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Businesses Held For Sale, Financing Receivables Held for Sale and Discontinued Operations
 9 Months Ended
Sep. 30, 2015
Businesses Held For Sale, Financing Receivables 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, we signed an agreement to sell our consumer finance business in Australia and New Zealand (ANZ Consumer Lending) for approximately 6,800 million Australian dollars and 1,400 million New Zealand dollars, respectively. On May 29, 2015, we sold a portion of the Australian business for gross proceeds of $671 million. As of September 30, 2015, ANZ Consumer Lending had assets and liabilities of $4,917 million and $260 million, respectively. The sale is targeted to close in 2015 with expected proceeds of approximately 6,000 million Australian dollars and 1,400 million New Zealand dollars. 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 to Hungary’s government. On June 29, 2015 we completed the sale of Budapest Bank for proceeds of $700 million.

FINANCIAL INFORMATION FOR ASSETS AND LIABILITIES OF BUSINESSES HELD FOR SALE
(In millions)September 30, 2015  December 31, 2014
 
Assets
Cash and equivalents$299  $676
Investment securities-448
Financing receivables – net  4,141    2,144
Property, plant and equipment – net1537
Goodwill 366 106
Other intangible assets – net7313
Other  23    50
Assets of businesses held for sale$4,917  $3,474
       
Liabilities 
Short-term borrowings$27$435
Bank deposits-1,931
Deferred income taxes(123)(31)
Other 356 99
Liabilities of businesses held for sale$260 $2,434

FINANCING RECEIVABLES HELD FOR SALE

In the first quarter of 2015, in connection with the GE Capital Exit Plan, we committed to sell 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 $2,405 million ($2,197 million after tax) and wrote-off the associated balance of the allowance for loan losses of $2,859 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)September 30, 2015December 31, 2014
Commercial
CLL$833$357
Energy Financial Services-35
GE Capital Aviation Services (GECAS)1427
Other105-
Total Commercial952419
Consumer22,713(a)359
Total financing receivables held for sale$23,665$778

(a) Over 30 days past due and nonaccrual financing receivables related to consumer financing receivables held for sale were $1,060 million and $634 million, respectively.

Discontinued Operations

Discontinued operations primarily included most of our CLL business, 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 September 30Nine months ended September 30
(In millions)2015201420152014
Operations
Total revenues (loss)$2,756$4,033$9,536$11,946
Earnings (loss) from discontinued operations before income taxes$1,060$666$203$2,062
Benefit (provision) for income taxes(420)4033(7)
Earnings (loss) from discontinued operations, net of taxes$640$706$236$2,055
Disposal
Gain (loss) on disposal before income taxes$(2,616)$-$(9,652)$14
Benefit (provision) for income taxes1,629-(916)1
Gain (loss) on disposal, net of taxes$(987)$-$(10,568)$15
Earnings (loss) from discontinued operations, net of taxes$(347)$706$(10,332)$2,070

(In millions)September 30, 2015December 31, 2014
Assets
Cash and equivalents$11,226$5,414
Investment securities8,17910,006
Financing receivables – net11,622114,561
Other receivables1,4702,183
Property, plant and equipment – net12,08418,051
Goodwill9,86713,569
Other intangible assets - net44301
Deferred income taxes2,3892,920
Financing receivables held for sale65,3903,116
Valuation allowance on disposal group classified as held for sale(7,650)-
Other7,32016,803
Assets of discontinued operations$121,940$186,924
Liabilities
Short-term borrowings$820$1,125
Accounts payable3,8843,770
Non-recourse borrowings8,07210,569
Bank deposits18,34818,998
Long-term borrowings3161,182
All other liabilities9,5957,610
Deferred income taxes2,6085,403
Liabilities of discontinued operations$43,642$48,657

Commercial lending and leasing

In connection with the GE Capital Exit Plan, we announced the planned disposition of most of our CLL business and classified this portion of the business as discontinued operations. We closed certain of our CLL business dispositions for proceeds of $21,215 million for the three and nine months ended September 30, 2015. We expect to dispose of substantially all of the remaining CLL business in 2015 and 2016.

FINANCIAL INFORMATION FOR COMMERCIAL LENDING AND LEASING
Three months ended September 30Nine months ended September 30
(In millions)2015201420152014
Operations
Total revenues (loss)$2,691$3,370 $8,664$9,998
Interest$(576)$(762)$(1,919)$(2,324)
Operating and administrative(900)(942)(2,905)(2,732)
Depreciation and amortization-(988)(1,768)(2,923)
Provision for losses on financing receivables13(87)(1,744)(294)
Earnings (loss) from discontinued operations, before income taxes   1,228591 3281,725
Benefit (provision) for income taxes (484) (108) (169) (326)
Earnings (loss) from discontinued operations, net of taxes$744$483 $159$1,399
Disposal
Gain (loss) on disposal before income taxes$(2,834)$- $(8,059)$-
Benefit (provision) for income taxes 1,629 - (298) -
Gain (loss) on disposal, net of taxes$(1,205)$- $(8,357)$-
Earnings (loss) from discontinued operations, net of taxes(a)$(461)$483 $(8,198)$1,399

(a) Earnings (loss) from discontinued operations attributable to GECC, before income taxes, was $(1,608) million and $589 million for the three months ended September 30, 2015 and 2014, respectively, and $(7,736) million and $1,710 million for the nine months ended September 30, 2015 and 2014, respectively.

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. We closed certain of our Real Estate business dispositions for proceeds of $12,991 million and $30,508 million for the three and nine months ended September 30, 2015, respectively. We expect to dispose of substantially all of the remaining Real Estate business by the end of 2015.

FINANCIAL INFORMATION FOR REAL ESTATE
Three months ended September 30Nine months ended September 30
(In millions)2015201420152014
Operations
Total revenues (loss)$81$698 $893$1,992
Interest$(64)$(270)$(437)$(817)
Operating and administrative(156)(213)(464)(563)
Depreciation and amortization-(82)(62)(252)
Provision for losses on financing receivables-(12)492
Earnings (loss) from discontinued operations,
before income taxes   (139)121 (65)452
Benefit (provision) for income taxes 53 55 95 251
Earnings (loss) from discontinued operations, net of taxes$(86)$176 $30$703
Disposal
Gain (loss) on disposal before income taxes$218$- $(1,593)$-
Benefit (provision) for income taxes - - (618) -
Gain (loss) on disposal, net of taxes$218$- $(2,211)$-
Earnings (loss) from discontinued operations, net of taxes(a)$132$176 $(2,181)$703

(a) Earnings (loss) from discontinued operations attributable to GECC, before income taxes, was $81 million and $120 million for the three months ended September 30, 2015 and 2014, respectively, and $(1,658) million and $452 million for the nine months ended September 30, 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 September 30, 2015, such claims consisted of $3,468 million of individual claims generally submitted before the filing of a lawsuit (compared to $3,694 million at December 31, 2014) and $8,411 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, $11,879 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 September 30, 2015, these amounts do not include approximately $426 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 law and the June 11, 2015 decision of the New York Court of Appeals in ACE Securities Corp. v. DB Structured Products, Inc., on the statute of limitations period governing such claims.

Reserves related to repurchase claims made against WMC were $832 million at September 30, 2015, reflecting a net increase to reserves in the three months ended September 30, 2015 of $7 million due to incremental provisions net of settlements. 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 for which timely claims have been asserted in litigation against WMC. 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 September 30Nine months ended September 30
(In millions)2015 20142015 2014
Balance, beginning of period$825 $549$809 $800
Provision284046142
Claim resolutions / rescissions (21) (1) (23) (354)
Balance, end of period$832 $588$832 $588

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. WMC estimates a range of reasonably possible loss from $0 to approximately $500 million over its recorded reserve at September 30, 2015. This estimate involves significant judgment and may not reflect the range of uncertainties and unpredictable outcomes inherent in litigation, including WMC litigation discussed in Legal Proceedings and potential changes in WMC’s legal strategy. 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 September 30, 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. WMC reached a settlement in principle on one of these lawsuits in the third quarter, and the settlement became effective October 20, 2015. 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, 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 September 30Nine months ended September 30
(In millions)2015201420152014
Total revenues (loss)$(22)$(34)$(26)$(70)
Earnings (loss) from discontinued operations, net of taxes$(21)$(25)$(37)$(57)