GE 2011 Annual Report Download - page 89

GE 2011 ANNUAL REPORT 87
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BAC CREDOMATIC GECF INC.
During the fourth quarter of 2010, we classifi ed BAC as discontin-
ued operations and completed the sale of BAC for $1,920 million.
Immediately prior to the sale, and in accordance with terms of a
previous agreement, we increased our ownership interest in BAC
from 75% to 100% for a purchase price of $633 million. As a result
of the sale of our interest in BAC, we recognized an after-tax gain
of $780 million in 2010.
BAC revenues from discontinued operations were $983 million
and $943 million in 2010 and 2009, respectively. In total, BAC earn-
ings from discontinued operations, net of taxes, were $854 million
and $292 million in 2010 and 2009, respectively.
GE MONEY JAPAN
During the third quarter of 2007, we committed to a plan to sell
our Japanese personal loan business, Lake, upon determining
that, despite restructuring, Japanese regulatory limits for interest
charges on unsecured personal loans did not permit us to earn an
acceptable return. During the third quarter of 2008, we com-
pleted the sale of GE Money Japan, which included Lake, along
with our Japanese mortgage and card businesses, excluding our
investment in GE Nissen Credit Co., Ltd. In connection with the
sale, we reduced the proceeds from the sale for estimated inter-
est refund claims in excess of the statutory interest rate. Proceeds
from the sale were to be increased or decreased based on the
actual claims experienced in accordance with loss-sharing terms
specifi ed in the sale agreement, with all claims in excess of
258 billion Japanese yen (approximately $3,000 million) remaining
our responsibility. The underlying portfolio to which this obliga-
tion relates is in runoff and interest rates were capped for all
designated accounts by mid-2009. In the third quarter of 2010, we
began making reimbursements under this arrangement.
Our overall claims experience developed unfavorably through
2010. We believe that the level of excess interest refund claims
was impacted by the challenging global economic conditions,
in addition to Japanese legislative and regulatory changes. In
September 2010, a large independent personal loan company
in Japan fi led for bankruptcy, which precipitated a signifi cant
amount of publicity surrounding excess interest refund claims in
the Japanese marketplace, along with substantial legal advertis-
ing. We observed an increase in claims during September 2010
and higher average daily claims in the fourth quarter of 2010 and
the fi rst two months of 2011. Since February and through the end
of 2011, we have experienced substantial declines in the rate of
incoming claims, though the overall rate of reduction, including
fourth quarter experience, has been slower than we expected.
During the fourth quarter of 2011, we recorded an increase to
our reserve of $243 million to refl ect our revised estimates of the
assumed daily incoming claims reduction rate and severity. At
December 31, 2011, our reserve for reimbursement of claims in
excess of the statutory interest rate was $692 million.
The amount of these reserves is based on analyses of recent
and historical claims experience, pending and estimated future
excess interest refund requests, the estimated percentage of
customers who present valid requests, and our estimated pay-
ments related to those requests. Our estimated liability for excess
interest refund claims at December 31, 2011 assumes the pace
of incoming claims will continue to decelerate, average expo-
sure per claim remains consistent with recent experience, and
we continue to see the impact of our loss mitigation efforts.
Estimating the pace of decline in incoming claims can have a sig-
nifi cant effect on the total amount of our liability. Holding all other
assumptions constant, a 20% adverse change in assumed incom-
ing daily claim rate reduction would result in an increase to our
reserves of approximately $110 million.
Uncertainties around the likelihood of consumers to present
valid claims, the runoff status of the underlying book of business,
the fi nancial status of other personal lending companies in Japan,
challenging economic conditions and the impact of laws and reg-
ulations make it diffi cult to develop a meaningful estimate of the
aggregate possible claims exposure. Recent trends, including the
effect of consumer activity, market activity regarding other per-
sonal loan companies and higher claims severity, may continue to
have an adverse effect on claims development.
GE Money Japan losses from discontinued operations, net of
taxes, were $238 million, $1,671 million and $158 million in 2011,
2010 and 2009, 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 as to which there
was an early payment default. All claims received for early pay-
ment default have either been resolved or are no longer
being pursued.
Pending repurchase claims based upon representations and
warranties made in connection with loan sales were $705 mil-
lion at December 31, 2011, $347 million at December 31, 2010
and $783 million at December 31, 2009. Reserves related to these
contractual representations and warranties were $143 million
and $101 million at December 31, 2011 and December 31, 2010,
respectively. We recorded adjustments to our reserve of $42 mil-
lion in 2011 to refl ect the higher amount of pending claims and
an increase in our reserve for unidentifi ed claims. The amount
of these reserves is based upon pending and estimated future
loan repurchase requests, the estimated percentage of loans val-
idly tendered for repurchase, and our estimated losses on loans
repurchased. A ten percent adverse change in these key assump-
tions would result in an increase to our reserves of approximately
$35 million. Historically, a small percentage of the total loans