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Businesses Held for Sale, Financing Receivables Held for Sale and Discontinued Operations
 3 Months Ended
Mar. 31, 2015
Assets and Liabilities of Businesses Held For Sale and Discontinued Operations [Abstract]  
Assets and Liabilities Of Business Held For Sale and Discontinued Operations

Note 2. BUSINESSES HELD FOR SALE, FINANCING RECEIVABLES HELD FOR SALE AND DISCONTINUED OPERATIONS

Assets and Liabilities of Businesses Held for Sale

In the first quarter of 2015, in connection with the GE Capital Exit Plan, we committed to sell certain businesses within our CLL business, with assets of $44,398 million and liabilities of $3,871 million. Upon classification as held for sale, we recorded an estimated loss on disposal of $1,845 million ($2,822 million after tax) in revenues. In addition, we signed an agreement to sell our consumer finance business in Australia and New Zealand (ANZ Consumer Lending), with assets of $6,093 million and liabilities of $286 million, to a consortium including KKR, Varde Partners and Deutsche Bank for approximately 6,800 million Australian dollars and 1,400 million New Zealand dollars, respectively, and is targeted to close in 2015. The transactions remain subject to customary closing conditions and regulatory approvals.

In the fourth quarter of 2014, we signed an agreement to sell our consumer finance business Budapest Bank with assets of $3,107 million and liabilities of $2,177 million to Hungary’s government. The transaction remains subject to customary closing conditions and regulatory approvals, and is targeted to close in 2015.

FINANCIAL INFORMATION FOR ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE
(In millions)March 31, 2015  December 31, 2014
 
Assets
Cash and equivalents$1,560  $676
Investment securities7,720448
Financing receivables – net  31,318    2,144
Property, plant and equipment – net7,13037
Goodwill 4,973 106
Other intangible assets – net14513
Other  2,597    50
Valuation allowance on disposal group classified as held for sale(1,845)-
Assets of businesses held for sale$53,598  $3,474
       
Liabilities 
Short-term borrowings$836$435
Accounts payable7474
Other current liabilities9193
Bank deposits1,7111,931
Long-term borrowings230-
Deferred income taxes255(31)
Other 1,636 92
Liabilities of businesses held for sale$6,334 $2,434

Other assets at March 31, 2015 primarily comprised equity investments and real estate investments.

FINANCING RECEIVABLES HELD FOR SALE

In the first quarter of 2015, in connection with the GE Capital Exit Plan, we committed to sell most of our CLL and all of our non-U.S. Consumer financing receivables. As a result, we transferred these financing receivables to held for sale and recognized a pre-tax provision for losses on financing receivables of $3,955 million ($3,341 million after tax) and wrote-off the associated balance of the allowance for loan losses of $5,072 million to reduce the carrying value of the financing receivables to the lower of cost or fair value, less cost to sell.

FINANCING RECEIVABLES HELD FOR SALE
(in millions)March 31, 2015December 31, 2014
Commercial
CLL$65,974$1,409
Energy Financial Services-35
GE Capital Aviation Services (GECAS)25927
Total Commercial66,233(a)1,471
Consumer26,726(b)359
Total financing receivables held for sale$92,959$1,830

  • Over 30 days past due and nonaccrual financing receivables related to commercial financing receivables held for sale were $993 million and $1,401 million respectively.
  • Over 30 days past due and nonaccrual financing receivables related to consumer financing receivables held for sale were $1,757 million and $1,109 million, respectively.

Discontinued Operations

Discontinued operations primarily comprised our Real Estate business and our U.S. mortgage business (WMC). Results of operations, financial position and cash flows for these businesses are separately reported as discontinued operations for all periods presented.

FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS
Three months ended March 31
(In millions)20152014
Operations
Total revenues (loss)$500$660
Earnings (loss) from discontinued operations before income taxes$31$123
Benefit (provision) for income taxes122110
Earnings (loss) from discontinued operations, net of taxes$153$233
Disposal
Gain (loss) on disposal before income taxes$(1,808)$18
Benefit (provision) for income taxes(546)1
Gain (loss) on disposal, net of taxes$(2,354)$19
Earnings (loss) from discontinued operations, net of taxes$(2,201)$252

(In millions)March 31, 2015December 31, 2014
Assets
Cash and equivalents$259$320
Investment securities799848
Financing receivables – net19,34819,636
Other receivables411413
Property, plant and equipment – net137141
Goodwill440537
Other intangible assets – net93109
Deferred income taxes1,4251,755
Other10,14813,026
Valuation allowance on disposal group classified as discontinued operations(1,808)-
Assets of discontinued operations$31,252$36,785
Liabilities
Short-term borrowings$20$273
Accounts payable465549
Other current liabilities84-
Long-term borrowings188234
Deferred income taxes184238
Other1,010845
Liabilities of discontinued operations$1,951$2,139

Other assets at March 31, 2015 and December 31, 2014 primarily comprised real estate investments at our Real Estate business.

REAL ESTATE

In connection with the GE Capital Exit Plan, we announced the planned disposition of our Real Estate business and classified the business as discontinued operations and recorded an estimated loss on disposal of $1,808 million ($2,354 million after tax). We expect to complete the disposal by the end of 2015.

FINANCIAL INFORMATION FOR REAL ESTATE
Three months ended March 31
(In millions)20152014
Operations
Total revenues (loss) $499$630
Interest$(237)$(273)
Operating and administrative(164)(149)
Depreciation and amortization(60)(86)
Provision for losses on financing receivables415
Earnings (loss) from discontinued operations, before income taxes    42137
Benefit (provision) for income taxes 30 103
Earnings (loss) from discontinued operations, net of taxes $72$240
Disposal
Gain (loss) on disposal before income taxes $(1,808)$-
Benefit (provision) for income taxes (546) -
Gain (loss) on disposal, net of taxes $(2,354)$-
Earnings (loss) from discontinued operations, net of taxes(a) $(2,282)$240

(a) Earnings (loss) from discontinued operations attributable to the Company, before income taxes, was $(1,765) million and $138 million for the three months ended March 31, 2015 and 2014, respectively.

WMC

During the fourth quarter of 2007, we completed the sale of WMC, our U.S. mortgage business. WMC substantially discontinued all new loan originations by the second quarter of 2007, and is not a loan servicer. In connection with the sale, WMC retained certain representation and warranty obligations related to loans sold to third parties prior to the disposal of the business and contractual obligations to repurchase previously sold loans that had an early payment default. All claims received by WMC for early payment default have either been resolved or are no longer being pursued.

 

The remaining active claims have been brought by securitization trustees or administrators seeking recovery from WMC for alleged breaches of representations and warranties on mortgage loans that serve as collateral for residential mortgage-backed securities (RMBS). At March 31, 2015, such claims consisted of $3,689 million of individual claims generally submitted before the filing of a lawsuit (compared to $3,694 million at December 31, 2014) and $8,982 million of additional claims asserted against WMC in litigation without making a prior claim (Litigation Claims) (compared to $9,225 million at December 31, 2014). The total amount of these claims, $12,671 million, reflects the purchase price or unpaid principal balances of the loans at the time of purchase and does not give effect to pay downs or potential recoveries based upon the underlying collateral, which in many cases are substantial, nor to accrued interest or fees. As of March 31, 2015, these amounts do not include approximately $429 million of repurchase claims relating to alleged breaches of representations that are not in litigation and that are beyond the applicable statute of limitations. WMC believes that repurchase claims brought based upon representations and warranties made more than six years before WMC was notified of the claim would be disallowed in legal proceedings under applicable statutes of limitations.

Reserves related to repurchase claims made against WMC were $814 million at March 31, 2015, reflecting a net increase to reserves in the three months ended March 31, 2015 of $5 million due to incremental provisions offset by settlement activity. The reserve estimate takes into account recent settlement activity and is based upon WMC’s evaluation of the remaining exposures as a percentage of estimated lifetime mortgage loan losses within the pool of loans supporting each securitization. Settlements in prior periods reduced WMC’s exposure on claims asserted in certain securitizations and the claim amounts reported above give effect to these settlements.

ROLLFORWARD OF THE RESERVE
Three months ended March 31
(In millions)2015 2014
Balance, beginning of period$809 $800
Provision7-
Claim resolutions / rescissions (2) (250)
Balance, end of period$814 $550

Given the significant litigation activity and WMC’s continuing efforts to resolve the lawsuits involving claims made against WMC, it is difficult to assess whether future losses will be consistent with WMC’s past experience. Adverse changes to WMC’s assumptions supporting the reserve may result in an increase to these reserves. Taking into account both recent settlement activity and the potential variability of settlements, WMC estimates a range of reasonably possible loss from $0 to approximately $500 million over its recorded reserve at March 31, 2015. This estimate excludes any possible loss associated with an adverse court decision on the applicable statute of limitations, as WMC is unable at this time to develop such a meaningful estimate.

At March 31, 2015, there were 15 lawsuits involving claims made against WMC arising from alleged breaches of representations and warranties on mortgage loans included in 14 securitizations. The adverse parties in these cases are securitization trustees or parties claiming to act on their behalf. Although the alleged claims for relief vary from case to case, the complaints and counterclaims in these actions generally assert claims for breach of contract, indemnification, and/or declaratory judgment, and seek specific performance (repurchase of defective mortgage loan) and/or money damages. Adverse court decisions, including in cases not involving WMC (such as the New York Court of Appeals’ decision on statute of limitations, expected in 2015), could result in new claims and lawsuits on additional loans. However, WMC continues to believe that it has defenses to the claims asserted in litigation, including, for example, based on causation and materiality requirements and applicable statutes of limitations. It is not possible to predict the outcome or impact of these defenses and other factors, any of which could materially affect the amount of any loss ultimately incurred by WMC on these claims.

WMC has also received indemnification demands, nearly all of which are unspecified, from depositors/underwriters/sponsors of RMBS in connection with lawsuits brought by RMBS investors concerning alleged misrepresentations in the securitization offering documents to which WMC is not a party or, in two cases, involving mortgage loan repurchase claims made against RMBS sponsors. WMC believes that it has defenses to these demands.

To the extent WMC is required to repurchase loans, WMC’s loss also would be affected by several factors, including pay downs, accrued interest and fees, and the value of the underlying collateral. The reserve and estimate of possible loss reflect judgment, based on currently available information, and a number of assumptions, including economic conditions, claim and settlement activity, pending and threatened litigation, court decisions regarding WMC’s legal defenses, indemnification demands, government activity, and other variables in the mortgage industry. Actual losses arising from claims against WMC could exceed these amounts and additional claims and lawsuits could result if actual claim rates, governmental actions, litigation and indemnification activity, adverse court decisions, actual settlement rates or losses WMC incurs on repurchased loans differ from its assumptions.

FINANCIAL INFORMATION FOR WMC
Three months ended March 31
(In millions)20152014
Total revenues (loss) $-$4
Earnings (loss) from discontinued operations, net of taxes $(6)$(2)