,190 
Non-U.S. auto
  
 10,038 
    
 13,344 
    
 13,344 
Other
  
 10,035 
    
 11,688 
    
 11,688 
   
 134,823 
    
 155,524 
    
 131,543 
                 
Real Estate
  
 42,481 
    
 48,673 
    
 44,841 
                 
Energy Financial Services
  
 7,291 
    
 7,790 
    
 7,790 
                 
GECAS(b)
  
 12,227 
    
 13,254 
    
 13,254 
                 
Other(c)
  
 2,087 
    
 2,614 
    
 2,614 
   
 340,490 
    
 386,919 
    
 345,031 
Less allowance for losses
  
 (9,147)
    
 (9,805)
    
 (8,105)
Total
$
 331,343 
  
$
 377,114 
  
$
 336,926 
                 
                 
(a)
Reflects the effects of our adoption of ASU 2009-16 &17 on January 1, 2010.
 
(b)
During the first quarter of 2010, we transferred the Transportation Financial Services business from GECAS to CLL and the Consumer business in Italy from Consumer to CLL. Prior-period amounts were reclassified to conform to the current-period presentation.
 
(c)
Primarily consisted of loans and financing leases related to certain consolidated, liquidating securitization entities.
 

 
(13)
 


Individually impaired loans are defined by U.S. generally accepted accounting principles (GAAP) as larger balance or restructured loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement. The vast majority of our consumer and a portion of our CLL nonearning receivables are excluded from this definition, as they represent smaller balance homogeneous loans that we evaluate collectively by portfolio for impairment.

Further information pertaining to loans classified as impaired and specific reserves is included in the tables below.

 
At
 
September 30,
  
January 1,
  
December 31,
(In millions)
2010 
  
2010(a)
  
2009 
                 
Loans requiring allowance for losses
$
12,764 
  
$
9,541 
  
$
9,145 
Loans expected to be fully recoverable
  
4,405 
    
3,914 
    
3,741 
   Total impaired loans
$
17,169 
  
$
13,455 
  
$
12,886 
                 
Allowance for losses (specific reserves)
$
3,175 
  
$
2,376 
  
$
2,331 
Average investment during the period
  
14,956 
    
(c)
    
8,493 
Interest income earned while impaired(b)
  
339 
    
(c)
    
227 
                 
                 
(a)  
Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
 
(b)  
Recognized principally on cash basis for the nine months ended September 30, 2010 and the year ended December 31, 2009, respectively.
 
(c)  
Not applicable.
 

                                   
 
At
 
September 30, 2010
  
January 1, 2010(a)
  
December 31, 2009
 
Impaired
  
Specific
  
Impaired
  
Specific
  
Impaired
  
Specific
(In millions)
Loans
  
Reserves
  
Loans
  
Reserves
  
Loans
  
Reserves
                                   
Commercial(b)
$
5,662 
  
$
1,141 
  
$
5,084 
  
$
1,031 
  
$
4,985 
  
$
1,073 
Consumer
  
2,418 
    
516 
    
1,747 
    
307 
    
1,383 
    
241 
Real Estate
  
9,089 
    
1,518 
    
6,624 
    
1,038 
    
6,518 
    
1,017 
Total
$
17,169 
  
$
3,175 
  
$
13,455 
  
$
2,376 
  
$
12,886 
  
$
2,331 
                                   
                                   

(a)  
Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
 
(b)  
Comprises CLL, GECAS and Energy Financial Services.
 

Impaired loans increased by $3,714 million from January 1, 2010, to September 30, 2010, primarily relating to increases at Real Estate. Impaired loans consolidated as a result of our adoption of ASU 2009-16 & 17 primarily related to our Consumer business. We regularly review our Real Estate loans for impairment using both quantitative and qualitative factors, such as debt service coverage and loan-to-value ratios. We classify Real Estate loans as impaired when the most recent valuation reflects a projected loan-to-value ratio at maturity in excess of 100%, even if the loan is currently paying in accordance with contractual terms. The increase in Real Estate impaired loans reflects deterioration in commercial real estate values, particularly in U.S. and Japanese collateral. The increase in Real Estate specific reserves is consistent with the increase in impaired loans, as well as value declines since January 1, 2010. Of our $9,089 million impaired loans at Real Estate at September 30, 2010, $6,527 million are currently paying in accordance with the contractual terms of the loan. Impaired loans at CLL primarily represent senior secured lending positions.

Our loss mitigation strategy intends to minimize economic loss and, at times, can result in rate reductions, principal forgiveness, extensions, forbearance or other actions, which may cause the related loan to be classified as a TDR. Such loans are classified as impaired, and specific reserves are determined based upon the present value of expected future cash flows discounted at the loan’s original effective interest rate, or collateral value as a practical expedient in accordance with the requirements of ASC 310-10-35. As of September 30, 2010, TDRs included in impaired loans were $7,829 million, primarily relating to Real Estate ($3,118 million), CLL ($2,463 million) and Consumer ($2,162 million). TDRs consolidated as a result of our adoption of ASU 2009-16 & 17 primarily related to our Consumer business ($364 million).

 
(14)
 


Allowance for Losses on Financing Receivables
 

 
Balance
  
Adoption of
  
Balance
  
Provision
              
Balance
 
December 31,
  
ASU 2009 -
  
January 1,
  
charged to
      
Gross
      
September 30,
(In millions)
2009 
  
16 & 17
(a)
2010 
  
operations
  
Other
(b)
write-offs
(d)
Recoveries
(d)
2010 
                                               
CLL(c)
                                              
Americas
$
 1,179 
  
$
 66 
  
$
 1,245 
  
$
 823 
  
$
 (20)
  
$
 (787)
  
$
 95 
  
$
 1,356 
Europe
  
 575 
    
 –
    
 575 
    
 190 
    
 (47)
    
 (348)
    
 41 
    
 411 
Asia
  
 244 
    
 (10)
    
 234 
    
 131 
    
 (10)
    
 (118)
    
 15 
    
 252 
Other
  
 11 
    
 –
    
 11 
    
 (3)
    
 –
    
 –
    
 –
    
 8 
                                               
Consumer(c)
                                              
Non-U.S. residential
                                              
   mortgages
  
 949 
    
 –
    
 949 
    
 243 
    
 (57)
    
 (281)
    
 68 
    
 922 
Non-U.S. installment
                                              
   and revolving credit
  
 1,181 
    
 –
    
 1,181 
    
 874 
    
 (44)
    
 (1,401)
    
 433 
    
 1,043 
U.S. installment and
                                              
   revolving credit
  
 1,698 
    
 1,602 
    
 3,300 
    
 2,405 
    
 (4)
    
 (3,401)
    
 372 
    
 2,672 
Non-U.S. auto
  
 308 
    
 –
    
 308 
    
 78 
    
 (34)
    
 (286)
    
 142 
    
 208 
Other
  
 300 
    
 –
    
 300 
    
 213 
    
 (24)
    
 (298)
    
 64 
    
 255 
                                               
Real Estate
  
 1,494 
    
 42 
    
 1,536 
    
 918 
    
 (2)
    
 (597)
    
 2 
    
 1,857 
                                               
Energy Financial
                                              
   Services
  
 28 
    
 –
    
 28 
    
 56 
    
 1 
    
 –
    
 –
    
 85 
                                               
GECAS(c)
  
 104 
    
 –
    
 104 
    
 17 
    
 –
    
 (96)
    
 –
    
 25 
                                               
Other
  
 34 
    
 –
    
 34 
    
 23 
    
 (2)
    
 (3)
    
 1 
    
 53 
Total
$
 8,105 
  
$
 1,700 
  
$
 9,805 
  
$
 5,968 
  
$
 (243)
  
$
 (7,616)
  
$
 1,233 
  
$
 9,147 
                                               
                                               
(a)
Reflects the effects of our adoption of ASU 2009-16 & 17 on January 1, 2010.
 
(b)
Other primarily included the effects of currency exchange.
 
(c)
During the first quarter of 2010, we transferred the Transportation Financial Services business from GECAS to CLL and the Consumer business in Italy from Consumer to CLL. Prior-period amounts were reclassified to conform to the current-period presentation.
 
(d)
Net write-offs (write-offs less recoveries) in certain portfolios may exceed the beginning allowance for losses as our revolving credit portfolios turn over more than once per year or, in all portfolios, can reflect 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.
 

 
(15)
 


 
Balance
  
Provision
              
Balance
 
January 1,
  
charged to
      
Gross
      
September 30,
(In millions)
2009 
  
operations
  
Other(a)
  
write-offs
  
Recoveries
  
2009 
                                   
CLL(b)
                                  
Americas
$
843 
  
$
969 
  
$
(34)
  
$
(746)
  
$
66 
  
$
1,098 
Europe
  
311 
    
458 
    
10 
    
(299)
    
53 
    
533 
Asia
  
163 
    
188 
    
8 
    
(136)
    
19 
    
242 
Other
  
4 
    
4 
    
3 
    
(5)
    
– 
    
6 
                                   
Consumer(b)
                                  
Non-U.S. residential
                                  
   mortgages
  
381 
    
804 
    
82 
    
(423)
    
129 
    
973 
Non-U.S. installment
                                  
   and revolving credit
  
1,049 
    
1,335 
    
40 
    
(1,691)
    
375 
    
1,108 
U.S. installment and
                                  
   revolving credit
  
1,700 
    
2,631 
    
(761)
    
(2,134)
    
132 
    
1,568 
Non-U.S. auto
  
203 
    
346 
    
45 
    
(435)
    
137 
    
296 
Other
  
226 
    
257 
    
9 
    
(273)
    
39 
    
258 
                                   
Real Estate
  
301 
    
903 
    
13 
    
(190)
    
1 
    
1,028 
                                   
Energy Financial
                                  
   Services
  
58 
    
42 
    
1 
    
– 
    
– 
    
101 
                                   
GECAS(b)
  
58 
    
69 
    
(1)
    
– 
    
– 
    
126 
                                   
Other
  
28 
    
15 
    
– 
    
(22)
    
2 
    
23 
Total
$
5,325 
  
$
8,021 
  
$
(585)
  
$
(6,354)
  
$
953 
  
$
7,360 
                                   
                                   
(a)
Other primarily included the effects of securitization activity and currency exchange.
 
(b)
During the first quarter of 2010, we transferred the Transportation Financial Services business from GECAS to CLL and the Consumer business in Italy from Consumer to CLL. Prior-period amounts were reclassified to conform to the current-period presentation.
 

5. GOODWILL AND OTHER INTANGIBLE ASSETS
 
Goodwill and other intangible assets – net, consisted of the following.
 

 
At
 
September 30,
  
December 31,
(In millions)
2010 
  
2009 
           
Goodwill
$
 27,828 
  
$
 28,961 
           
Other intangible assets
          
    Intangible assets subject to amortization
$
 2,268 
  
$
 3,018 
           


 
(16)
 

Changes in goodwill balances follow.

         
Dispositions,
      
 
Balance
      
currency
  
Balance
  
 
January 1,
      
exchange
  
September 30,
  
(In millions)
2010 
(a)
Acquisitions
  
and other
  
2010 
  
                         
CLL(b)
$
 14,053 
  
$
 21 
  
$
 (347)
  
$
 13,727 
  
Consumer(b)
  
 11,443 
    
 –
    
 (150)
    
 11,293 
  
Real Estate
  
 1,189 
    
 –
    
 (90)
    
 1,099 
  
Energy Financial Services
  
 2,119 
    
 –
    
 (557)
    
 1,562 
  
GECAS
  
 157 
    
 –
    
 (10)
    
 147 
  
Total
$
 28,961 
  
$
 21 
  
$
 (1,154)
  
$
 27,828 
  
                         
                         
(a)
Reflected the transfer of previously owned assets by GECS on January 1, 2010, resulting in a related increase in goodwill of $141 million.
 
(b)
Reflected the transfer of the Consumer business in Italy during the first quarter of 2010 from Consumer to CLL, resulting in a related movement of beginning goodwill balance of $18 million.
 

Goodwill balances decreased $1,133 million during the nine months ended September 30, 2010, primarily as a result of the deconsolidation of Regency Energy Partners L.P. (Regency) at Energy Financial Services ($557 million) and the stronger U.S. dollar ($484 million). Our reporting units and related goodwill balances are CLL ($13,727 million), Consumer ($11,293 million), Real Estate ($1,099 million), Energy Financial Services ($1,562 million) and GECAS ($147 million) at September 30, 2010.

On May 26, 2010, we sold our general partnership interest in Regency, a midstream natural gas services provider, and retained a 21% limited partnership interest. This resulted in the deconsolidation of Regency and the remeasurement of our limited partnership interest to fair value. We recorded a pre-tax gain of $119 million, which is reported in Revenues from services.

We test goodwill for impairment annually and more frequently if circumstances warrant.  We determine fair values for each of the reporting units using an income approach.  When available and appropriate, we use comparative market multiples to corroborate discounted cash flow results.  For purposes of the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate.  We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business.  Actual results may differ from those assumed in our forecasts.  We derive our discount rates using the capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing.  We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts.  Discount rates used in our reporting unit valuations ranged from 12% to 14.5%.  Valuations using the market approach reflect prices and other relevant observable information generated by market transactions involving comparable businesses.

Compared to the market approach, the income approach more closely aligns each reporting unit valuation to our business profile, including geographic markets served and product offerings.  Required rates of return, along with uncertainty inherent in the forecasts of future cash flows are reflected in the selection of the discount rate.  Equally important, under this approach, reasonably likely scenarios and associated sensitivities can be developed for alternative future states that may not be reflected in an observable market price.  A market approach allows for comparison to actual market transactions and multiples.  It can be somewhat more limited in its application because the population of potential comparables is often limited to publicly-traded companies where the characteristics of the comparative business and ours can be significantly different, market data is usually not available for divisions within larger conglomerates or non-public subsidiaries that could otherwise qualify as comparable, and the specific circumstances surrounding a market transaction (e.g., synergies between the parties, terms and conditions of the transaction, etc.) may be different or irrelevant with respect to our business.  It can also be difficult, under current market conditions, to identify orderly transactions between market participants in similar businesses.  We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation and weight the methodologies appropriately.

 
(17)
 


We performed our annual impairment test of goodwill for all of our reporting units in the third quarter using data as of July 1, 2010.  The impairment test consists of two steps:  in step one, the carrying value of the reporting unit is compared with its fair value; in step two, which is applied when the carrying value is more than its fair value, the amount of goodwill impairment, if any, is derived by deducting the fair value of the reporting unit’s assets and liabilities from the fair value of its equity, and comparing that amount with the carrying amount of goodwill.  In performing the valuations, we used cash flows that reflected management’s forecasts and discount rates that included risk adjustments consistent with the current market conditions.  Based on the results of our step one testing, the fair values of the CLL, Consumer, Energy Financial Services and GECAS reporting units exceeded their carrying values; therefore, the second step of the impairment test was not required to be performed and no goodwill impairment was recognized.

Our Real Estate reporting unit had a goodwill balance of $1,099 million at September 30, 2010.  As the carrying amount exceeded the fair value of our Real Estate reporting unit by about $3 billion as of July 1, 2010, we performed step two of the goodwill impairment test. Based on the results of the step two analysis for Real Estate, the implied fair value of goodwill exceeded the carrying value of goodwill by about $3 billion, and accordingly, no goodwill impairment was required. The performance of the step one and two tests for evaluating our Real Estate goodwill is dependent upon several assumptions related to this business, including loss estimates for our portfolio, new origination volume and margins, anticipated stabilization of the commercial real estate market, discount rates and fair values of the business’ assets and liabilities.  Relatively minor changes to these assumptions could adversely affect the results of the impairment test.

Estimating the fair value of reporting units involves the use of estimates and significant judgments that are based on a number of factors including actual operating results.  If current conditions persist longer or deteriorate further than expected, it is reasonably possible that the judgments and estimates described above could change in future periods.


Intangible Assets Subject to Amortization
 

 
At
 
September 30, 2010
  
December 31, 2009
 
Gross
          
Gross
        
 
carrying
  
Accumulated
      
carrying
  
Accumulated
    
(In millions)
amount
  
amortization
  
Net
  
amount
  
amortization
  
Net
                                   
                                   
Customer-related
$
 1,472 
  
$
 (679)
  
$
 793 
  
$
 1,831 
  
$
 (690)
  
$
 1,141 
Patents, licenses and trademarks
  
 661 
    
 (551)
    
 110 
    
 630 
    
 (461)
    
 169 
Capitalized software
  
 2,010 
    
 (1,492)
    
 518 
    
 2,169 
    
 (1,558)
    
 611 
Lease valuations
  
 1,660 
    
 (883)
    
 777 
    
 1,754 
    
 (793)
    
 961 
All other
  
 345 
    
 (275)
    
 70 
    
 475 
    
 (339)
    
 136 
Total
$
 6,148 
  
$
 (3,880)
  
$
 2,268 
  
$
 6,859 
  
$
 (3,841)
  
$
 3,018 

Amortization related to intangible assets subject to amortization was $161 million and $298 million for the three months ended September 30, 2010 and 2009, respectively. Amortization related to intangible assets subject to amortization for the nine months ended September 30, 2010 and 2009, was $500 million and $708 million, respectively.
 

 
(18)
 

6. BORROWINGS AND BANK DEPOSITS
 
Borrowings are summarized in the following table.

 
At
(In millions)
September 30,
  
December 31,
 
2010 
  
2009 
Short-term borrowings
          
Commercial paper
          
   U.S.
$
25,940 
  
$
32,637 
   Non-U.S.
  
10,191 
    
9,525 
Current portion of long-term borrowings(a)(b)(c)
  
62,775 
    
69,881 
GE Interest Plus notes(d)
  
8,824 
    
7,541 
Other(c)
  
2,987 
    
8,745 
Total short-term borrowings
$
110,717 
  
$
128,329 
           
Long-term borrowings
          
Senior unsecured notes(a)(b)
$
277,324 
  
$
305,535 
Subordinated notes(e)
  
2,224 
    
2,388 
Subordinated debentures(f)
  
7,204 
    
7,647 
Other(c)(g)
  
11,458 
    
10,751 
Total long-term borrowings
$
298,210 
  
$
326,321 
           
Non-recourse borrowings of consolidated securitization entities(h)
$
30,497 
  
$
3,883 
           
Bank deposits(i)
$
41,928 
  
$
38,923 
           
Total borrowings and bank deposits
$
481,352 
  
$
497,456 
           
           
 
(a)
GECC had issued and outstanding $54,795 million and $59,336 million of senior, unsecured debt that was guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program at September 30, 2010 and December 31, 2009, respectively. Of the above amounts $9,750 million and $5,841 million is included in current portion of long-term borrowings at September 30, 2010 and December 31, 2009, respectively.
 
(b)
Included in total long-term borrowings were $2,535 million and $3,138 million of obligations to holders of guaranteed investment contracts at September 30, 2010 and December 31, 2009, respectively. GECC could be required to repay up to approximately $2,500 million if its long-term credit rating were to fall below AA-/Aa3 or its short-term credit rating were to fall below A-1+/P-1.
 
(c)
Included $10,983 million and $10,604 million of secured funding at September 30, 2010 and December 31, 2009, respectively, of which $3,972 million and $5,667 million is non-recourse to GECC at September 30, 2010 and December 31, 2009, respectively.
 
(d)   
Entirely variable denomination floating rate demand notes.
 
(e)
Included $117 million of subordinated notes guaranteed by GE at both September 30, 2010 and December 31, 2009.
 
(f)
Subordinated debentures receive rating agency equity credit and were hedged at issuance to the U.S. dollar equivalent of $7,725 million.
 
(g)
Included $1,839 million and $1,649 million of covered bonds at September 30, 2010 and December 31, 2009, respectively. If the short-term credit rating of GECC were reduced below A-1/P-1, GECC would be required to partially cash collateralize these bonds in an amount up to $767 million.
 
(h)
Included at September 30, 2010 was $1,935 million of commercial paper, $9,316 million of current portion of long-term borrowings and $19,246 million of long-term borrowings related to former QSPEs consolidated on January 1, 2010 upon our adoption of ASU 2009-16 & 17, previously consolidated liquidating securitization entities and other on-book securitization borrowings. Included at December 31, 2009, was $2,424 million of commercial paper, $378 million of current portion of long-term borrowings and $1,081 million of long-term borrowings issued by consolidated liquidating securitization entities. See Note 12.
 
(i)
Included $23,884 million and $21,252 million of deposits in non-U.S. banks at September 30, 2010 and December 31, 2009, respectively, and $11,787 million and $10,476 million of certificates of deposits distributed by brokers with maturities greater than one year at September 30, 2010 and December 31, 2009, respectively.
 

 
(19)
 

7. INCOME TAXES
 
The balance of “unrecognized tax benefits,” the amount of related interest and penalties we have provided and what we believe to be the range of reasonably possible changes in the next 12 months, were:
 

 
At
 
September 30,
  
December 31,
(In millions)
2010 
  
2009 
           
Unrecognized tax benefits
$
3,592 
  
$
3,820 
   Portion that, if recognized, would reduce tax expense and effective tax rate(a)
  
1,559 
    
1,792 
Accrued interest on unrecognized tax benefits
  
794 
    
713 
Accrued penalties on unrecognized tax benefits
  
72 
    
73 
Reasonably possible reduction to the balance of unrecognized
          
   tax benefits in succeeding 12 months
  
0-1,000
    
0-650
   Portion that, if recognized, would reduce tax expense and effective tax rate(a)
  
0-550
    
0-250
           
           
(a)  
Some portion of such reduction may be reported as discontinued operations.
 

The IRS is currently auditing the GE consolidated income tax returns for 2003-2007, a substantial portion of which include our activities. We expect the 2003-2005 audit to be completed during the fourth quarter of 2010. In addition, certain other U.S. tax deficiency issues and refund claims for previous years remain unresolved. The conclusion of the 2003-2005 audit could result in a decrease in our balance of “unrecognized tax benefits” – that is, the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements. We believe that there are no other jurisdictions in which the outcome of unresolved issues or claims is likely to be material to our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties.

GE and GECC file a consolidated U.S. federal income tax return. The GECC provision for current tax expense includes its effect on the consolidated return. The effect of GECC on the consolidated liability is generally settled in cash as GE tax payments are due. The effect of GECC on the amount of the GE consolidated tax liability from the formation of the GE NBC Universal joint venture will be settled in cash when it otherwise would have reduced the liability of the GE group absent the tax on formation.

During the first quarter of 2009, following the change in our external credit ratings, funding actions taken and review of our operations, liquidity and funding, we determined that undistributed prior-year earnings of non-U.S. subsidiaries of GECC, on which we had previously provided deferred U.S. taxes, would be indefinitely reinvested outside the U.S. This change increased the amount of prior-year earnings indefinitely reinvested outside the U.S. by approximately $2 billion, resulting in an income tax benefit of $700 million in the first quarter of 2009.

 
(20)
 

8. SHAREOWNER’S EQUITY
 
A summary of increases (decreases) in GECC shareowner’s equity that did not result directly from transactions with the shareowner, net of income taxes, follows.

 
Three months ended September 30
  
Nine months ended September 30
(In millions)
2010 
  
2009 
  
2010 
  
2009 
                       
Net earnings attributable to GECC
$
(233)
  
$
225 
  
$
630 
    
1,488 
Investment securities – net
  
163 
    
420 
    
137 
    
936 
Currency translation adjustments – net
  
1,036 
    
896 
    
(2,942)
    
2,603 
Cash flow hedges – net
  
(278)
    
(17)
    
198 
    
1,299 
Benefit plans – net
  
(14)
    
2 
    
51 
    
(7)
Total
$
674 
  
$
1,526 
  
$
(1,926)
  
$
6,319 
                       

On January 1, 2010, we adopted ASU 2009-16 & 17. This resulted in a reduction of GECC shareowner’s equity primarily related to the reversal of a portion of previously recognized securitization gains. This adjustment is reflected as a cumulative effect adjustment of the opening balances of retained earnings ($1,307 million) and accumulated other comprehensive income ($258 million). See Notes 1 and 12 for additional information.

Changes to noncontrolling interests are as follows.

 
Three months ended September 30
  
Nine months ended September 30
(In millions)
2010 
  
2009 
  
2010 
  
2009 
                       
Beginning balance
$
1,098 
  
$
2,065 
  
$
2,204 
    
2,383 
Net earnings
  
23 
    
8 
    
13 
    
71 
Dividends
  
1 
    
(6)
    
(7)
    
(12)
Dispositions (a)
  
– 
    
– 
    
(979)
    
(331)
AOCI and other (b)
  
4 
    
62 
    
(105)
    
18 
Ending balance
$
1,126 
  
$
2,129 
  
$
1,126 
  
$
2,129 
                       
                       
(a)  
Includes the effects of deconsolidating both Regency $(979) million during the second quarter of 2010 and Penske Truck Leasing Co., L.P. (PTL) $(331) million during the first quarter of 2009.
 
(b)  
Changes to the individual components of AOCI attributable to noncontrolling interests were insignificant.
 

During the first quarter of 2009, GE made a $9,500 million capital contribution to GECS, of which GECS subsequently contributed $8,250 million to us. In addition, we issued one share of common stock (par value $14) to GECS for $500 million.
 
 
 
(21)
 
 
9. REVENUES FROM SERVICES
 
Revenues from services are summarized in the following table.

 
Three months ended September 30
  
Nine months ended September 30
(In millions)
2010 
  
2009 
  
2010 
  
2009 
                       
Interest on loans(a)
$
 5,347 
  
$
 4,914 
  
$
16,644 
  
$
15,059 
Equipment leased to others
  
 2,799 
    
 2,902 
    
8,329 
    
9,314 
Fees(a)
  
 1,237 
    
 1,160 
    
3,725 
    
3,418 
Investment income(a)(b)
  
 210 
    
 410 
    
479 
    
1,364 
Financing leases(a)
  
 694 
    
 795 
    
2,153 
    
2,533 
Net securitization gains(a)
  
 –
    
 449 
    
–  
    
1,169 
Real estate investments
  
 330 
    
 410 
    
961 
    
1,128 
Associated companies(c)
  
 491 
    
 277 
    
1,548 
    
751 
Other items(d)(e)
  
 468 
    
 475 
    
1,916 
    
3,089 
Total
$
 11,576 
  
$
 11,792 
  
$
35,755 
  
$
 37,825 
                       
                       
(a)  
On January 1, 2010, we adopted ASU 2009-16 & 17 which required us to consolidate substantially all of our former QSPEs. As a result, 2010 Revenues from services include interest and fee income from these entities, which were not presented on a consolidated basis in 2009. Also beginning in 2010, we no longer record gains for substantially all of our securitizations as they are recorded as on-book financings. See Note 12.
 
(b)  
Included net other-than-temporary impairments on investment securities of $30 million and $105 million in the third quarters of 2010 and 2009, respectively, and $156 million and $186 million for the nine months ended September 30, 2010 and 2009, respectively. See Note 3.
 
(c)  
Aggregate summarized financial information for significant associated companies assuming a 100% ownership interest included total assets at September 30, 2010 and December 31, 2009 of $176,963 million and $137,075 million, respectively. Assets were primarily financing receivables of $95,667 million and $82,873 million at September 30, 2010 and December 31, 2009, respectively. Total liabilities were $142,169 million and $118,708 million, consisted primarily of bank deposits of $75,004 million and $69,573 million at September 30, 2010 and December 31, 2009, respectively, and debt of $53,731 million and $48,677 million at September 30, 2010 and December 31, 2009, respectively. Revenues in the third quarters of 2010 and 2009 totaled $5,166 million and $4,667 million, respectively, and net earnings in the third quarters of 2010 and 2009 totaled $1,247 million and $661 million, respectively. Revenues for the nine months ended September 30, 2010 and 2009 totaled $14,882 million and $14,007 million, respectively, and net earnings for the nine months ended September 30, 2010 and 2009 totaled $3,279 million and $1,824 million, respectively.
 
(d)  
Included a gain on the sale of a limited partnership interest in PTL and a related gain on the remeasurement of the retained investment to fair value totaling $296 million in the first quarter of 2009.
 
(e)  
Included a gain of $343 million on the remeasurement to fair value of our equity method investment in BAC Credomatic GECF Inc. (BAC), following our acquisition of a controlling interest in the second quarter of 2009.
 

10. FAIR VALUE MEASUREMENTS
 
For a description on how we estimate fair value, see Note 1 in our 2009 consolidated financial statements for information.

The following tables present our assets and liabilities measured at fair value on a recurring basis. Included in the tables are investment securities of $6,248 million and $6,629 million at September 30, 2010 and December 31, 2009, respectively, primarily supporting obligations to holders of GICs in Trinity (which ceased issuing new investment contracts beginning in the first quarter of 2010), and investment securities held at our global banks. Such securities are mainly investment-grade.


 
(22)
 


(In millions)
                  
Netting
      
 
Level 1
(a)
Level 2
(a)
Level 3
(b)
adjustment
(c)
Net balance
September 30, 2010
                            
Assets
                            
Investment securities
                            
    Debt
                            
       U.S. corporate
$
 681 
  
$
 1,959 
  
$
 1,662 
  
$
 –
  
$
 4,302 
       State and municipal
  
 –
    
 533 
    
 181 
    
 –
    
 714 
       Residential mortgage-backed
  
 –
    
 1,874 
    
 42 
    
 –
    
 1,916 
       Commercial mortgage-backed
  
 –
    
 1,360 
    
 48 
    
 –
    
 1,408 
       Asset-backed
  
 –
    
 656 
    
 1,974 
    
 –
    
 2,630 
       Corporate - non-U.S.
  
 164 
    
 583 
    
 871 
    
 –
    
 1,618 
       Government - non-U.S.
  
 1,096 
    
 723 
    
 149 
    
 –
    
 1,968 
       U.S. government and federal agency
  
 71 
    
 2,277 
    
 –
    
 –
    
 2,348 
   Retained interests(d)
  
 –
    
 –
    
 41 
    
 –
    
 41 
   Equity
                            
        Available-for-sale
  
 541 
    
 546 
    
 16 
    
 –
    
 1,103 
        Trading
  
 458 
    
 –
    
 –
    
 –
    
 458 
Derivatives(e)
  
 –
    
 12,462 
    
 600 
    
 (4,866)
    
 8,196 
Other(f)
  
 –
    
 –
    
 509 
    
 –
    
 509 
Total
$
 3,011 
  
$
 22,973 
  
$
 6,093 
  
$
 (4,866)
  
$
 27,211 
                             
Liabilities
                            
Derivatives
$
 –
  
$
 7,111 
  
$
 236 
  
$
 (4,878)
  
$
 2,469 
Other
  
 –
    
 29 
    
 –
    
 –
    
 29 
Total
$
– 
  
$
 7,140 
  
$
 236 
  
$
(4,878)
  
$
 2,498 
                             
December 31, 2009
                            
Assets
                            
Investment securities
                            
    Debt
                            
       U.S. corporate
$
 1,535 
  
$
 1,871 
  
$
 1,656 
  
$
 –
  
$
 5,062 
       State and municipal
  
 –
    
 501 
    
 173 
    
 –
    
 674 
       Residential mortgage-backed
  
 –
    
 2,254 
    
 44 
    
 –
    
 2,298 
       Commercial mortgage-backed
  
 –
    
 1,251 
    
 51 
    
 –
    
 1,302 
       Asset-backed
  
 –
    
 719 
    
 1,480 
    
 –
    
 2,199 
       Corporate - non-U.S.
  
 159 
    
 51 
    
 776 
    
 –
    
 986 
       Government - non-U.S.
  
 1,277 
    
 1,023 
    
 151 
    
 –
    
 2,451 
       U.S. government and federal agency
  
 85 
    
 1,780 
    
 –
    
 –
    
 1,865 
    Retained interests
  
 –
    
 –
    
 8,831 
    
 –
    
 8,831 
    Equity
                            
       Available-for-sale
  
 437 
    
 667 
    
 17 
    
 –
    
 1,121 
       Trading
  
 720 
    
 –
    
 –
    
 –
    
 720 
Derivatives(e)
  
 –
    
 10,411 
    
 451 
    
 (3,611)
    
 7,251 
Other(f)
  
 –
    
 –
    
 595 
    
 –
    
 595 
Total
$
 4,213 
  
$
 20,528 
  
$
 14,225 
  
$
 (3,611)
  
$
 35,355 
                             
Liabilities
                            
Derivatives
$
 –
  
$
 6,838 
  
$
 219 
  
$
 (3,623)
  
$
 3,434 
Other
  
 –
    
 32 
    
 –
    
 –
    
 32 
Total
$
 –
  
$
 6,870 
  
$
 219 
  
$
 (3,623)
  
$
 3,466 
                             
                             
                             
(a)  
Included in Level 1 at September 30, 2010 was $76 million of available-for-sale equity transferred from Level 2 due to the expiration of sale restrictions on the security. Other transfers between Level 1 and Level 2 were insignificant.
 
(b)  
Level 3 investment securities valued using non-binding broker quotes totaled $364 million and $620 million at September 30, 2010 and December 31, 2009, respectively, and were classified as available-for-sale securities.
 
(c)  
The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists. Included fair value adjustments related to our own and counterparty credit risk.
 
(d)  
Substantially all of our retained interests were consolidated in connection with our adoption of ASU 2009-16 & 17 on January 1, 2010.
 
(e)  
The fair value of derivatives included an adjustment for non-performance risk. At both September 30, 2010 and December 31, 2009, the cumulative adjustment was a gain of $12 million. See Note 11 for additional information on the composition of our derivative portfolio.
 
(f)  
Included private equity investments and loans designated under the fair value option.
 

 
(23)
 


The following tables present the changes in Level 3 instruments measured on a recurring basis for the three months ended September 30, 2010 and 2009 and the nine months ended September 30, 2010 and 2009. The majority of our Level 3 balances consist of investment securities classified as available-for-sale with changes in fair value recorded in shareowner’s equity.
 
Changes in Level 3 Instruments for the Three Months Ended September 30, 2010
 

(In millions)
        
Net realized/
                
Net change
  
         
unrealized
                
in unrealized
  
         
gains (losses)
                
gains (losses)
  
     
Net realized/
  
included in
                
relating to
  
     
unrealized
  
accumulated
  
Purchases,
  
Transfers
        
instruments
  
     
gains(losses)
  
other
  
issuances
  
in and/or
        
still held at
  
 
July 1,
  
included in
  
comprehensive
  
and
  
out of
  
September 30,
    
September 30,
  
 
2010 
  
earnings
(a)
income
  
settlements
  
Level 3
(b)
2010 
    
2010 
(c)
                                             
Investment securities   
                                            
    Debt
                                            
        U.S. corporate
$
1,638 
  
$
12 
  
$
83 
  
$
(66)
  
$
(5)
  
$
1,662 
    
$
– 
  
        State and municipal
  
238 
    
– 
    
(48)
    
(9)
    
– 
    
181 
      
– 
  
        Residential
                                            
            mortgage-backed
  
46 
    
– 
    
5 
    
– 
    
(9)
    
42 
      
– 
  
        Commercial
                                            
            mortgage-backed
  
48 
    
– 
    
– 
    
– 
    
– 
    
48 
      
– 
  
        Asset-backed
  
1,462 
    
(1)
    
11 
    
507 
    
(5)
    
1,974 
      
– 
  
        Corporate - non-U.S.
  
870 
    
7 
    
23 
    
(12)
    
(17)
    
871 
      
– 
  
        Government
                                            
             - non-U.S.
  
143 
    
– 
    
5 
    
1 
    
– 
    
149 
      
– 
  
        U.S. government and
                                            
            federal agency
  
– 
    
– 
    
– 
    
– 
    
– 
    
– 
      
– 
  
    Retained interests
  
41 
    
1 
    
1 
    
(2)
    
– 
    
41 
      
– 
  
    Equity
                                            
        Available-for-sale
  
15 
    
– 
    
1 
    
– 
    
– 
    
16 
      
– 
  
        Trading
  
– 
    
– 
    
– 
    
– 
    
– 
    
– 
      
– 
  
Derivatives(d)(e)
  
224 
    
51 
    
12 
    
(37)
    
148 
    
398 
      
47 
  
Other
  
486 
    
4 
    
22 
    
(3)
    
– 
    
509 
      
– 
  
Total
$
5,211 
  
$
74 
  
$
115 
  
$
379 
  
$
112 
  
$
5,891 
    
$
47 
  
                                             
                                             
(a)  
Earnings effects are primarily included in the “Revenues from services” and “Interest” captions in the Condensed Statement of Current and Retained Earnings.
 
(b)  
Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent pricing vendors based on recent trading activity.
 
(c)  
Represented the amount of unrealized gains or losses for the period included in earnings.
 
(d)  
Represented derivative assets net of derivative liabilities and included cash accruals of $34 million not reflected in the fair value hierarchy table.
 
(e)  
Gains included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically hedged. See Note 11.
 

 
(24)
 


Changes in Level 3 Instruments for the Three Months Ended September 30, 2009
 

(In millions)
        
Net realized/
                
Net change
  
         
unrealized
                
in unrealized
  
         
gains (losses)
                
gains (losses)
  
     
Net realized/
  
included in
                
relating to
  
     
unrealized
  
accumulated
  
Purchases,
  
Transfers
        
instruments
  
     
gains(losses)
  
other
  
issuances
  
in and/or
        
still held at
  
 
July 1,
  
included in
  
comprehensive
  
and
  
out of
  
September 30,
    
September 30,
  
 
2009 
  
earnings
(a)
income
  
settlements
  
Level 3
(b)
2009 
    
2009 
(c)
                                             
Investment securities   
                                            
    Debt
                                            
        U.S. corporate
$
1,546 
  
$
(39)
  
$
69