GE 2014 Annual Report Download - page 95

GE 2014 FORM 10-K 75
MD&A FINANCIAL RESOURCES AND LIQUIDITY
GECC commercial paper maturities are funded principally through new commercial paper issuances and at GE are
substantially repaid before quarter-end using indefinitely reinvested overseas cash, which as discussed above, is available for
use in the U.S. on a short-term basis without being subject to U.S. tax.
We securitize financial assets as an alternative source of funding. During 2014, we completed $11.1 billion of non-recourse
issuances and $11.3 billion of non-recourse borrowings matured. At December 31, 2014, consolidated non-recourse
securitization borrowings were $29.9 billion.
We have nine deposit-taking banks outside of the U.S. and two deposit-taking banks in the U.S. – Synchrony Bank (formerly
GE Capital Retail Bank), a Federal Savings Bank (FSB), and GE Capital Bank, an industrial bank (IB). The FSB and IB
currently issue certificates of deposit (CDs) in maturity terms up to 10 years.
ALTERNATIVE FUNDING
(In billions)
Total alternative funding at December 31, 2013 $ 107.5
Total alternative funding at December 31, 2014 117.8
Bank deposits 62.8
Non-recourse securitization borrowings 29.9
Funding secured by real estate, aircraft and other collateral 6.0
GE Interest Plus notes (including $0.1 billion of current long-term debt) 5.6
Bank unsecured 13.5
As a matter of general practice, we routinely evaluate the economic impact of calling debt instruments where GECC has the
right to exercise a call. In determining whether to call debt, we consider the economic benefit to GECC of calling debt, the
effect of calling debt on GECC’s liquidity profile and other factors. During 2014, we called $0.4 billion of long-term debt.
EXCHANGE RATE AND INTEREST RATE RISKS
Exchange rate and interest rate risks are managed with a variety of techniques, including match funding and selective use of
derivatives. We use derivatives to mitigate or eliminate certain financial and market risks because we conduct business in
diverse markets around the world and local funding is not always efficient. In addition, we use derivatives to adjust the debt we
are issuing to match the fixed or floating nature of the assets we are originating. We apply strict policies to manage each of
these risks, including prohibitions on speculative activities. Following is an analysis of the potential effects of changes in
interest rates and currency exchange rates using so-called “shock” tests that seek to model the effects of shifts in rates. Such
tests are inherently limited based on the assumptions used (described further below) and should not be viewed as a forecast;
actual effects would depend on many variables, including market factors and the composition of the Company’s assets and
liabilities at that time.
x It is our policy to minimize exposure to interest rate changes. We fund our financial investments using debt or a
combination of debt and hedging instruments so that the interest rates of our borrowings match the expected interest rate
profile on our assets. To test the effectiveness of our hedging actions, we assumed that, on January 1, 2015, interest
rates decreased by 100 basis points across the yield curve (a “parallel shift” in that curve) and further assumed that the
decrease remained in place for the next 12 months. Based on the year-end 2014 portfolio and holding all other
assumptions constant, we estimated that our consolidated net earnings for the next 12 months, starting in January 2015,
would decline by less than $0.1 billion as a result of this parallel shift in the yield curve.