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Fair Value Measurements
6 Months Ended
Jun. 30, 2012
Fair Value Disclosures [Abstract]  
Fair Value Measurements

15. FAIR VALUE MEASUREMENTS

For a description of how we estimate fair value, see Note 1 in our 2011 consolidated financial statements.

 

The following tables present our assets and liabilities measured at fair value on a recurring basis. Included in the tables are investment securities primarily supporting obligations to annuitants and policyholders in our run-off insurance operations, supporting obligations to holders of GICs in Trinity (which ceased issuing new investment contracts beginning in the first quarter of 2010), investment securities held at our treasury operations and investments held in our CLL business collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries. Such securities are mainly investment grade.

       Netting  
(In millions)Level 1(a)Level 2(a)Level 3 adjustment(b)Net balance
               
June 30, 2012              
Assets              
Investment securities              
   Debt              
      U.S. corporate$ 0 $ 21,298 $ 3,372 $ 0 $ 24,670
      State and municipal  0   3,688   81   0   3,769
      Residential mortgage-backed  0   2,340   97   0   2,437
      Commercial mortgage-backed  0   3,051   0   0   3,051
      Asset-backed(c)  0   825   4,304   0   5,129
      Corporate – non-U.S.  72   1,129   1,363   0   2,564
      Government – non-U.S.  874   974   51   0   1,899
      U.S. government and federal agency  0   3,241   261   0   3,502
   Retained interests  0   0   31   0   31
   Equity              
      Available-for-sale  591   14   14   0   619
      Trading  260   0   0   0   260
Derivatives(d)  0   12,861   362   (6,942)   6,281
Other(e)  62   0   785   0   847
Total $ 1,859 $ 49,421 $ 10,721 $ (6,942) $ 55,059
               
Liabilities              
Derivatives$ 0 $ 4,809 $ 16 $ (3,804) $ 1,021
Other(f)  0   895   0   0   895
Total $ 0 $ 5,704 $ 16 $ (3,804) $ 1,916
               
December 31, 2011              
Assets              
Investment securities              
   Debt              
      U.S. corporate$ 0 $ 20,535 $ 3,235 $ 0 $ 23,770
      State and municipal  0   3,157   77   0   3,234
      Residential mortgage-backed  0   2,568   41   0   2,609
      Commercial mortgage-backed  0   2,824   4   0   2,828
      Asset-backed(c)  0   930   4,040   0   4,970
      Corporate – non-U.S.  71   1,058   1,204   0   2,333
      Government – non-U.S.  1,003   1,444   84   0   2,531
       U.S. government and federal agency  0   3,805   253   0   4,058
   Retained interests  0   0   35   0   35
   Equity              
      Available-for-sale  730   18   17   0   765
      Trading  241   0   0   0   241
Derivatives(d)  0   15,252   393   (5,604)   10,041
Other(e)  0   0   817   0   817
Total $ 2,045 $ 51,591 $ 10,200 $ (5,604) $ 58,232
               
Liabilities              
Derivatives$ 0 $ 5,010 $ 27 $ (4,308) $ 729
Other(f)  0   863   0   0   863
Total $ 0 $ 5,873 $ 27 $ (4,308) $ 1,592
               
               

(a)       There were no securities transferred between Level 1 and Level 2 during the six months ended June 30, 2012.

(b)       The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists and when collateral is posted to us.

(c)       Includes investments in our CLL business in asset-backed securities collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries.

(d)       The fair value of derivatives included an adjustment for non-performance risk. The cumulative adjustment was a loss of $23 million and $13 million at June 30, 2012 and December 31, 2011, respectively. See Note 16 for additional information on the composition of our derivative portfolio.

(e)       Included private equity investments and loans designated under the fair value option.

(f)       Primarily represented the liability associated with certain of our deferred incentive compensation plans.

 

The following tables present the changes in Level 3 instruments measured on a recurring basis for the three and six months ended June 30, 2012 and 2011, respectively. The majority of our Level 3 balances consist of investment securities classified as available-for-sale with changes in fair value recorded in shareowners' equity.

Changes in Level 3 Instruments for the Three Months Ended June 30, 2012 
                    Net 
(In millions)                    change in 
     Net realized/               unrealized 
    Net unrealized                    gains 
   realized/ gains (losses)               (losses) 
   unrealized included in               relating to 
 Balance gains accumulated            Balance  instruments 
 at (losses) other       Transfers Transfers at  still held at 
 April 1, included comprehensive        into out of June 30,  June 30, 
 2012 in earnings(a)income Purchases Sales Settlements Level 3(b)Level 3(b)2012  2012(c)
                                
Investment securities                                  
 Debt                               
    U.S. corporate$3,252 $33 $(72) $119 $(40) $(31) $116 $(5) $3,372  $0 
    State and municipal 79  0  1  1  0  0  0  0  81   0 
    Residential                                
       mortgage-backed 107  0  0  0  0  (2)  1  (9)  97   0 
    Commercial                               
       mortgage-backed 1  0  0  0  (1)  0  0  0  0   0 
    Asset-backed 4,404  7  (89)  57  (75)  0  0  0  4,304   0 
    Corporate – non-U.S. 1,249  (3)  (63)  306  0  (52)  9  (83)  1,363   0 
    Government                               
      – non-U.S. 52  0  0  13  (1)  (13)  0  0  51   0 
    U.S. government and                               
     federal agency 260  0  1  0  0  0  0  0  261   0 
  Retained interests 34  0  (4)  4  (2)  (1)  0  0  31   0 
  Equity                               
    Available-for-sale 15  0  (1)  3  (4)  1  0  0  14   0 
Derivatives(d)(e) 321  30  (2)  23  (3)  (16)  (1)  (4)  348   39 
Other  816  27  (13)  40  (35)  0  0  (50)  785   29 
Total $10,590 $94 $(242) $566 $(161) $(114) $125 $(151) $10,707  $68 
                                
                                

(a)       Earnings effects are primarily included in the “GECC revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of 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 $2 million not reflected in the fair value hierarchy table.

(e)       Gains (losses) 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 16.

 

Changes in Level 3 Instruments for the Three Months Ended June 30, 2011 
                    Net 
(In millions)                    change in 
     Net realized/               unrealized 
    Net unrealized                    gains 
   realized/ gains (losses)               (losses) 
   unrealized included in               relating to 
 Balance gains accumulated            Balance  instruments 
 at (losses) other       Transfers Transfers at  still held at 
 April 1, included comprehensive        into out of June 30,  June 30, 
 2011 in earnings(a)income Purchases Sales Settlements Level 3(b)Level 3(b)2011  2011(c)
                                
Investment securities                                  
 Debt                               
    U.S. corporate$3,120 $14 $3 $30 $(41) $(29) $0 $0 $3,097  $0 
    State and municipal 210  0  0  0  0  (1)  0  0  209   0 
    Residential                                
       mortgage-backed 118  0  (2)  1  0  0  0  (72)  45   0 
    Commercial                               
       mortgage-backed 11  0  1  (1)  0  0  0  (4)  7   0 
    Asset-backed 2,826  (3)  (19)  409  (43)  (1)  0  (37)  3,132   0 
    Corporate – non-U.S. 1,479  (1)  28  0  0  (31)  62  0  1,537   0 
    Government                               
      – non-U.S. 162  (16)  8  13  0  0  107  0  274   0 
    U.S. government and                               
     federal agency 201  0  23  0  0  0  0  0  224   0 
  Retained interests 52  1  (4)  0  (2)  (2)  0  0  45   0 
  Equity                               
    Available-for-sale 21  0  1  0  0  0  0  0  22   0 
Derivatives(d)(e) 272  29  0  1  0  (5)  0  0  297   4 
Other  987  43  12  112  0  (5)  0  0  1,149   39 
Total $9,459 $67 $51 $565 $(86) $(74) $169 $(113) $10,038  $43 
                                
                                

  • Earnings effects are primarily included in the “GECC revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of Earnings.
  • 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.
  • Represented the amount of unrealized gains or losses for the period included in earnings.
  • Represented derivative assets net of derivative liabilities and included cash accruals of $7 million not reflected in the fair value hierarchy table.
  • Gains (losses) 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 16.

 

Changes in Level 3 Instruments for the Six Months Ended June 30, 2012 
     Net              Net 
(In millions)     realized/               change in 
     unrealized               unrealized 
    Net gains                    gains 
   realized/  (losses)               (losses) 
   unrealized included in               relating to 
 Balance gains accumulated            Balance  instruments 
 at (losses) other        Transfers Transfers at  still held at 
 January 1, included comprehensive        into out of June 30,  June 30, 
 2012 in earnings(a)income Purchases Sales Settlements Level 3(b)Level 3(b)2012  2012(c)
                                
Investment securities                                  
  Debt                               
    U.S. corporate$3,235 $59 $(34) $132 $(71) $(47) $116 $(18) $3,372  $0 
    State and municipal 77  0  3  1  0  0  0  0  81   0 
    Residential                                
        mortgage-backed 41  (3)  3  0  0  (3)  69  (10)  97   0 
    Commercial                               
        mortgage-backed 4  0  0  0  (1)  0  0  (3)  0   0 
    Asset-backed 4,040  3  (47)  398  (106)  0  16  0  4,304   0 
    Corporate                               
        – non-U.S. 1,204  (12)  (3)  316  0  (78)  23  (87)  1,363   0 
    Government                               
        – non-U.S. 84  (34)  35  65  (72)  (27)  0  0  51   0 
    U.S. government and                               
       federal agency 253  0  8  0  0  0  0  0  261   0 
  Retained interests 35  0  (8)  9  (3)  (2)  0  0  31   0 
  Equity                               
    Available-for-sale 17  0  (2)  3  (4)  0  0  0  14   0 
Derivatives(d)(e) 369  30  (1)  21  (3)  (18)  (1)  (49)  348   32 
Other  817  32  (13)  41  (42)  0  0  (50)  785   34 
Total $10,176 $75 $(59) $986 $(302) $(175) $223 $(217) $10,707  $66 
                                
                                

  • Earnings effects are primarily included in the “GECC revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of Earnings.
  • 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.
  • Represented the amount of unrealized gains or losses for the period included in earnings.
  • Represented derivative assets net of derivative liabilities and included cash accruals of $2 million not reflected in the fair value hierarchy table.
  • Gains (losses) 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 16.

 

Changes in Level 3 Instruments for the Six Months Ended June 30, 2011 
     Net              Net 
(In millions)     realized/               change in 
     unrealized               unrealized 
    Net gains                    gains 
   realized/  (losses)               (losses) 
   unrealized included in               relating to 
 Balance gains accumulated            Balance  instruments 
 at (losses) other        Transfers Transfers at  still held at 
 January 1, included comprehensive        into out of June 30,  June 30, 
 2011 in earnings(a)income Purchases Sales Settlements Level 3(b)Level 3(b)2011  2011(c)
                                
Investment securities                                  
  Debt                               
    U.S. corporate$3,199 $101 $(20) $75 $(155) $(103) $0 $0 $3,097  $0 
    State and municipal 225  0  (5)  4  0  (4)  0  (11)  209   0 
    Residential                                
        mortgage-backed 66  0  1  2  (4)  (1)  71  (90)  45   0 
    Commercial                               
        mortgage-backed 49  0  1  6  0  0  3  (52)  7   0 
    Asset-backed 2,540  0  55  780  (152)  (11)  1  (81)  3,132   0 
    Corporate                               
        – non-U.S. 1,486  (28)  82  12  (28)  (60)  73  0  1,537   0 
    Government                               
        – non-U.S. 156  (16)  14  13  0  0  107  0  274   0 
    U.S. government and                               
       federal agency 210  0  14  0  0  0  0  0  224   0 
  Retained interests 39  (18)  30  0  (3)  (3)  0  0  45   0 
  Equity                               
    Available-for-sale 24  0  0  0  0  0  1  (3)  22   0 
Derivatives(d)(e) 265  57  4  5  0  (190)  150  6  297   35 
Other  906  102  28  118  0  (5)  0  0  1,149   96 
Total $9,165 $198 $204 $1,015 $(342) $(377) $406 $(231) $10,038  $131 
                                
                                

  • Earnings effects are primarily included in the “GECC revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of Earnings.
  • 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.
  • Represented the amount of unrealized gains or losses for the period included in earnings.
  • Represented derivative assets net of derivative liabilities and included cash accruals of $7 million not reflected in the fair value hierarchy table.
  • Gains (losses) 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 16.

 

Non-Recurring Fair Value Measurements

The following table represents non-recurring fair value amounts (as measured at the time of the adjustment) for those assets remeasured to fair value on a non-recurring basis during the fiscal year and still held at June 30, 2012 and December 31, 2011. These assets can include loans and long-lived assets that have been reduced to fair value when they are held for sale, impaired loans that have been reduced based on the fair value of the underlying collateral, cost and equity method investments and long-lived assets that are written down to fair value when they are impaired and the remeasurement of retained investments in formerly consolidated subsidiaries upon a change in control that results in deconsolidation of a subsidiary, if we sell a controlling interest and retain a noncontrolling stake in the entity. Assets that are written down to fair value when impaired and retained investments are not subsequently adjusted to fair value unless further impairment occurs.

 Remeasured during Remeasured during
 the six months ended the year ended
 June 30, 2012 December 31, 2011
(In millions)Level 2 Level 3 Level 2 Level 3
            
Financing receivables and loans held for sale$171 $2,731 $158 $5,159
Cost and equity method investments(a) 0  266  0  403
Long-lived assets, including real estate 326  2,014  1,343  3,282
Total$497 $5,011 $1,501 $8,844
            
            

(a)       Includes the fair value of private equity and real estate funds included in Level 3 of $57 million and $123 million at June 30, 2012 and December 31, 2011, respectively.

 

The following table represents the fair value adjustments to assets measured at fair value on a non-recurring basis and still held at June 30, 2012 and 2011.

 Three months ended June 30 Six months ended June 30
(In millions)2012 2011 2012 2011
            
Financing receivables and loans held for sale$ (105) $ (263) $ (211) $ (570)
Cost and equity method investments(a)  (38)   (127)   (58)   (176)
Long-lived assets, including real estate(b)  (107)   (343)   (247)   (863)
Total$ (250) $ (733) $ (516) $ (1,609)
            
            

(a)       Includes fair value adjustments associated with private equity and real estate funds of $(1) million and $(8) million in the three months ended June 30, 2012 and 2011, respectively, and $(2) million and $(13) million in the six months ended June 30, 2012 and 2011, respectively.

(b)       Includes impairments related to real estate equity properties and investments recorded in other costs and expenses of $6 million and $339 million in the three months ended June 30, 2012 and 2011, respectively, and $56 million and $776 million in the six months ended June 30, 2012 and 2011, respectively.

Level 3 Measurements

 

The following table presents information relating to the significant unobservable inputs of our Level 3 recurring and non-recurring measurements.

          
  Fair value at     Range
  June 30, Valuation Unobservable (weighted
(Dollars in millions) 2012 technique inputs average)
          
Recurring fair value measurements          
          
Investment securities         
          
Debt         
          
U.S. corporate $1,547 Income approach Discount rate(a) 2.0%-24.9% (10.6%)
          
Asset-backed  4,259 Income approach Discount rate(a) 1.6%-13.3% (4.2%)
          
Corporate Non-U.S.  912 Income approach Discount rate(a) 1.3%-30.2% (8.3%)
          
Other financial assets  367 Market comparables Weighted average cost of capital 7.6X-8.3X (8.3X)
          
   275 Market comparables EBITDA multiple 9.3X-11.7X (9.4X)
          
Non-recurring fair value measurements         
          
Financing receivables and loans held for sale $1,828 Income approach Capitalization rate(b) 5.4%-11.5% (8.2%)
          
Cost and equity method investments  119 Income approach Capitalization rate(b) 7.0%-9.3% (8.3%)
          
Long-lived assets, including real estate  441 Income approach Capitalization rate(b) 4.8%-11.0% (7.4%)
          
          

  • Discount rates are determined based on inputs that market participants would use when pricing investments, including credit and liquidity risk. An increase in the discount rate would result in a decrease in the fair value.
  • Represents the rate of return on net operating income which is considered acceptable for an investor and is used to determine a property's capitalized value. An increase in the capitalization rate would result in a decrease in the fair value.

 

Other Level 3 recurring fair value measurements of $3,097 million and non-recurring measurements of $2,110 million are valued using non-binding broker quotes or other third-party sources. For a description of our process to evaluate third-party pricing servicers, see Note 1 in our 2011 consolidated financial statements. Other recurring fair value measurements of $248 million and non-recurring fair value measurements of $513 million were individually insignificant and utilize a number of different unobservable inputs not subject to meaningful aggregation.