Jamie S. Miller |
Senior Vice President – Controller |
General Electric Capital Corporation |
3135 Easton Turnpike |
Fairfield, CT 06828 |
USA |
T+1 203 373 2444 |
F+1 203 373 3005 |
Jamie.miller@ge.com |
Re:
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General Electric Capital Corporation
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Form 10-K for Fiscal Period Ended December 31, 2009
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Form 10-Q for Fiscal Period Ended September 30, 2010
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File No. 001-06461
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We note your response to prior comment 8 from our letter dated August 27, 2010, including your expanded disclosures included on pages 17 and 18 related to your annual goodwill impairment test performed as of July 1, 2010. We note that Step One of the impairment test related to your Real Estate reporting unit indicated potential impairment of the goodwill balance allocated to that reporting unit; however, the results of Step Two of the impairment test indicated goodwill was not impaired for that reporting unit. Given the significance of the amount by which the carrying value of exceeded the fair value ($3 billion as of the test date) as well as the significance of the amount of goodwill allocated to the Real Estate reporting unit ($1.1 billion as of the test date) compared to your annualized pretax income for the nine-months ended September 30, 2010, and given the fact that the Real Estate reporting unit is in a cumulative net loss position, please address the following:
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a.
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We note that you disclose on page 17 the range of discount rates used in your goodwill impairment analysis. Please further revise your disclosure in future filings to disclose each of the specific key assumptions used in your goodwill impairment test in both Step One and Step Two.
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b.
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We note that you disclose on page 18 some of the general factors considered in Step Two of your impairment analysis. As previously requested, please further revise your disclosure in future filings to discuss in detail the specific uncertainties associated with your assumptions, and the potential events or changes in circumstances that could reasonably be expected to adversely affect those assumptions.
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c.
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Please briefly disclose and tell us in more detail the reason(s) for the $6 billion total variance between the carrying value and fair value of the Real Estate reporting unit of $3 billion combined with additional $3 billion by which the implied fair value of goodwill exceeded the carrying value of goodwill allocated to the Real Estate reporting unit. Please briefly disclose and tell us in detail the specific factors or assumptions that resulted in this variance
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d.
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To the extent a significant portion of this difference was related to fair value adjustments made to the value of your loan portfolio, tell us the amount of the adjustment and how the value of the loan portfolio was determined.
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2.
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We note your disclosure on pages 47 and 48 related to the following:
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·
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Approximately 70% of your subprime RMBS had been downgraded to below investment grade subsequent to purchase;
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·
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Credit-related charges were taken on a portion of your RMBS securities;
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·
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A “vast majority” of both your RMBS and CMBS securities were in a senior tranche position as of September 30, 2010;
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·
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The continued significance and severity of the unrealized losses greater than 12-months related to each of these security types; and
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·
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We were unable to locate disclosure that described your consideration of OTTI for your ABS portfolio in particular.
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a.
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The security’s name;
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b.
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The security type (e.g. RMBS, CMBS, etc.)
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c.
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The security tranche;
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d.
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The amount of credit-related OTTI charges taken;
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e.
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The amount of non-credit OTTI charges taken; and
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f.
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If no credit-related OTTI charges have been taken, an explanation of the objective evidence you considered in concluding the security did not have credit-related impairment.
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At September 30, 2010
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||||||||||||
(In millions)
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Amortized
cost
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Gross
unrealized
gains
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Gross
unrealized
losses
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Estimated
fair value
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|||||
RMBS
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$
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2,311
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$
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22
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$
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(417)
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$
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1,916
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||||
CMBS
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1,512
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27
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(131)
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1,408
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||||||||
ABS
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2,807
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53
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(230)
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2,630
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Investment grade (> = BBB-)
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Non-investment grade (< BBB-)
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|||||||||||||||||||||||
Total
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||||||||||||||||||||||||
credit
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||||||||||||||||||||||||
Number of
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Unrealized
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Number of
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Unrealized
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OTTI since
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OTTI in
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|||||||||||||||||||
($ in millions)
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CUSIPS
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Fair value
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losses
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CUSIPS
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Fair value
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losses
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April 1, 2009
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OCI
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(c)
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|||||||||||||||
Residential mortgage-
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||||||||||||||||||||||||
backed (RMBS)
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||||||||||||||||||||||||
Senior tranche
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179
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$
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905
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$
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(238)
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50
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$
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244
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$
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(179)
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$
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(84)
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$
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(238)
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||||||||||
Mezzanine/subordinated
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1
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2
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–
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–
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–
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–
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–
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–
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||||||||||||||||
Total RMBS
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180
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$
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907
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(a)
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$
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(238)
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50
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$
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244
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$
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(179)
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$
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(84)
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$
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(238)
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|||||||||
Commercial mortgage-
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backed (CMBS)
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||||||||||||||||||||||||
Senior tranche
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22
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$
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460
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$
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(80)
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–
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$
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–
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$
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–
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$
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–
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$
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–
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||||||||||
Mezzanine/subordinated
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16
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232
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(51)
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–
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–
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–
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–
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–
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Total CMBS
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38
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$
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692
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$
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(131)
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–
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$
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–
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$
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–
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$
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–
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$
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–
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Asset-backed (ABS)
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Senior tranche
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55
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$
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696
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$
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(122)
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–
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$
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–
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$
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–
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$
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–
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$
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–
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||||||||||
Mezzanine/subordinated
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28
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302
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(103)
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3
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4
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(5)
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(1)
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–
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Total ABS
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83
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$
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998
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(b)
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$
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(225)
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3
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$
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4
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$
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(5)
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$
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(1)
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$
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–
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(a)
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Includes securities with fair values and related unrealized losses of $480 million and $122 million, respectively, which are insured by Monoline Insurers or guaranteed by Government Sponsored Agencies.
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(b)
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Includes securities with fair values and related unrealized losses of $340 million and $20 million, respectively, which are insured by Monoline Insurers or guaranteed by Government Sponsored Agencies.
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(c)
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Represents the amount of OTTI recorded in OCI, as measured at the time of the adjustment.
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Investment grade (> = BBB-)
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Non-investment grade (< BBB-)
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Total
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||||||||||||||||||||||||||||||||||||||||
credit
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||||||||||||||||||||||||||||||||||||||||
Number of
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Unrealized
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Number of
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Unrealized
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OTTI since
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OTTI in
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($ in millions)
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CUSIPS
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Fair value
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gain
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CUSIPS
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Fair value
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gain
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April 1, 2009
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OCI
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(d)
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Residential mortgage-
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||||||||||||||||||||||||||||||||||||||||
backed (RMBS)
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||||||||||||||||||||||||||||||||||||||||
Senior tranche
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98
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$
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707
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$
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19
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3
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$
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22
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$
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1
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$
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(13)
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$
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(11)
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Mezzanine/subordinated
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–
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–
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–
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17
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36
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2
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–
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–
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Total RMBS
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98
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$
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707
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(a)
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$
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19
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20
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$
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58
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(b)
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$
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3
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$
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(13)
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$
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(11)
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||||||||||||||||||||||||
Commercial mortgage-
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||||||||||||||||||||||||||||||||||||||||
backed (CMBS)
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||||||||||||||||||||||||||||||||||||||||
Senior tranche
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15
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$
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716
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$
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27
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–
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$
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–
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$
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–
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$
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–
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$
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–
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||||||||||||||||||||||||||
Mezzanine/subordinated
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2
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–
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–
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–
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–
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–
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–
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–
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||||||||||||||||||||||||||||||||
Total CMBS
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17
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$
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716
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$
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27
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–
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$
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–
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$
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–
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$
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–
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$
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–
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||||||||||||||||||||||||||
Asset-backed (ABS)
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||||||||||||||||||||||||||||||||||||||||
Senior tranche
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18
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$
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238
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$
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4
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1
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$
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1,354
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$
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45
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$
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–
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$
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–
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Mezzanine/subordinated
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2
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21
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1
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2
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15
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3
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–
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–
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Total ABS
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20
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$
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259
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(c)
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$
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5
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3
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$
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1,369
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$
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48
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$
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–
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$
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–
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(a)
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Includes securities with fair values and related unrealized gains of $686 million and $16 million, respectively, which are insured by Monoline Insurers or guaranteed by Government Sponsored Agencies.
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(b)
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Includes securities with fair values and related unrealized gains of $36 million and $2 million, respectively, which are insured by Monoline Insurers or guaranteed by Government Sponsored Agencies.
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(c)
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Includes securities with fair values and related unrealized gains of $4 million and $0 million, respectively, which are insured by Monoline Insurers or guaranteed by Government Sponsored Agencies
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(d)
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Represents the amount of OTTI recorded in OCI, as measured at the time of the adjustment.
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cc:
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J. R. Immelt, Chairman of the Board and Chief Executive Officer, General Electric Company
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M. A. Neal, Vice Chairman, General Electric Company and Chairman and Chief Executive Officer, General Electric Capital Corporation
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K. S. Sherin, Vice Chairman and Chief Financial Officer, General Electric Company
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J. S. Bornstein, Chief Financial Officer, General Electric Capital Corporation
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D. A. Warner, III, Chairman, General Electric Company Audit Committee
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B. B. Denniston, Senior Vice President and General Counsel, General Electric Company
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M. R. McAlevey, Vice President and Chief Corporate, Securities and Finance Counsel; Chairman, Disclosure Committee, General Electric Company
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W. J. O’Mara, Partner, KPMG LLP
P. Tupper, Partner, KPMG LLP
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