Variable Interest Entities

12 Months Ended

Dec. 31, 2012

Variable Interest Entities [Abstract]

Variable Interest Entities

NOTE 17. VARIABLE INTEREST ENTITIES

We use variable interest entities primarily to securitize financial assets and arrange other forms of asset-backed financing in the ordinary course of business. Except as noted below, investors in these entities only have recourse to the assets owned by the entity and not to our general credit. We do not have implicit support arrangements with any VIE. We did not provide non-contractual support for previously transferred financing receivables to any VIE in 2012 or 2011.

In evaluating whether we have the power to direct the activities of a VIE that most significantly impact its economic performance, we consider the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity's economic performance as compared to other economic interest holders. This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity's future performance and the exercise of professional judgment in deciding which decision-making rights are most important.

In determining whether we have the right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE, we evaluate all of our economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other contractual arrangements). This evaluation considers all relevant factors of the entity's design, including: the entity's capital structure, contractual rights to earnings (losses), subordination of our interests relative to those of other investors, contingent payments, as well as other contractual arrangements that have potential to be economically significant. The evaluation of each of these factors in reaching a conclusion about the potential significance of our economic interests is a matter that requires the exercise of professional judgment.

Consolidated Variable Interest Entities

We consolidate VIEs because we have the power to direct the activities that significantly affect the VIEs economic performance, typically because of our role as either servicer or manager for the VIE. Our consolidated VIEs fall into three main groups, which are further described below:

• Trinity comprises two consolidated entities that hold investment securities, the majority of which are investment grade, and were funded by the issuance of GICs. The GICs included conditions under which certain holders could require immediate repayment of their investment should the long-term credit ratings of GECC fall below AA-/Aa3 or the short-term credit ratings fall below A-1+/P-1. Following the April 3, 2012 Moody's downgrade of GECC's long-term credit rating to A1, substantially all of these GICs became redeemable by their holders. In 2012, holders of $1,981 million in principal amount of GICs redeemed their holdings. The redemption was funded primarily through advances from GECC. The remaining outstanding GICs will continue to be subject to their scheduled maturities and individual terms which may include provisions permitting redemption upon a downgrade of one or more of GECC's ratings, among other things.
• Consolidated Securitization Entities (CSEs) comprise primarily our previously unconsolidated QSPEs that were consolidated on January 1, 2010 in connection with our adoption of ASU 2009-16 & 17. These entities were created to facilitate securitization of financial assets and other forms of asset-backed financing which serve as an alternative funding source by providing access to variable funding notes and term markets. The securitization transactions executed with these entities are similar to those used by many financial institutions and substantially all are non-recourse. We provide servicing for substantially all of the assets in these entities.

  The financing receivables in these entities have similar risks and characteristics to our other financing receivables and were underwritten to the same standard. Accordingly, the performance of these assets has been similar to our other financing receivables; however, the blended performance of the pools of receivables in these entities reflects the eligibility criteria that we apply to determine which receivables are selected for transfer. Contractually the cash flows from these financing receivables must first be used to pay third-party debt holders as well as other expenses of the entity. Excess cash flows are available to GECC. The creditors of these entities have no claim on other assets of GECC.

• Other remaining assets and liabilities of consolidated VIEs relate primarily to three categories of entities: (1) joint ventures that lease light industrial equipment of $1,438 million of assets and $836million of liabilities;(2) other entities that are involved in power generating and leasing activities of $891 million of assets and no liabilities; and (3) insurance entities that, among other lines of business, provide property and casualty and workers' compensation coverage for GE of $1,193 million of assets and $588million of liabilities.

The table below summarizes the assets and liabilities of consolidated VIEs described above.

				Consolidated Securitization Entities
				Credit									Trade
(In millions)	Trinity		(a)	cards		(b)	Equipment		(b)	Real estate		(c)	receivables		Other		Total
December 31, 2012
Assets(d)
Financing receivables, net	$	–		$	24,169		$	12,456		$	50		$	2,339	$	1,902	$	40,916
Investment securities		3,435			–			–			–			–		1,051		4,486
Other assets		217			29			360			–			–		1,873		2,479
Total	$	3,652		$	24,198		$	12,816		$	50		$	2,339	$	4,826	$	47,881
Liabilities(d)
Borrowings	$	–		$	–		$	–		$	–		$	–	$	707	$	707
Non-recourse borrowings		–			17,208			9,811			54			2,050		–		29,123
Other liabilities		1,656			146			11			2			8		1,313		3,136
Total	$	1,656		$	17,354		$	9,822		$	56		$	2,058	$	2,020	$	32,966
December 31, 2011
Assets(d)
Financing receivables, net	$	0		$	19,229		$	10,523		$	3,521		$	1,614	$	2,973	$	37,860
Investment securities		4,289			0			0			0			0		1,031		5,320
Other assets		389			17			283			210			0		2,250		3,149
Total	$	4,678		$	19,246		$	10,806		$	3,731		$	1,614	$	6,254	$	46,329
Liabilities(d)
Borrowings	$	0		$	0		$	2		$	25		$	0	$	821	$	848
Non-recourse borrowings		0			14,184			8,166			3,659			1,769		980		28,758
Other liabilities		4,456			37			0			19			23		1,312		5,847
Total	$	4,456		$	14,221		$	8,168		$	3,703		$	1,792	$	3,113	$	35,453

• Excludes intercompany advances from GECC to Trinity, which are eliminated in consolidation of $2,441 million and $1,006 million at December 31, 2012 and 2011, respectively.
• We provide servicing to the CSEs and are contractually permitted to commingle cash collected from customers on financing receivables sold to CSE investors with our own cash prior to payment to a CSE, provided our short-term credit rating does not fall below A-1/P-1. These CSEs also owe us amounts for purchased financial assets and scheduled interest and principal payments. At December 31, 2012 and 2011, the amounts of commingled cash owed to the CSEs were $6,225 million and $5,655 million, respectively, and the amounts owed to us by CSEs were $6,143million and $5,165million, respectively.
• On October 1, 2012, we completed the sale of our Business Property business, which included servicing rights for its CSEs. We deconsolidated the Business Properties CSEs in the fourth quarter of 2012 as we no longer have the power to direct the activities of these entities.
• Asset amounts exclude intercompany receivables for cash collected on behalf of the entities by GE as servicer, which are eliminated in consolidation. Such receivables provide the cash to repay the entities' liabilities. If these intercompany receivables were included in the table above, assets would be higher. In addition, other assets, borrowings and other liabilities exclude intercompany balances that are eliminated in consolidation.

Revenues from services from our consolidated VIEs were $6,638 million, $6,162 million and $6,914 million in 2012,2011 and 2010, respectively. Related expenses consisted primarily of provisions for losses of $1,171 million, $1,146 million and $1,596 million in 2012, 2011 and 2010, respectively, and interest of $541 million, $593 millionand $765 million in 2012,2011and 2010, respectively. These amounts do not include intercompany revenues and costs, principally fees and interest between GECC and the VIEs, which are eliminated in consolidation.

Investments in Unconsolidated Variable Interest Entities

Our involvement with unconsolidated VIEs consists of the following activities: assisting in the formation and financing of the entity, providing recourse and/or liquidity support, servicing the assets and receiving variable fees for services provided. We are not required to consolidate these entities because the nature of our involvement with the activities of the VIEs does not give us power over decisions that significantly affect their economic performance.

Prior to June 30, 2012, the largest unconsolidated VIE with which we were involved was Penske Truck Leasing Co., L.P. (PTL), a joint venture and limited partnership formed in 1988 between Penske Truck Leasing Corporation (PTLC) and GE. PTLC is the sole general partner of PTL and an indirect wholly-owned subsidiary of Penske Corporation. PTL is engaged in truck leasing and support services, including full-service leasing, dedicated logistics support and contract maintenance programs, as well as rental operations serving commercial and consumer customers. Our direct and indirect interest in PTL is accounted for using the equity method. During the second quarter of 2012, PTL effected a recapitalization and subsequently acquired third-party financing which, through the fourth quarter of 2012, was used to repay $5,392 million of its outstanding debt owed to GECC. At December 31, 2012, our direct and indirect investment in PTL of $2,080 million primarily comprised partnership interests of $825 million and loans and advances of $1,218 million.During the first quarter of 2013, PTLrepaid all of its outstanding debt owed to GECC.

Our largest exposure to any single unconsolidated VIE at December 31, 2012is an investment in asset-backed securities issued by a senior secured loan fund, which invests inhigh-quality senior secured debt of various middle-market companies ($5,030 million). Other significant unconsolidated VIEs include investments in real estate entities ($2,639 million), which generally consist of passive limited partnership investments in tax-advantaged, multi-family real estate and investments in various European real estate entities; and exposures to joint ventures that purchase factored receivables ($2,218 million). The vast majority of our other unconsolidated entities consist of passive investments in various asset-backed financing entities.

The classification of our variable interests in these entities in our financial statements is based on the nature of the entity and the type of investment we hold. Variable interests in partnerships and corporate entities are classified as either equity method or cost method investments. In the ordinary course of business, we also make investments in entities in which we are not the primary beneficiary but may hold a variable interest such as limited partner interests or mezzanine debt investments. These investments are classified in two captions in our financial statements: “Other assets” for investments accounted for under the equity method, and “Financing receivables – net” for debt financing provided to these entities. Our investments in unconsolidated VIEs at December 31, 2012 and December 31, 2011 follow.

	2012						2011
December 31 (In millions)	PTL		All other		Total		PTL		All other		Total
Other assets and investment
securities	$	2,080	$	8,306	$	10,386	$	7,038	$	7,318	$	14,356
Financing receivables – net		–		2,654		2,654		0		2,507		2,507
Total investments		2,080		10,960		13,040		7,038		9,825		16,863
Contractual obligations to fund
investments or guarantees		140		2,462		2,602		600		2,244		2,844
Revolving lines of credit		–		41		41		1,356		92		1,448
Total	$	2,220	$	13,463	$	15,683	$	8,994	$	12,161	$	21,155

In addition to the entities included in the table above, we also hold passive investments in RMBS, CMBS and ABS issued by VIEs. Such investments were, by design, investment grade at issuance and held by a diverse group of investors. Further information about such investments is provided in Note 3.