Supplemental Information About The Credit Quality Of Financing Receivables And Allowance For Losses On Financing Receivables

6 Months Ended

Jun. 30, 2011

Supplemental Information About Credit Quality Of Financing Receivables And Allowance For Losses On Financing Receivables [Abstract]

Supplemental Information About The Credit Quality Of Financing Receivables And Allowance For Losses On Financing Receivables

12. SUPPLEMENTAL INFORMATION ABOUT THE CREDIT QUALITY OF FINANCING RECEIVABLES AND ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES

Pursuant to new disclosures required by ASC 310-10, effective December 31, 2010, we provide further detailed information about the credit quality of our Commercial, Real Estate and Consumer financing receivables portfolios. For each portfolio, we describe the characteristics of the financing receivables and provide information about collateral, payment performance, credit quality indicators, and impairment. While we provide data on selected credit quality indicators in accordance with the new disclosure requirements of ASC 310-10, we manage these portfolios using delinquency and nonearning data as key performance indicators. The categories used within this section such as impaired loans, troubled debt restructuring and nonaccrual financing receivables are defined by the authoritative guidance and we base our categorization on the related scope and definitions contained in the related standards. The categories of nonearning and delinquent are defined by us and are used in our process for managing our financing receivables. Definitions of these categories are provided below:

Impaired loans are 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.

Troubled debt restructurings (TDRs) are those loans for which we have granted a concession to a borrower experiencing financial difficulties where we do not receive adequate compensation. Such loans are classified as impaired, and are individually reviewed for specific reserves.

Nonaccrual financing receivables are those on which we have stopped accruing interest. We stop accruing interest at the earlier of the time at which collection of an account becomes doubtful or the account becomes 90 days past due. Although we stop accruing interest in advance of payments, we recognize interest income as cash is collected when appropriate provided the amount does not exceed that which would have been earned at the historical effective interest rate.

Nonearning financing receivables are a subset of nonaccrual financing receivables for which cash payments are not being received or for which we are on the cost recovery method of accounting (i.e., any payments are accounted for as a reduction of principal). This category excludes loans purchased at a discount (unless they have deteriorated post acquisition).

Delinquent financing receivables are those that are 30 days or more past due based on their contractual terms.

The same financing receivable may meet more than one of the definitions above. Accordingly, these categories are not mutually exclusive and it is possible for a particular loan to meet the definitions of a TDR, impaired loan, nonaccrual loan and nonearning loan and be included in each of these categories in the tables that follow. The categorization of a particular loan also may not be indicative of the potential for loss.

COMMERCIAL

Substantially all of our commercial portfolio comprises secured collateral positions. CLL products include loans and leases collateralized by a wide variety of equipment types, cash flow loans, asset-backed loans and factoring arrangements. Our loans and leases are secured by assets such as heavy machinery, vehicles, medical equipment, corporate aircraft, and office imaging equipment. Cash flow financing is secured by our ability to liquidate the underlying assets of the borrower and the asset-backed loans and factoring arrangements are secured by customer accounts receivable, inventory, and/or machinery and equipment. The portfolios in our Energy Financial Services and GECAS businesses are primarily collateralized by energy generating assets and commercial aircraft, respectively. Our senior secured position and risk management expertise provide loss mitigation against borrowers with weak credit characteristics.

Financing Receivables and Allowance for Losses

The following table provides further information about general and specific reserves related to Commercial financing receivables.

Commercial	Financing receivables at
	June 30,		December 31,
(In millions)	2011		2010

CLL
Americas	$	79,614	$	86,596
Europe		37,897		37,498
Asia		11,759		11,943
Other		2,489		2,626
Total CLL		131,759		138,663

Energy Financial Services		6,143		7,011

GECAS		11,952		12,615

Other		1,517		1,788

Total Commercial financing receivables, before allowance for losses	$	151,371	$	160,077

Non-impaired financing receivables	$	145,318	$	154,257
General reserves		965		1,014

Impaired loans		6,053		5,820
Specific reserves		882		1,031

Past Due Financing Receivables

The following table displays payment performance of Commercial financing receivables.

Commercial	June 30, 2011				December 31, 2010
	Over 30 days		Over 90 days		Over 30 days		Over 90 days
	past due		past due		past due		past due

CLL
Americas	1.1	%	0.7	%	1.3	%	0.8	%
Europe	3.8		1.9		4.2		2.3
Asia	2.3		1.3		2.2		1.4
Other	0.3		0.2		0.7		0.3
Total CLL	1.9		1.1		2.1		1.3

Energy Financial Services	0.3		0.3		0.9		0.8

GECAS	0.4		0.0		0.0		0.0

Other	5.5		3.8		5.8		5.5

Total	1.8		1.0		2.0		1.2

Nonaccrual Financing Receivables

The following table provides further information about Commercial financing receivables that are classified as nonaccrual. Of our $5,378 million and $5,463 million of nonaccrual financing receivables at ##D<varrepdate> and ##D<varpriyearend>, respectively, $1,397 million and $1,016 million are currently paying in accordance with their contractual terms, respectively.

Commercial	Nonaccrual financing receivables at						Nonearning financing receivables at
	June 30,			December 31,			June 30,			December 31,
(Dollars in millions)	2011			2010			2011			2010

CLL
Americas	$	2,765		$	3,206		$	2,060		$	2,571
Europe		1,765			1,415			1,156			1,241
Asia		465			616			266			406
Other		18			9			6			8
Total CLL		5,013			5,246			3,488			4,226

Energy Financial Services		140			78			136			62

GECAS		64			–			64			–

Other		161			139			87			102
Total	$	5,378		$	5,463		$	3,775		$	4,390

Allowance for losses percentage		34.3	%		37.4	%		48.9	%		46.6	%

Impaired Loans

The following table provides information about loans classified as impaired and specific reserves related to Commercial.

Commercial(a)	With no specific allowance						With a specific allowance
		Recorded	Unpaid		Average			Recorded	Unpaid				Average
	investment		principal		investment in		investment		principal		Associated		investment in
(In millions)	in loans		balance		loans		in loans		balance		allowance		loans

June, 30, 2011

CLL
Americas	$	2,247	$	2,322	$	2,123	$	1,312	$	1,353	$	445	$	1,514
Europe		1,157		884		987		616		419		280		573
Asia		105		96		109		189		151		94		258
Other		12		12		4		0		0		0		0
Total CLL		3,521		3,314		3,223		2,117		1,923		819		2,345
Energy Financial Services		4		4		31		136		136		20		95
GECAS		78		78		60		16		15		0		17
Other		73		73		69		108		109		43		109
Total	$	3,676	$	3,469	$	3,383	$	2,377	$	2,183	$	882	$	2,566

December 31, 2010

CLL
Americas	$	2,030	$	2,127	$	1,547	$	1,699	$	1,744	$	589	$	1,754
Europe		802		674		629		566		566		267		563
Asia		119		117		117		338		303		132		334
Other		0		0		9		0		0		0		0
Total CLL		2,951		2,918		2,302		2,603		2,613		988		2,651
Energy Financial Services		54		61		76		24		24		6		70
GECAS		24		24		50		0		0		0		31
Other		58		57		30		106		99		37		82
Total	$	3,087	$	3,060	$	2,458	$	2,733	$	2,736	$	1,031	$	2,834

We recognized $85 million, $88 million and $20 million of interest income for the ##D<varmonths> months ended ##D<varrepdate>, the year ended ##D<varpriyearend> and the ##D<varmonths> months ended ##D<varprirepdate>, respectively, principally on a cash basis. A substantial majority of this amount was related to income recognized in our CLL Americas business. The total average investment in impaired loans for the ##D<varmonths> months ended ##D<varprirepdate>, was $5,008 million.

Credit Quality Indicators

Substantially all of our Commercial financing receivables portfolio is secured lending and we assess the overall quality of the portfolio based on the potential risk of loss measure. The metric incorporates both the borrower's credit quality along with any related collateral protection.

Our internal risk ratings process is an important source of information in determining our allowance for losses and represents a comprehensive, statistically validated approach to evaluate risk in our financing receivables portfolios. In deriving our internal risk ratings, we stratify our Commercial portfolios into twenty-one categories of default risk and/or six categories of loss given default to group into three categories: A, B and C. Our process starts by developing an internal risk rating for our borrowers, which are based upon our proprietary models using data derived from borrower financial statements, agency ratings, payment history information, equity prices and other commercial borrower characteristics. We then evaluate the potential risk of loss for the specific lending transaction in the event of borrower default, which takes into account such factors as applicable collateral value, historical loss and recovery rates for similar transactions, and our collection capabilities. Our internal risk ratings process and the models we use are subject to regular monitoring and validation controls. The frequency of rating updates is set by our credit risk policy, which requires annual Audit Committee approval. The models are updated on a regular basis and statistically validated annually, or more frequently as circumstances warrant.

The table below summarizes our Commercial financing receivables by risk category. As described above, financing receivables are assigned one of twenty-one risk ratings based on our process and then these are grouped by similar characteristics into three categories in the table below. Category A is characterized by either high credit quality borrowers or transactions with significant collateral coverage which substantially reduces or eliminates the risk of loss in the event of borrower default. Category B is characterized by borrowers with weaker credit quality than those in Category A, or transactions with moderately strong collateral coverage which minimizes but may not fully mitigate the risk of loss in the event of default. Category C is characterized by borrowers with higher levels of default risk relative to our overall portfolio or transactions where collateral coverage may not fully mitigate a loss in the event of default.

Commercial	Secured
(In millions)	A		B		C		Total

June 30, 2011

CLL
Americas	$	72,038	$	3,103	$	4,473	$	79,614
Europe		34,061		995		1,416		36,472
Asia		10,665		146		761		11,572
Other		2,386		2		101		2,489
Total CLL		119,150		4,246		6,751		130,147

Energy Financial Services		6,006		119		18		6,143

GECAS		11,225		504		223		11,952

Other		1,517		0		0		1,517
Total	$	137,898	$	4,869	$	6,992	$	149,759

December 31, 2010

CLL
Americas	$	76,977	$	4,103	$	5,516	$	86,596
Europe		33,642		840		1,262		35,744
Asia		10,777		199		766		11,742
Other		2,506		66		54		2,626
Total CLL		123,902		5,208		7,598		136,708

Energy Financial Services		6,775		183		53		7,011

GECAS		11,034		1,193		388		12,615

Other		1,788		0		0		1,788
Total	$	143,499	$	6,584	$	8,039	$	158,122

For our secured financing receivables portfolio, our collateral position and ability to work out problem accounts mitigates our losses. Our asset managers have deep industry expertise that enables us to identify the optimum approach to default situations. We price risk premiums for weaker credits at origination, closely monitor changes in creditworthiness through our risk ratings and watch list process, and are engaged early with deteriorating credits to minimize economic loss. Secured financing receivables within risk Category C are predominantly in our CLL businesses and are primarily comprised of senior term lending facilities and factoring programs secured by various asset types including inventory, accounts receivable, cash, equipment and related business facilities as well as franchise finance activities secured by underlying equipment.

Loans within Category C are reviewed and monitored regularly, and classified as impaired when it is probable that they will not pay in accordance with contractual terms. Our internal risk rating process identifies credits warranting closer monitoring; and as such, these loans are not necessarily classified as nonearning or impaired.

Substantially all of our unsecured Commercial financing receivables portfolio is attributable to our Interbanca S.p.A. and GE Sanyo Credit acquisitions in Europe and Asia, respectively. At ##D<varrepdate> and ##D<varpriyearend>, these financing receivables included $203 million and $208 million rated A, $767 million and $964 million rated B, and $642 million and $783 million rated C, respectively.

REAL ESTATE

Our real estate portfolio primarily comprises fixed and floating loans secured by commercial real estate. Our Debt portfolio is underwritten based on the cash flows generated by underlying income-producing commercial properties and secured by first mortgages. Our Business Properties portfolio is underwritten primarily by the credit quality of the borrower and secured by tenant and owner-occupied commercial properties.

Financing Receivables and Allowance for Losses

The following table provides further information about general and specific reserves related to Real Estate financing receivables.

Real Estate	Financing receivables at
		June 30,		December 31,
(In millions)		2011		2010

Debt	$	27,750	$	30,249
Business Properties		9,057		9,962

Total Real Estate financing receivables, before allowance for losses	$	36,807	$	40,211

Non-impaired financing receivables	$	26,788	$	30,394
General reserves		284		338

Impaired loans		10,019		9,817
Specific reserves		992		1,150

Past Due Financing Receivables

The following table displays payment performance of Real Estate financing receivables.

Real Estate	June 30, 2011					December 31, 2010
	Over 30 days		Over 90 days			Over 30 days		Over 90 days
	past due		past due			past due		past due

Debt	4.1	%		3.4	%	4.3	%		4.1	%
Business Properties	4.1			3.6		4.6			3.9
Total	4.1			3.5		4.4			4.0

Nonaccrual Financing Receivables

The following table provides further information about Real Estate financing receivables that are classified as nonaccrual. Of our $9,885 million and $9,719 million of nonaccrual financing receivables at ##D<varrepdate> and ##D<varpriyearend>, respectively, $8,361 million and $7,888 million are currently paying in accordance with their contractual terms, respectively.

Real Estate	Nonaccrual financing receivables at						Nonearning financing receivables at
	June 30,			December 31,			June 30,			December 31,
(Dollars in millions)	2011			2010			2011			2010

Debt	$	9,205		$	9,039		$	680		$	961
Business Properties		680			680			323			386
Total	$	9,885		$	9,719		$	1,003		$	1,347

Allowance for losses percentage		12.9	%		15.3	%		127.2	%		110.5	%

Impaired Loans

The following table provides information about loans classified as impaired and specific reserves related to Real Estate.

Real Estate(a)	With no specific allowance						With a specific allowance
	Recorded		Unpaid		Average		Recorded		Unpaid				Average
	investment		principal		investment		investment		principal		Associated		investment
(In millions)	in loans		balance		in loans		in loans		balance		allowance		in loans

June 30, 2011

Debt	$	3,959	$	4,054	$	3,508	$	5,379	$	5,460	$	855	$	5,898
Business Properties		206		207		202		475		475		137		488
Total	$	4,165	$	4,261	$	3,710	$	5,854	$	5,935	$	992	$	6,386

December 31, 2010

Debt	$	2,814	$	2,873	$	1,598	$	6,323	$	6,498	$	1,007	$	6,116
Business Properties		191		213		141		489		476		143		382
Total	$	3,005	$	3,086	$	1,739	$	6,812	$	6,974	$	1,150	$	6,498

We recognized $207 million, $189 million and $128 million of interest income for the ##D<varmonths> months ended ##D<varrepdate>, the year ended ##D<varpriyearend> and the ##D<varmonths> months ended ##D<varprirepdate>, respectively, principally on a cash basis. A substantial majority of this amount was related to our Real Estate-Debt portfolio. The total average investment in impaired loans for the ##D<varmonths> months ended ##D<varprirepdate> was $7,426 million.

Credit Quality Indicators

Due to the primarily non-recourse nature of our Debt portfolio, loan-to-value ratios provide the best indicators of the credit quality of the portfolio. By contrast, the credit quality of the Business Properties portfolio is primarily influenced by the strength of the borrower's general credit quality, which is reflected in our internal risk rating process, consistent with the process we use for our Commercial portfolio.

	June 30, 2011						December 31, 2010
	Loan-to-value ratio						Loan-to-value ratio
	Less than		80% to		Greater than		Less than		80% to		Greater than
(In millions)	80%		95%		95%		80%		95%		95%

Debt	$	14,820	$	6,190	$	6,740	$	12,362	$	9,392	$	8,495

	June 30, 2011						December 31, 2010
	Internal Risk Rating						Internal Risk Rating
(In millions)	A		B		C		A		B		C

Business Properties	$	8,250	$	267	$	540	$	8,746	$	437	$	779

Within Real Estate, these financing receivables are primarily concentrated in our North American and European Lending platforms and are secured by various property types. Collateral values for Real Estate-Debt financing receivables are updated at least semi-annually, or more frequently for higher risk loans. A substantial majority of the Real Estate-Debt financing receivables with loan-to-value ratios greater than 95% are paying in accordance with contractual terms. Substantially all of these loans and substantially all of the Real Estate-Business Properties financing receivables included in Category C are impaired loans which are subject to the specific reserve evaluation process described in Note 1 in our ##D<varpriyear1> consolidated financial statements. The ultimate recoverability of impaired loans is driven by collection strategies that do not necessarily depend on the sale of the underlying collateral and include full or partial repayments through third-party refinancing and restructurings.

CONSUMER

Our Consumer portfolio is largely non-U.S. and primarily comprises residential mortgage, sales finance, and auto and personal loans in various European and Asian countries. At ##D<varrepdate>, our U.S. consumer financing receivables included private-label credit card and sales financing for approximately 50 million customers across the U.S. with no metropolitan area accounting for more than 6% of the portfolio. Of the total U.S. consumer financing receivables, approximately 63% relate to credit card loans, which are often subject to profit and loss sharing arrangements with the retailer (which are recorded in revenues), and the remaining 37% are sales finance receivables, which provide financing to customers in areas such as electronics, recreation, medical and home improvement.

Financing Receivables and Allowance for Losses

The following table provides further information about general and specific reserves related to Consumer financing receivables.

Consumer	Financing receivables at
	June 30,		December 31,
(In millions)	2011		2010

Non-U.S. residential mortgages	$	40,731	$	40,011
Non-U.S. installment and revolving credit		21,047		20,132
U.S. installment and revolving credit		42,178		43,974
Non-U.S. auto		7,141		7,558
Other		8,528		8,304
Total Consumer financing receivables, before allowance for losses	$	119,625	$	119,979

Non-impaired financing receivables	$	116,855	$	117,431
General reserves		3,359		3,945

Impaired loans		2,770		2,548
Specific reserves		572		555

Past Due Financing Receivables

The following table displays payment performance of Consumer financing receivables.

Consumer	June 30, 2011				December 31, 2010
	Over 30 days		Over 90 days		Over 30 days		Over 90 days
	past due		past due(a)		past due		past due(a)

Non-U.S. residential mortgages	13.6	%	8.8	%	13.7	%	8.8	%
Non-U.S. installment and revolving credit	4.7		1.3		4.5		1.3
U.S. installment and revolving credit	4.7		2.0		6.2		2.8
Non-U.S. auto	3.4		0.5		3.3		0.6
Other	4.0		2.2		4.2		2.3
Total	7.6		4.1		8.1		4.4

Included $57 million and $65 million of loans at ##D<varrepdate> and ##D<varpriyearend>, respectively, which are over 90 days past due and accruing interest.

Nonaccrual Financing Receivables

The following table provides further information about Consumer financing receivables that are classified as nonaccrual.

Consumer	Nonaccrual financing receivables at						Nonearning financing receivables at
	June 30,			December 31,			June 30,			December 31,
(Dollars in millions)	2011			2010			2011			2010

Non-U.S. residential mortgages	$	3,979		$	3,986		$	3,804		$	3,738
Non-U.S. installment and revolving credit		309			302			308			289
U.S. installment and revolving credit		790			1,201			790			1,201
Non-U.S. auto		39			46			39			46
Other		549			600			490			478
Total	$	5,666		$	6,135		$	5,431		$	5,752

Allowance for losses percentage		69.4	%		73.3	%		72.4	%		78.2	%

Impaired Loans

The vast majority of our Consumer nonaccrual financing receivables are smaller balance homogeneous loans evaluated collectively, by portfolio, for impairment and therefore are outside the scope of the disclosure requirement for impaired loans. Accordingly, impaired loans in our Consumer business represent restructured smaller balance homogeneous loans meeting the definition of a TDR, and therefore subject to the disclosure requirement for impaired loans, and commercial loans in our Consumer–Other portfolio. The recorded investment of these impaired loans totaled $2,770 million (with an unpaid principal balance of $2,465 million) and comprised $122 million with no specific allowance, primarily all in our Consumer–Other portfolio, and $2,648 million with a specific allowance of $572 million at ##D<varrepdate>. The impaired loans with a specific allowance included $419 million with a specific allowance of $94 million in our Consumer–Other portfolio and $2,229 million with a specific allowance of $478 million across the remaining Consumer business and had an unpaid principal balance and average investment of $1,975 million and $2,126 million, respectively, at ##D<varrepdate>. We recognized $54 million, $114 million and $55 million of interest income for the ##D<varmonths> months ended ##D<varrepdate>, the year ended ##D<varpriyearend> and the ##D<varmonths> months ended ##D<varprirepdate>, respectively, principally on a cash basis. A substantial majority of this amount related to income recognized in our Consumer–U.S. installment and revolving credit portfolio. The total average investment in impaired loans for the ##D<varmonths> months ended ##D<varprirepdate> was $1,726 million.

Credit Quality Indicators

Our Consumer financing receivables portfolio comprises both secured and unsecured lending. Secured financing receivables comprise residential loans and lending to small and medium-sized enterprises predominantly secured by auto and equipment, inventory finance, and cash flow loans. Unsecured financing receivables include private-label credit card financing. A substantial majority of these cards are not for general use and are limited to the products and services sold by the retailer. The private label portfolio is diverse with no metropolitan area accounting for more than 6% of the related portfolio.

Non-U.S. residential mortgages

For our secured non-U.S. residential mortgage book, we assess the overall credit quality of the portfolio through loan-to-value ratios (the ratio of the outstanding debt on a property to the value of that property at origination). In the event of default and repossession of the underlying collateral, we have the ability to remarket and sell the properties to eliminate or mitigate the potential risk of loss. The table below provides additional information about our non-U.S. residential mortgages based on loan-to-value ratios.

	June 30, 2011						December 31, 2010
	Loan-to-value ratio						Loan-to-value ratio
	80% or		Greater than		Greater than		80% or		Greater than		Greater than
(In millions)	less		80% to 90%		90%		less		80% to 90%		90%

Non-U.S. residential mortgages	$	23,091	$	6,944	$	10,696	$	22,403	$	7,023	$	10,585

The majority of these financing receivables are in our U.K. and France portfolios and have re-indexed loan-to-value ratios of 86% and 57%, respectively. We have third-party mortgage insurance for approximately 67% of the balance of Consumer non-U.S. residential mortgage loans with loan-to-value ratios greater than 90% at ##D<varrepdate>. Such loans were primarily originated in the U.K. and France.

Installment and Revolving Credit

For our unsecured lending products, including the non-U.S. and U.S. installment and revolving credit and non-U.S. auto portfolios, we assess overall credit quality using internal and external credit scores. Our internal credit scores imply a probability of default which we consistently translate into three approximate credit bureau equivalent credit score categories, including (a) 681 or higher which are considered the strongest credits; (b) 615 to 680, considered moderate credit risk; and (c) 614 or less, which are considered weaker credits.

	Internal ratings translated to approximate credit bureau equivalent score
	June 30, 2011						December 31, 2010
	681 or		615 to		614 or		681 or		615 to		614 or
(In millions)	higher		680		less		higher		680		less

Non-U.S. installment and
revolving credit	$	11,367	$	5,495	$	4,185	$	10,192	$	5,749	$	4,191
U.S. installment and
revolving credit		25,525		8,686		7,967		25,940		8,846		9,188
Non-U.S. auto		4,823		1,440		878		5,379		1,330		849

Of those financing receivable accounts with credit bureau equivalent scores of 614 or less at ##D<varrepdate>, 93% and 7% relate to installment and revolving credit accounts and non-U.S. auto accounts, respectively. These smaller balance accounts have an average outstanding balance less than one thousand U.S. dollars and are primarily concentrated in our retail card and sales finance receivables in the U.S. (which are often subject to profit and loss sharing arrangements), and closed-end loans outside the U.S., which minimizes the potential for loss in the event of default. For lower credit scores, we adequately price for the incremental risk at origination and monitor credit migration through our risk ratings process. We continuously adjust our credit line underwriting management and collection strategies based on customer behavior and risk profile changes.

Consumer – Other

Secured lending in Consumer – Other comprises loans to small and medium-sized enterprises predominantly secured by auto and equipment, inventory finance, and cash flow loans. We develop our internal risk ratings for this portfolio in a manner consistent with the process used to develop our Commercial credit quality indicators, described above. We use the borrower's credit quality and underlying collateral strength to determine the potential risk of loss from these activities.

At ##D<varrepdate>, Consumer – Other financing receivables of $6,568 million, $742 million and $1,218 million were rated A, B, and C, respectively. At ##D<varpriyearend>, Consumer – Other financing receivables of $6,415 million, $822 million and $1,067 million were rated A, B, and C, respectively.

GENERAL ELECTRIC CAPITAL SERVICES INC/CT 10-Q