GE 2009 Annual Report Download - page 55

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GE 2009 ANNUAL REPORT 53
related changes in our contractual rights. We recognized a
pre-tax gain on the sale of $0.3 billion, including a gain on the
remeasurement of our retained investment of $0.2 billion.
At December 31, 2009, variable interests in unconsolidated VIEs
other than QSPEs were $9.7 billion, an increase of $5.7 billion from
2008, primarily related to the deconsolidation of PTL. In addition to
our existing investments, we have contractual obligations to fund
additional investments in the unconsolidated VIEs of $1.4 billion,
an increase of $0.2 billion from 2008. Together, these represent
our maximum exposure to loss if the assets of the unconsolidated
VIEs were to have no value.
QSPEs that we use for securitization are funded with asset-
backed commercial paper and term debt. The assets we securitize
include: receivables secured by equipment, commercial real
estate, credit card receivables, inventory floorplan receivables, GE
trade receivables and other assets originated and underwritten
by us in the ordinary course of business. At December 31, 2009,
securitization entities held $46.9 billion in transferred financial
assets, a decrease of $5.7 billion from year-end 2008. Assets held
by these entities are of equivalent credit quality to our on-book
assets. We monitor the underlying credit quality in accordance
with our role as servicer and apply rigorous controls to the
execution of securitization transactions. With the exception of
credit and liquidity support discussed below, investors in these
entities have recourse only to the underlying assets.
At December 31, 2009, our Statement of Financial Position
included $11.8 billion in retained interests related to the trans-
ferred financial assets discussed above. These retained interests
are held by QSPEs and VIEs for which we are not the primary
beneficiary and take two forms: (1) sellers’ interests, which are
classified as financing receivables, and (2) subordinated interests,
designed to provide credit enhancement to senior interests,
which are classified as investment securities. The carrying value
of our retained interests classified as financing receivables was
$3.0 billion at December 31, 2009, a decrease of $1.2 billion from
2008. The carrying value of our retained interests classified as
investment securities was $8.8 billion at December 31, 2009, an
increase of $2.5 billion from 2008. Certain of these retained
interests are accounted for with changes in fair value recorded
in earnings. During 2009, we recognized increases in fair values
on these retained interests of $0.3 billion compared with declines
in fair value on these retained interests of $0.1 billion in 2008.
For those retained interests classified as investment securities,
we recognized other-than-temporary impairments of $0.1 billion
in 2009, compared with $0.3 billion in 2008. Our recourse liability
in these arrangements was an inconsequential amount in both
2009 and 2008.
We are party to various credit enhancement positions with
securitization entities, including liquidity and credit support
agreements and guarantee and reimbursement contracts, and
have provided our best estimate of the fair value of estimated
losses on such positions. The estimate of fair value is based on
prevailing market conditions at December 31, 2009. Should market
conditions deteriorate, actual losses could be higher. Our exposure
to loss under such agreements was limited to $2.1 billion at
December 31, 2009.
We do not have implicit support arrangements with any VIE or
QSPE. We did not provide non-contractual support for previously
transferred financing receivables to any VIE or QSPE in either 2009
or 2008.
In 2009, the FASB issued ASU 2009-16 and ASU 2009-17,
amendments to ASC 860, Transfers and Servicing, and ASC 810,
Consolidation, respectively, which are effective for us on January 1,
2010. ASU 2009-16 will eliminate the QSPE concept, and ASU
2009-17 will require that all such entities be evaluated for consoli-
dation as VIEs, which will result in our consolidating substantially
all of our former QSPEs. Upon adoption we will record assets and
liabilities of these entities at carrying amounts consistent as if
they had always been consolidated, which will require the reversal
of a portion of previously recognized securitization gains as a
cumulative effect adjustment to retained earnings. See the New
Accounting Standards section for further discussion.
Critical Accounting Estimates
Accounting estimates and assumptions discussed in this section are
those that we consider to be the most critical to an understanding
of our financial statements because they involve significant
judgments and uncertainties. Many of these estimates include
determining fair value. All of these estimates reflect our best
judgment about current, and for some estimates future, economic
and market conditions and their effects based on information
available as of the date of these financial statements. If these
conditions change from those expected, it is reasonably possible
that the judgments and estimates described below could change,
which may result in future impairments of investment securities,
goodwill, intangibles and long-lived assets, incremental losses
on financing receivables, establishment of valuation allowances
on deferred tax assets and increased tax liabilities, among other
effects. Also see Note 1, Summary of Significant Accounting
Policies, which discusses the significant accounting policies that
we have selected from acceptable alternatives.
LOSSES ON FINANCING RECEIVABLES are recognized when they
are incurred, which requires us to make our best estimate of
probable losses inherent in the portfolio. This estimate requires
consideration of historical loss experience, adjusted for current
conditions, and judgments about the probable effects of relevant
observable data, including present economic conditions such
as delinquency rates, financial health of specific customers and
market sectors, collateral values, and the present and expected
future levels of interest rates. Our risk management process
includes standards and policies for reviewing major risk exposures
and concentrations, and we evaluate relevant data either for
individual loans or financing leases, or on a portfolio basis, as
appropriate.
Further information is provided in the Global Risk Management
section and Financial Resources and Liquidity — Financing
Receivables section, the Asset impairment section that follows
and in Notes 1 and 6.