GE 2008 Annual Report Download - page 101

Download and view the complete annual report

Please find page 101 of the 2008 GE annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 112

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112

ge 2008 annual report 99
notes to consolidated financial statements
Retained Interests in Securitization Transactions
When we transfer financing receivables, we determine the fair
value of retained interests received as part of the securitization
transaction in accordance with SFAS 157. Further information
about how fair value is determined is presented in Note 28.
Retained interests in securitized receivables that are classified as
investment securities are reported at fair value in each reporting
period. These assets decrease as cash is received on the under-
lying financing receivables. Retained interests classified as financing
receivables are accounted for the same as our on-book financing
receivables.
Key assumptions used in measuring the fair value of retained
interests classified as investment securities and the sensitivity
of the current fair value to changes in those assumptions related
to all outstanding retained interests at December 31, 2008 and
2007 were:
Commercial Credit card Other
(In millions) Equipment real estate receivables assets
2008
Discount rate (a) 17.6% 25.8% 15.1% 13.4%
Effect of
10% adverse change $ (15) $(14) $ (53) $ (1)
20% adverse change (30) (26) (105) (3)
Prepayment rate(a) (b) 19.5% 11.3% 9.6% 52.0%
Effect of
10% adverse change $ (2) $ (3) $(60) $ —
20% adverse change (5) (7) (118) (1)
Estimate of credit losses(a) 0.7% 1.3% 16.2% —%
Effect of
10% adverse change $ (5) $ (2) $ (223) $ —
20% adverse change (10) (4) (440) —
Remaining weighted
average asset lives
(in months) 14 55 10 4
Net credit losses $ 91 $ 1 $1,815 $ 5
Delinquencies 139 56 1,833 80
2007
Discount rate (a) 13.7% 15.2% 14.8% 14.9%
Effect of
10% adverse change $ (11) $(20) $ (36) $ (3)
20% adverse change (22) (38) (72) (6)
Prepayment rate(a) (b) 16.4% 3.4% 10.8% 35.1%
Effect of
10% adverse change $ (7) $ (5) $ (80) $ (2)
20% adverse change (12) (9) (148) (4)
Estimate of credit losses(a) 1.2% 1.0% 9.0% 0.1%
Effect of
10% adverse change $ (5) $ (8) $ (110) $ (1)
20% adverse change (9) (13) (222) (1)
Remaining weighted
average lives (in months) 16 53 8 24
Net credit losses $ 55 $ 1 $ 941 $ —
Delinquencies 53 12 1,514 27
(a) Based on weighted averages.
(b) Represented a payment rate on credit card receivables, inventory financing
receivables (included within equipment) and trade receivables (included within
other assets).
Activity related to retained interests classified as investment
securities in our consolidated financial statements follows.
(In millions) 2008 2007 2006
CASH FLOWS ON TRANSFERS
Proceeds from new transfers $ 6,655 $22,767 $19,288
Proceeds from collections reinvested
in revolving period transfers 70,144 61,625 46,944
Cash flows on retained interests
recorded as investment securities 5,935 4,265 2,964
EFFECT ON GECS REVENUES
FROM SERVICES
Net gain on sale $ 1,133 $ 1,805 $ 1,187
Change in fair value on SFAS 155
retained interests (113) (102) —
Other-than-temporary impairments (330) (114) (37)
Derivative Activities
The QSPEs use derivatives to manage interest rate risk between
the assets and liabilities. At inception of the transaction, the QSPE
will enter into derivative contracts to receive a floating rate of
interest and pay a fixed rate with terms that effectively match
those of the financial assets held. In some cases, we are the
counterparty to such derivative contracts, in which case a second
derivative is executed with a third party to substantially eliminate
the exposure created by the first derivative. At December 31,
2008, the fair value of such derivative contracts was $752 million
($134 million at December 31, 2007). We have no other derivatives
arrangements with QSPEs or other VIEs.
Servicing Activities
As part of a securitization transaction, we may provide servicing in
exchange for a market-based fee that is determined on principal
balances. Where the fee does not represent market-based
compensation for these services, a servicing asset or liability is
recorded, as appropriate. The fair value of the servicing asset or
liability is subject to credit, prepayment and interest rate risk.
Servicing assets and liabilities are amortized to earnings in pro-
portion to and over the period of servicing activity. The amount of
our servicing assets and liabilities was insignificant at December 31,
2008 and 2007. We received servicing fees from QSPEs of
$641 million, $566 million and $381 million in 2008, 2007 and
2006, respectively.
When we provide servicing as an “Aaa” rated provider we
are contractually permitted to commingle cash collected from
customers on financing receivables sold to investors with our
own cash prior to payment to a QSPE. At December 31, 2008,
the balance owed to QSPEs from such collections and included
in cash and equivalents was $4,446 million ($5,121 million at
December 31, 2007). Balances owed by QSPE to GE at
December 31, 2008, and included in other GECS receivables,
were $2,346 million, principally for receivable purchases
($3,507 million at December 31, 2007).