GE 2013 Annual Report Download - page 60

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58 GE 2013 ANNUAL REPORT
LIQUIDITY AND BORROWINGS
We maintain a strong focus on liquidity. At both GE and GECC we
manage our liquidity to help provide access to suffi cient funding
to meet our business needs and fi nancial obligations throughout
business cycles.
Our liquidity and borrowing plans for GE and GECC are estab-
lished within the context of our annual fi nancial and strategic
planning processes. At GE, our liquidity and funding plans take
into account the liquidity necessary to fund our operating com-
mitments, which include primarily purchase obligations for
inventory and equipment, payroll and general expenses (includ-
ing pension funding). We also take into account our capital
allocation and growth objectives, including paying dividends,
repurchasing shares, investing in research and development
and acquiring industrial businesses. At GE, we rely primarily on
cash generated through our operating activities, any dividend
payments from GECC, and also have historically maintained a
commercial paper program that we regularly use to fund oper-
ations in the U.S., principally within fi scal quarters. During 2013,
GECC paid quarterly dividends of $1.9 billion and special divi-
dends of $4.1 billion to GE.
GECC’s liquidity position is targeted to meet its obligations
under both normal and stressed conditions. GECC establishes a
funding plan annually that is based on the projected asset size
and cash needs of the Company, which, over the past few years,
has included our strategy to reduce our ending net investment in
GE Capital. GECC relies on a diversifi ed source of funding, includ-
ing the unsecured term debt markets, the global commercial
paper markets, deposits, secured funding, retail funding prod-
ucts, bank borrowings and securitizations to fund its balance
sheet, in addition to cash generated through collection of princi-
pal, interest and other payments on our existing portfolio of loans
and leases to fund its operating and interest expense costs.
Our 2014 GECC funding plan anticipates repayment of princi-
pal on outstanding short-term borrowings, including the current
portion of long-term debt ($39.2 billion at December 31, 2013),
through issuance of long-term debt and reissuance of commer-
cial paper, cash on hand, collections of fi nancing receivables
exceeding originations, dispositions, asset sales, and deposits
and other alternative sources of funding. Long-term maturities
and early redemptions were $48.3 billion in 2013. Interest on bor-
rowings is primarily repaid through interest earned on existing
fi nancing receivables. During 2013, GECC earned interest income
on fi nancing receivables of $19.6 billion, which more than offset
interest expense of $9.3 billion.
During the fi rst quarter of 2013, $5.0 billion of long-term debt
issued by GE matured.
We maintain a detailed liquidity policy for GECC that includes
a requirement to maintain a contingency funding plan. The
liquidity policy defi nes GECC’s liquidity risk tolerance under dif-
ferent stress scenarios based on its liquidity sources and also
establishes procedures to escalate potential issues. We actively
monitor GECC’s access to funding markets and its liquidity profi le
through tracking external indicators and testing various stress
scenarios. The contingency funding plan provides a framework
for handling market disruptions and establishes escalation proce-
dures in the event that such events or circumstances arise.
GECC is a regulated savings and loan holding company
under U.S. law and became subject to Federal Reserve Board
(FRB) supervision on July 21, 2011, the one-year anniversary of
the Dodd-Frank Wall Street Reform and Consumer Protection
Act (DFA). In addition, on July 8, 2013, the U.S. Financial Stability
Oversight Council (FSOC) designated GECC as a nonbank sys-
temically important fi nancial institution (nonbank SIFI) under the
DFA. Many of the rulemakings for supervision of nonbank SIFIs
are not fi nal and therefore the exact impact and implementation
date remain uncertain. GECC continues to plan for the enhanced
prudential standards that will apply to nonbank SIFIs. These DFA
rulemakings will require, among other items, enhanced capital
and liquidity levels, compliance with the comprehensive capital
analysis and review regulations (CCAR), compliance with counter-
party credit exposure limits, and the development of a resolution
plan for submission to regulators.
GE is also subject to the Volcker Rule, which U.S. regulators
fi nalized on December 10, 2013. The rule prohibits companies
that are affi liated with U.S. insured depository institutions from
engaging in “proprietary trading” or acquiring or retaining any
ownership interest in, or sponsoring or engaging in certain
transactions with, a “hedge fund” or a “private equity fund.”
Proprietary trading and fund investing, as prohibited by the rule,
are not core activities for GE, but GE is assessing the full impact
of the rule, in anticipation of full conformance with the rule, as
required by July 21, 2015.
The FRB recently fi nalized regulations to revise and replace
its current rules on capital adequacy and to extend capital regu-
lations to savings and loan holding companies like GECC. Under
the fi nal rules, GECC expects that the standardized approach for
calculating capital will apply to GECC, in its capacity as a savings
and loan holding company, on January 1, 2015. However, that
timing could change once nonbank SIFI rules are fi nalized. GECC
will ultimately also become subject to the Basel III advanced cap-
ital rules that will be applicable to institutions with $250 billion or
more in assets. Initial actions required for compliance with the
advanced capital rules, including building out the necessary sys-
tems and models, will begin once GECC is subject to regulatory
capital rules. However, full implementation will take several years
to complete.
The FRB has also indicated in a proposed rulemaking that
they will require nonbank SIFIs to submit annual capital plans for
review, including institutions’ plans to make capital distributions,
such as dividend payments. The applicability and timing of this
proposed regulation to GECC is not yet determined. While GECC
is not yet subject to this regulation, GECC’s capital allocation
planning remains subject to FRB review as a savings and loan
holding company.
Overall, GE does not believe that GECC’s designation as
a nonbank SIFI will have a material impact on its business
or operations.