General Electric Capital Services

Transcription

1 General Electric Capital Services Risk Management & Portfolio Quality Well diversified portfolio with broad spread of risk, supported by seasoned risk leadership and rigorous processes This document contains forward-looking statements - that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as expect, anticipate, intend, plan, believe, seek, or will. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could adversely or positively affect our future results include: the behavior of financial markets, including fluctuations in interest and exchange rates and commodity and equity prices; the commercial and consumer credit environment; the impact of regulation and regulatory and legal actions; strategic actions, including acquisitions and dispositions; future integration of acquired businesses; future financial performance of major industries which we serve, including, without limitation, the air and rail transportation, energy generation, media, real estate and healthcare industries; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements."

2 Risk strategy - maintaining disciplines through all cycles Diversified portfolio - broad spread of risk, managed exposure limits Senior secured financings - disciplined underwriting to GE s onbook standards Conservative asset residuals - strong asset management, redeployment capabilities Experienced risk team senior risk officers have 25+ years experience Rigorous process approach transparency into the risks we take Disciplined approach to managing risk 2/

3 Comprehensive risk assessment and capital allocation GE Capital Board of Directors Investments Portfolio reviews Key risk policies Policy Delegation Maximum single risk approval authorities - Most <$100MM Major acquisitions reviewed by the Board Business field level Business CEO level GE Corporate risk 5.0 authorities Risk policy, Exposure database (REM) BOD investments, portfolio management Capital allocation, portfolio analytics Portfolio management, emerging issues Delegates approval authorities under 5.0 Capital markets execution Capital allocation & product leverage implementation Focused risk organization in each market Product level performance monitoring (6.0) Product level delegated authorities (5.0) Policy Monitoring Sets portfolio risk limits Defines risk parameters Sets trigger points early warnings Establishes corrective actions Monitors performance 3/

4 Risk Management Policy Investment Authorities Centrally determined authorities delegated by the GECS Board to: Business CEO/Chief Risk Officer jointly Delegations by product - based on transaction/risk attributes: Credit rating, geography, collateral, LTV etc.. Policy 6.0 Overall Risk Limits Establishes aggregate limits based on risk characteristics at product or program level Derives specification limits tolerance for volatility sets trigger level & call to action Provides mechanism to communicate portfolio performance & Feeds underwriting parameters Credit Risk Asset/ Market Risk Regulatory, Legislative Each approval acts as a threshold for maximum single obligor exposure Commercial Financing Activities Monitors significant risk drivers at product level Summarizes indicators for total portfolio Identifies portfolios for deep dive reviews Requests to exceed threshold require Board approval Product Level Cash flow loans Asset based loans Franchise loans Corporate aircraft Equipment leases Real estate debt Bottom-up process.. same for Consumer financing activities 4/

5 GECC Portfolio-Mar Total assets ($612B) Geography Other JVs $16B Other $73B 3% 12% Real Estate $82B 13% Asia Pacific 11% Latin America 2% 10% 50% U.S. Europe 2 3% Canada Consumer $154B 25% GECAS $50B 8% EFS $23B 35% ~70% of financing activities - Commercial ~11% Developing Markets Commercial Lending & Leasing $214B Korea Czech Republic Developing Markets $65B China Others 7% 9% Russia 17% 6% 16% 16% Mexico Poland 5% 7% 5% Brazil Thailand Turkey Hungary India 5/

6 Consumer Portfolio (assets) Product ($154B) Geography ($154B) Auto 10% Other 10% 15% Sales Finance 8% Personal Loan Eastern Europe 15% Asia North America 28% 6% Small and Medium Enterprises ANZ 13% 2% Latin America Mortgage 37% 1 Cards 16% 22% Western Europe U.K. >70% International ~17% in developing markets ~58% of receivables Prime 6/

7 Commercial Portfolio Diversification Industry sectors ($346B) Collateral type ($346B) Automotive Machinery & Equipment Construction Hotels Restaurants & Leisure Health Care 6% 5% 3% Energy 6% 2% 2% 33% Others Others A/c Rec and Inv Commercial Airlines Energy Generation/Distribution 13% 8% 5% 8% Cash Flow FF& E and Other Equip 10% 10% Corporate Jets 3% Real Estate 23% Transportation 6% Equipment 23% Comm. Real Estate Healthcare Equipment 2% Franchise 2% 5% Diversified Finance 13% Fleet Vehicles Business Services Dealer Inventories Comm. Aircraft 52% less than 6% industry weighting - 53 industries Diversified portfolio in long-standing GECC collateral types 7/

8 Commercial Customer Concentrations ($346B) Over $1B 6% $500MM-$1B 6% $300MM-500MM $200MM-300MM 7% $100MM-200MM Over $1B, 14 accounts: Airlines, Aerospace & Defense, Electric Utilities, Transportation Rail, Real Estate $500MM-$1B, 29 accounts: Transportation Rail, Airlines, Healthcare, Real Estate, Oil & Gas Refining $300MM-$500MM, 37 accounts: Airlines, Automotive, Diversified Finance Companies, Electric Utilities, Real Estate 62% 11% $50MM-$100MM Under $50MM 73% of single risk exposures <$100MM Larger exposures secured primarily by essential operating assets 8/

9 Portfolio overview (as of 4Q 08) Asset type % of total portfolio GE Banks* Consumer 30% 6 Commercial 70% 36% U.S. 41% 86% U.S. consumer 6% 58% - Cards 3% 9% - Mortgage 0% 40% -Auto 0% 1% - Student loan 0% 1% - Sales Finance/Other 7% GE position vs. banks Less Consumer No U.S. mortgage, auto or student loans More global Minimal real estate construction exposure 46% of portfolio is cross-collateralized with other 1st mortgages Operate each owned property Underwrite to hold on book Minimal junior debts, small hold positions Global redeployment, remarketing capabilities Deep domain expertise in Commercial Air & Power Generation * Weighted average of top 4 U.S. money center banks PLCC has smaller average balance, lower loss severity, retailer loss sharing GE mix different than banks 9/

10 GE Capital portfolio quality Commercial Consumer 30+ delinquency Non-earners 2.8 Delinquencies 2.17% 1.48% 1.61% 2.00% 1.36% 1.39% % Non-earners 0.81% 1Q'08 2Q'08 3Q'08 4Q'08 1Q' % 11.80% 9.22% Mortgage 8.47% 7.75% 7.43% 8.20% 5.66% 5.91% 6.38% Total 5.62% 6.02% 4.36% % Non-mortgage % 1.21% 6.81% 5.47% 4.59% Mortgage 4.13% 4.19% 3.33% 2.50% 2.7 Total 2.16% 1.75% 1.29% 1.41% Non-mortgage Drivers Continued delinquency pressure across most portfolios +66 bps. vs. 4Q 08 Americas +42 bps., RE +9 bps., Europe +8bps., Asia +7 bps. Non-earners +61 bps. vs. 4Q 08 Driven by senior secured loans well collateralized CRE non earnings +81 bps to 1.22% 1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 NA delinquencies stable in 1Q Drivers 1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 U.K. mortgage markets deteriorated further Total mortgage delinquencies up 77 bps. vs. 4Q 08 U.K. +47 bps. Total mortgage non-earners up 86 bps. vs. 4Q 08 UK +54 bps. Mortgage loss rates rising but exposure mitigated Total assets at $56.4B, down $5B vs. 4Q 08 write-offs low at 0.45% to financing receivables Low LTV at origination of 75%, Mortgage Insurance on most loans >80% LTV 10 /

11 GECS delinquency 1Q 09 4Q 08 1Q 08 Consumer On-book delinquency 8.49% 7.31% 5.49% Off-book delinquency Managed delinquency Equipment Financing On-book delinquency 2.97% % Off-book delinquency Managed delinquency /

12 Stress testing approach Bottoms up asset by asset, business by business Large commercial exposures over $300MM stressed individually Consumer Mortgages, credit cards, auto and personal loans and sales credit financing By product, by geography market specific Consistent methodology applied across product types globally Commercial Commercial Real Estate: By market and property type Commercial Aircraft: Valuation by equipment type Energy loans and leases: Stress obligor ratings, increase severity, based on outlook Commercial Loans and Leases: Stress probabilities of default, recovery rates 12 /

13 Consumer portfolio stress testing Key Drivers: U.S. Macro Unemployment Home equity access Portfolio Credit quality Credit lines Loss sharing Recovery rates Key Drivers: Non-U.S. Mortgage Macro Home prices Unemployment Refinancing ability Portfolio LTV Mortgage insurance Borrower credit quality FX movements (Central Europe) Key Assumptions: Fed Base Fed Stress GDP (2.0%) (3.3%) U/E avg % U/E peak 9.3% 10.1% Debt sale recovery rate: PLCC 10% to 7.2% 25% to ~6% Key Assumptions: Adverse U.K. 15% HPI decline in 09 ( ) 9% unemployment Additional loss on sale 20-25% Central Europe 15-30% further devaluation from today s FX rate based on country Unemployment up to 13% based on market Sales Finance 16% to ~6.6% 25% to ~6% No benefits assumed from U.S. Stimulus Programs 13 /

14 Commercial portfolio stress testing Key Drivers: Commercial Loans, Leases Key Drivers: Real Estate Macro GDP, Unemployment Macro GDP, Unemployment Liquidity Liquidity Portfolio Senior diversified positions Portfolio LTV Borrower leverage Property cash flow Sector diversification Borrower leverage Asset value of collateral Cap rates, liquidity Key Assumptions: Fed Base Fed Stress Key Assumptions: Fed Base Fed Stress GDP (2.0%) (3.3%) U/E avg % U/E peak 9.3% 10.1% GDP (2.0%) (3.3%) U/E avg % Cap rates Defaults Severity Increased ~70% from 2008 levels to ~5% Increased GECC historical severity by 35% on average to ~15-30% Increased ~100% from 2008 levels to ~6% Increased GECC historical severity by 50% on average to ~20-35% Output No benefits assumed from U.S. Stimulus Programs Revert to historical median of last 18 years PPR model forecasting greater declines in office property cash flows 14 /

15 Rigorous process for evaluating asset impairments (GECS $ in billions) Assets reviewed for impairment <2% assets subject to mark-to-market 4Q 08 assets Equities-trading $0.8 FAS133 hedges Retained interest 1.8 (Consumer) Primary acc ting. model 4Q 08 assets Frequency Real estate owned $36.7 At least annually FAS 144 Cost & equity method inv At least annually APB 18/FAS 115 Retained interest 4.6 Quarterly FAS 115 Debt securities 12.1 Quarterly FAS 115 ($8B Trinity) Equipment leased to others At least annually FAS Aircraft Equipment 27.3 Goodwill/intangibles 29.0 At least annually FAS 142/144 GECS Insurance securities 22.0 Quarterly FAS 115 4Q 08 assets CMBS $ Assets held for sale -Money Real Estate Other 4.3 Accounting models utilized are prescribed Rigorous process All FAS115 assets reviewed quarterly for other than temporary impairment Multiple layers of review: Business unit Capital Finance Corporate accounting CAS/Auditors All equipment coming off lease evaluated for impairment All annual reviews updated if there is change in assumptions or circumstance 15 /

16 Stress summary credit costs and impairments ($ in billions) Original outlook Estimated Fed base case Estimated Fed adverse case Credit Credit Credit costs Impairments Total costs Impairments Total costs Impairments Total Real Estate $0.3 $0.4 $0.7 $0.9 $1.5 $2.4 $1.0 $2.6 $3.6 Aviation/Energy Mid-market lease/lend Other Commercial U.S. Consumer Non-U.S. Mortgage Bank/JV/Other Mgmt. planning Total $9.7 $0.9 $10.6 $11.5 $2.3 $13.8 $13.7 $4.7 $ /

17 Risk approach remains sound Diversified portfolio Senior secured commercial financings Investment approach not trading No CDO s, SIV s or other exotic structured investments Did not sell credit default protection Intense portfolio management with seasoned chief risk officers 25+ years experience Front-end resources shifted to portfolio Aggressive consumer credit management Reduced credit lines Increased minimum credit cutoffs Exited higher-risk mortgage segments Active portfolio management 17 /