GE 2012 Annual Report Download - page 58

management’s discussion and analsis
56 GE 2012 ANNUAL REPORT
GECC Selected European Exposures
At December 31, 2012, we had $88.9 billion in financing receivables to consumer and commercial customers in Europe. The GECC financ-
ing receivables portfolio in Europe is well diversified across European geographies and customers. Approximately 87% of the portfolio is
secured by collateral and represents approximately 500,000 commercial customers. Several European countries, including Spain,
Portugal, Ireland, Italy, Greece and Hungary (“focus countries”), have been subject to credit deterioration due to weaknesses in their
economic and fiscal situations. The carrying value of GECC funded exposures in these focus countries and in the rest of Europe com-
prised the following at December 31, 2012.
December 31, 2012 (In millions) Spain Portugal Ireland Italy Greece Hungary
Rest of
Europe Total Europe
Financing receivables, before allowance
for losses on financing receivables $1,871 $471 $ 275 $7,161 $ 56 $3,207 $77,480 $ 90,521
Allowance for losses on financing receivables (102) (28) (9) (241) — (112) (1,176) (1,668)
Financing receivables, net of allowance
for losses on financing receivables (a) (b) 1,769 443 266 6,920 56 3,095 76,304 88,853
Investments (c) (d) 119 — — 497 — 257 1,401 2,274
Cost and equity method investments (e) 441 21 360 64 33 3 652 1,574
Derivatives, net of collateral (c) (f) 3 — — 90 — — 176 269
ELTO (g) 524 65 374 853 253 345 9,901 12,315
Real estate held for investment (g) 791 — — 410 — — 6,014 7,215
Total funded exposures (h) $3,647 $529 $1,000 $8,834 $342 $3,700 $94,448 $112,500
Unfunded commitments (i) $ 17 $ 8 $ 177 $ 297 $ 5 $ 683 $ 8,376 $ 9,563
(a) Financing receivable amounts are classified based on the location or nature of the related obligor.
(b) Substantially all relates to non-sovereign obligors. Includes residential mortgage loans of approximately $33.2 billion before consideration of purchased credit protection.
We have third-party mortgage insurance for less than 15% of these residential mortgage loans, substantially all of which were originated in the U.K., Poland and France.
(c) Investments and derivatives are classified based on the location of the parent of the obligor or issuer.
(d) Includes $0.9 billion related to financial institutions, $0.2 billion related to non-financial institutions and $1.2 billion related to sovereign issuers. Sovereign issuances totaled
$0.1 billion and $0.2 billion related to Italy and Hungary, respectively. We held no investments issued by sovereign entities in the other focus countries.
(e) Substantially all is non-sovereign.
(f) Net of cash collateral; entire amount is non-sovereign.
(g) These assets are held under long-term investment and operating strategies, and our equipment leased to others (ELTO) strategies contemplate an ability to redeploy assets
under lease should default by the lessee occur. The values of these assets could be subject to decline or impairment in the current environment.
(h) Excludes $29.9 billion of cash and equivalents, which is composed of $17.4 billion of cash on short-term placement with highly rated global financial institutions based in
Europe, sovereign central banks and agencies or supranational entities, of which $1.4 billion is in focus countries, and $12.5 billion of cash and equivalents placed with
highly rated European financial institutions on a short-term basis, secured by U.S. Treasury securities ($9.7 billion) and sovereign bonds of non-focus countries ($2.8 billion),
where the value of our collateral exceeds the amount of our cash exposure.
(i) Includes ordinary course of business lending commitments, commercial and consumer unused revolving credit lines, inventory financing arrangements and investment
commitments.
We manage counterparty exposure, including credit risk, on an
individual counterparty basis. We place defined risk limits around
each obligor and review our risk exposure on the basis of both
the primary and parent obligor, as well as the issuer of securities
held as collateral. These limits are adjusted on an ongoing basis
based on our continuing assessment of the credit risk of the
obligor or issuer. In setting our counterparty risk limits, we focus
on high quality credits and diversification through spread of risk
in an effort to actively manage our overall exposure. We actively
monitor each exposure against these limits and take appropriate
action when we believe that risk limits have been exceeded or
there are excess risk concentrations. Our collateral position and
ability to work out problem accounts has historically mitigated
our actual loss experience. Delinquency experience has been
relatively stable in our European commercial and consumer
platforms in the aggregate, and we actively monitor and take
action to reduce exposures where appropriate. Uncertainties
surrounding European markets could have an impact on the
judgments and estimates used in determining the carrying value
of these assets.
OTHER GECC RECEIVABLES totaled $14.0 billion at December 31,
2012 and $13.4 billion at December 31, 2011, and consisted of
insurance receivables, amounts due from GE (primarily related
to material procurement programs of $3.5 billion at both
December 31, 2012 and December 31, 2011), nonfinancing cus-
tomer receivables, amounts due under operating leases, amounts
accrued from investment income, tax receivables and various
sundry items.
PROPERTY, PLANT AND EQUIPMENT totaled $69.7 billion at
December 31, 2012, up $4.0 billion from 2011, primarily reflecting
an increase in machinery and equipment at GE and in equipment
leased to others principally as a result of aircraft acquisitions at
our GECAS leasing business. GE property, plant and equipment
consisted of investments for its own productive use, whereas the
largest element for GECC was equipment provided to third parties
on operating leases. Details by category of investment are pre-
sented in Note 7.
GE additions to property, plant and equipment totaled
$3.9 billion and $3.0 billion in 2012 and 2011, respectively. Total
expenditures, excluding equipment leased to others, for the past
five years were $13.2 billion, of which 43% was investment for