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Fair Value Measurements

12 Months Ended

Dec. 31, 2011

NOTE 14. FAIR VALUE MEASUREMENTS

For a description of how we estimate fair value, see Note 1.

The following tables present our assets and liabilities measured at fair value on a recurring basis. Included in the tables are investment securities supporting obligations to holders of GICs in Trinity (which ceased issuing new investment contracts beginning in the first quarter of 2010) and 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		(b)		adjustment	(c)	Net balance

December 31, 2011

Assets
Investment securities
Debt
U.S. corporate	$	514		$	543		$	1,476		$	–		$	2,533
State and municipal		–			501			31			–			532
Residential mortgage-backed		–			1,444			27			–			1,471
Commercial mortgage-backed		–			1,263			–			–			1,263
Asset-backed(d)		–			837			4,011			–			4,848
Corporate - non-U.S.		71			208			786			–			1,065
Government - non-U.S.		1,003			881			48			–			1,932
U.S. government and federal agency		–			3,274			–			–			3,274
Retained interests		–			–			35			–			35
Equity
Available-for-sale		618			–			9			–			627
Trading		241			–			–			–			241
Derivatives(e)		–			14,658			160			(5,319)			9,499
Other(f)		–			–			388			–			388
Total	$	2,447		$	23,609		$	6,971		$	(5,319)		$	27,708

Liabilities
Derivatives	$	–		$	4,502		$	20		$	(4,025)		$	497
Other		–			25			–			–			25
Total	$	–		$	4,527		$	20		$	(4,025)		$	522

December 31, 2010

Assets
Investment securities
Debt
U.S. corporate	$	588		$	942		$	1,697		$	0		$	3,227
State and municipal		0			508			182			0			690
Residential mortgage-backed		47			1,666			45			0			1,758
Commercial mortgage-backed		0			1,388			48			0			1,436
Asset-backed		0			563			2,496			0			3,059
Corporate - non-U.S.		89			356			961			0			1,406
Government - non-U.S.		776			850			128			0			1,754
U.S. government and federal agency		0			3,079			0			0			3,079
Retained interests		0			0			39			0			39
Equity
Available-for-sale		569			500			18			0			1,087
Trading		417			0			0			0			417
Derivatives(e)		0			10,319			330			(5,687)			4,962
Other(f)		0			0			450			0			450
Total	$	2,486		$	20,171		$	6,394		$	(5,687)		$	23,364

Liabilities
Derivatives	$	0		$	6,228		$	102		$	(5,020)		$	1,310
Other		0			31			0			0			31
Total	$	0		$	6,259		$	102		$	(5,020)		$	1,341

The fair value of securities transferred between Level 1 and Level 2 was $67 million in 2011.
Level 3 investment securities valued using non-binding broker quotes and other third parties totaled $296 million and $711 million at December 31, 2011 and 2010, respectively, and were classified as available-for-sale securities.
The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists and when collateral is posted to us.
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.
The fair value of derivatives included an adjustment for non-performance risk. The cumulative adjustment was a loss of $11 million at December 31, 2011 and $9 million at December 31, 2010. See Note 15 for additional information on the composition of our derivative portfolio.
Included private equity investments and loans designated under the fair value option.

The following tables present the changes in Level 3 instruments measured on a recurring basis for the years ended December 31, 2011 and 2010, respectively. The majority of our Level 3 balances consist of investment securities classified as available-for-sale with changes in fair value recorded in shareowner's equity.

Changes in Level 3 Instruments for the Year Ended December 31, 2011

																						Net
(In millions)																						change in
						Net realized/																unrealized
			Net			unrealized																gains
			realized/			gains (losses)																(losses)
			unrealized			included in																relating to
			gains			accumulated																instruments
	Balance at		(losses)			other								Transfers			Transfers			Balance at		still held at
	January 1,		included in			comprehensive								into			out of			December 31,		December 31,
	2011		earnings		(a)	income		Purchases		Sales		Settlements		Level 3		(b)	Level 3		(b)	2011		2011		(c)

Investment securities
Debt
U.S. corporate	$	1,697	$	56		$	(260)	$	77	$	(183)	$	(24)	$	120		$	(7)		$	1,476	$	0
State and municipal		182		0			(1)		10		0		(8)		0			(152)			31		0
Residential
mortgage-backed		45		0			0		0		0		(1)		0			(17)			27		0
Commercial
mortgage-backed		48		0			0		0		0		0		0			(48)			0		0
Asset-backed		2,496		(13)			63		2,157		(184)		(11)		0			(497)			4,011		0
Corporate – non-U.S.		961		(53)			(96)		25		(32)		(46)		71			(44)			786		0
Government
– non-U.S.		128		(101)			41		41		(1)		(27)		107			(140)			48		0
U.S. government and
federal agency		0		0			0		500		0		0		0			(500)			0		0
Retained interests		39		(28)			26		7		(4)		(5)		0			0			35		0
Equity
Available-for-sale		18		0			(1)		0		0		0		2			(10)			9		0
Trading		0		0			0		0		0		0		0			0			0		0
Derivatives(d)(e)		227		102			2		2		0		(198)		0			6			141		81
Other		450		4			(9)		149		(145)		(6)		0			(55)			388		0
Total	$	6,291	$	(33)		$	(235)	$	2,968	$	(549)	$	(326)	$	300		$	(1,464)		$	6,952	$	81

Earnings effects are primarily included in the “Revenues from services” and “Interest” captions in the 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 $1 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 15.

Changes in Level 3 Instruments for the Year Ended December 31, 2010

							Net realized/									Net change
							unrealized									in unrealized
							gains (losses)									gains (losses)
				Net realized/			included in									relating to
				unrealized			accumulated		Purchases,		Transfers					instruments
	Balance at			gains(losses)			other		issuances		in and/or			Balance at		still held at
	January 1,			included in			comprehensive		and		out of			December 31,		December 31,
(In millions)	2010		(a)	earnings		(b)	income		settlements		Level 3		(c)	2010		2010		(d)

Investment securities
Debt
U.S. corporate	$	1,642		$	54		$	279	$	(287)	$	9		$	1,697	$	–
State and municipal		173			–			23		(14)		–			182		–
Residential
mortgage-backed		44			–			4		–		(3)			45		–
Commercial
mortgage-backed		1,034			30			(3)		(1,013)		–			48		–
Asset-backed		1,475			4			2		1,118		(103)			2,496		–
Corporate - non-U.S.		948			(46)			(48)		126		(19)			961		–
Government
- non-U.S.		138			–			(10)		–		–			128		–
U.S. government and
federal agency		–			–			–		–		–			–		–
Retained interests		45			(1)			3		(8)		–			39		–
Equity
Available-for-sale		17			–			1		–		–			18		–
Trading		–			–			–		–		–			–		–
Derivatives(e)(f)		205			186			15		(66)		(113)			227		15
Other		480			2			(31)		(1)		–			450		–
Total	$	6,201		$	229		$	235	$	(145)	$	(229)		$	6,291	$	15

Included $1,015 million in debt securities, a reduction in retained interests of $8,782 million and a reduction in derivatives of $37 million related to adoption of ASU 2009-16 & 17.
Earnings effects are primarily included in the “Revenues from services” and “Interest” captions in the 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 $(1) 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 15.

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 December 31, 2011 and 2010. 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 the year ended December 31,
	2011				2010
(In millions)	Level 2		Level 3		Level 2		Level 3		(b)

Financing receivables and loans held for sale	$	143	$	5,348	$	35	$	6,833
Cost and equity method investments(a)		–		402		–		378
Long-lived assets, including real estate		1,343		3,261		1,023		5,809
Total	$	1,486	$	9,011	$	1,058	$	13,020

Includes the fair value of private equity and real estate funds included in Level 3 of$123 million and $296 million at December 31, 2011 and 2010, respectively.
Excluded our retained investment in Regency, a formerly consolidated subsidiary, that was remeasured to a Level 1 fair value of $549 million in 2010.

The following table represents the fair value adjustments to assets measured at fair value on a non-recurring basis and still held at December 31, 2011 and 2010.

	Year ended December 31,
(In millions)	2011		2010

Financing receivables and loans held for sale	$	(920)	$	(1,741)
Cost and equity method investments(a)		(272)		(246)
Long-lived assets, including real estate(b)		(1,418)		(2,958)
Retained investments in formerly consolidated subsidiaries		–		109
Total	$	(2,610)	$	(4,836)

Includes fair value adjustments associated with private equity and real estate funds of $(24) million and $(198) million during 2011 and 2010, respectively.
Includes impairments related to real estate equity properties and investments recorded in operating and administrative expenses of $976 million and $2,089 million during 2011 and 2010, respectively.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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