GE 2012 Annual Report Download - page 55

management’s discussion and analsis
GE 2012 ANNUAL REPORT 53
described above. Collateral supporting these secured nonearning
financing receivables are primarily equity of the underlying busi-
nesses for our Interbanca S.p.A. business and equipment for our
equipment finance portfolio.
CLL—ASIA. Nonearning receivables of $0.2 billion represented
2.6% of total nonearning receivables at December 31, 2012. The
ratio of allowance for losses as a percent of nonearning receiv-
ables decreased from 58.4% at December 31, 2011, to 41.5% at
December 31, 2012, primarily due to a decline in allowance for
losses as a result of write-offs in Japan, partially offset by collec-
tions and write-offs of nonearning receivables in our asset-based
financing businesses in Japan. The ratio of nonearning receiv-
ables as a percent of financing receivables decreased from 2.3%
at December 31, 2011, to 1.7% at December 31, 2012, primarily
due to write-offs of nonearning receivables related to our asset-
based financing businesses in Japan. Collateral supporting these
nonearning financing receivables is primarily manufacturing
equipment, commercial real estate, corporate aircraft and assets
in the auto industry.
REAL ESTATE—DEBT. Nonearning receivables of $0.3 billion repre-
sented 4.3% of total nonearning receivables at December 31,
2012. The decrease in nonearning receivables from December 31,
2011, was driven primarily by the resolution of North American
nonearning loans across all asset classes and European multi-
family loans through write-offs, payoffs and foreclosures,
partially offset by new European retail nonearning loans. Write-
offs increased by approximately $0.3 billion in the fourth quarter
of 2012 due to a change in our write-off policies for collateral
dependent loans, requiring write-offs for loans with specific
reserves aged greater than 360 days. The ratio of allowance for
losses as a percent of nonearning receivables decreased from
175.4% to 86.9% reflecting write-offs and resolution of nonearn-
ing loans as mentioned above. The ratio of allowance for losses as
a percent of total financing receivables decreased from 3.9% at
December 31, 2011 to 1.4% at December 31, 2012, driven primar-
ily by the write-offs mentioned above and transactional events
such as settlements and payoffs from impaired loan borrowers
and improvement in collateral values.
The Real Estate financing receivables portfolio is collateralized
by income-producing or owner-occupied commercial properties
across a variety of asset classes and markets. At December 31,
2012, total Real Estate financing receivables of $20.9 billion were
primarily collateralized by office buildings ($5.2 billion), apart-
ment buildings ($3.4 billion), hotel properties ($3.2 billion) and
retail facilities ($2.9 billion). In 2012, commercial real estate mar-
kets continue to show signs of improved stability and liquidity in
certain markets; however, the pace of improvement varies sig-
nificantly by asset class and market and the long-term outlook
remains uncertain. We have and continue to maintain an intense
focus on operations and risk management. Loan loss reserves
related to our Real Estate—Debt financing receivables are par-
ticularly sensitive to declines in underlying property values.
Assuming global property values decline an incremental 1% or
5%, and that decline occurs evenly across geographies and asset
classes, we estimate incremental loan loss reserves would be
required of less than $0.1 billion and approximately $0.2 billion,
respectively. Estimating the impact of global property values
on loss performance across our portfolio depends on a num-
ber of factors, including macroeconomic conditions, property
level operating performance, local market dynamics and indi-
vidual borrower behavior. As a result, any sensitivity analyses
or attempts to forecast potential losses carry a high degree of
imprecision and are subject to change. At December 31, 2012,
we had 94 foreclosed commercial real estate properties totaling
$0.9 billion.
CONSUMER—NON-U.S. RESIDENTIAL MORTGAGES. Nonearning
receivables of $2.6 billion represented 34.1% of total nonearning
receivables at December 31, 2012. The ratio of allowance for
losses as a percent of nonearning receivables decreased from
19.0% at December 31, 2011, to 18.7% at December 31, 2012.
In the year ended 2012, our nonearning receivables decreased
primarily as a result of improved portfolio quality in the U.K.
Our non-U.S. mortgage portfolio has a loan-to-value ratio of
approximately 76% at origination and the vast majority are first
lien positions. Our U.K. and France portfolios, which comprise a
majority of our total mortgage portfolio, have reindexed loan-to-
value ratios of 83% and 56%, respectively. About 6% of these
loans are without mortgage insurance and have a reindexed
loan-to-value ratio equal to or greater than 100%. Loan-to-value
information is updated on a quarterly basis for a majority of our
loans and considers economic factors such as the housing price
index. At December 31, 2012, we had in repossession stock 490
houses in the U.K., which had a value of approximately $0.1 bil-
lion. The ratio of nonearning receivables as a percent of financing
receivables decreased from 8.1% at December 31, 2011 to 7.7% at
December 31, 2012 for the reasons described above.
CONSUMER—NON-U.S. INSTALLMENT AND REVOLVING CREDIT.
Nonearning receivables of $0.2 billion represented 3.0% of total
nonearning receivables at December 31, 2012. The ratio of allow-
ance for losses as a percent of nonearning receivables increased
from 272.6% at December 31, 2011 to 278.1% at December 31,
2012, reflecting lower nonearning receivables due to improved
delinquencies, collections and write-offs primarily in Australia
and New Zealand.