GE Financial Services

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GE Financial Services

James A. Parke

Vice Chairman & Chief Financial Officer,

GE Capital Services

April 2, 2003

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GE Financial Service Outlook

Continued Transparency Enhancement

– New Reporting Basis (Business Releverage)

Risk Management – Key to Profitable

Growth in Turbulent Times

– Treasury Operations

– Portfolio & Credit Risk

Financial Services

1

2

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Financial Services

GE Consumer Finance GE Insurance GE Equipment Management Corporate Finance GE

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2002

’03 Earnings Outlook

Commercial and Consumer Up Strong Double Digit

Commercial Finance

$3.2

15-20%

~15%

Consumer Finance

$1.9

1.8 15-20%

~10%

Equipment Management

$0.3

0.3 (5)-5%

(~30)%

Insurance

($0.5)

(0.1)

F

~Flat

Corp/Other

($0.3)

(0.6)

0-10%

U

Total

$4.6

60-75%

0-5%

($B)

’03E

1QE

Earnings Growth

“Old” 8:1

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2003 – Commercial Finance

15-20%

Net Income

’03E ’02R $3.7-3.9 $3.2 ROE 16.6% 17% 15-20%

Total Assets

’03E ’02R $224 $194 Write-Offs % ANI 0.8% 0.6% 1 2 3 4

Drive Commercial Excellence… Core Growth Advantage

- $200MM Core Growth in ’03 - More Vertical Markets

Opportunistic Acquisitions

- Deliver $20B Assets, $260MM+ Net

Risk Management & Collections… Continue to Outperform

Fewer Back Rooms … $100MM+ Productivity

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15-20% $2.1-2.2

$1.8

$93 $77

Expand U.S. Consumer Platform Continue Global Acquisitions and Core Growth

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2003 – Insurance

’03E ’02R ROE (0.4%) 9.0% X-ERC 10.0% ’03E ’02R NWP $27.4 $27.3 1 2 3 4 F $2.0-2.2 ($95MM) 0-5% $191 $182

ERC Turnaround Driving $400MM Net Income

– Strong Price Actions – Continued Reposition

Portfolio/Mix

Continued Focus on Cost Out to Drive Competitiveness – $350MM+

Monitor & Mitigate Portfolio Risks

Evaluate Strategic Options to Enhance ROE

Net Income

Total Assets

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(5)-5% $300-325 $313 –% $25 $25

World Class Asset Management Across Segment

Aggressively Defleet Under-Utilized Assets

New Product Pipeline … $25MM Continue to Drive Productivity … $100MM

Hold Assets Flat at $25B

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2003 – All Other GECS

’03E ’02R ’03E ’02R 1 2 3 0-10% ($520-560) ($580) (25–35%) $8 $11

Net Income

Total Assets

($B)

ITS: Continued Restructuring

– Europe Divestiture Complete – Consolidated NA Product &

Service Operations

AFS: Liquidating

– 60% Asset Reduction in ‘03, Complete by Mid-’04

Equity: Aggressive Portfolio Management

– 25% Asset Reduction and 50% Loss Reduction

GE Parent Support Debt – Cost of Carry

Solid Progress in Repositioning of Portfolio

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Continued Transparency Enhancements

9 Expanded Business Level Disclosure

9 Full Articulation of Use of Special Purpose Entities

9 Reorganized GECS into 4 Key Operating Businesses

9 Additional Segment Level Disclosure (Losses, Non-Earnings,

Reserves, etc.)

9 Full Articulation of Funding Strategy/Fixed-Income Communication

9 Clarification/Quantification of GE “Parent Support”

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Releveraging Actions

Reduce Parent Support to ~$10B by End of ’03

GE Company

GECS Consolidated

Equipment Consumer Commercial Insurance

Assets $26 $73 $185 $180 – 8:1 Equity 2 7 19 8 “New” Equity 3 5 21 24 Excess Leverage ~1 ~(2) ~2 ~16 = ~17 Corp/Other ~(5:1) ~(13:1) ~(7:1) ~(.4:1) Leverage Actions:

3

GE Infusion of Capital Into GECS (4.5)

3

Reduce Dividend from GECS to GE to 10% (1.6) • Dividend Excess Capital from Insurance Co’s. (2H’03) (1.1)

~$10B ’03 Parent

Support 2002 Parent Support

Extended Business-Specific Leverage to

Performance Measurements …

Investor Meeting

November 21, 2002

Done

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3 Elements of New Reporting Basis (Annual Report, Page 58)

Detailed Recasts Available on www.ge.com/investor

Earnings Effect Change

Commercial Finance 7.4 : 1 $3,189 $4 $68 ($82) $18 Consumer Finance 12.4 : 1 1,799 (131) (37) (95) – Equipment Management 5.0 : 1 313 2 45 (39) (3) Insurance 0.4 : 1 (95) 414 468 (54) – Corp/Other – (580) (289) (544) 270 (15) Total $4,626 $0 $0 $0 $0 New Leverage Ratio Recasted ’02 Earnings ReportedV$ to Business Segment Interest

Expense Corp.Cost AlignmentBusiness

1 Business-Specific Leverage – Changes Debt + Interest Expense Reorganization – Corporate Expenses to Business Segments New “Verticals” – Business Moves (e.g., Healthcare Fin’l)

2 3

New Reporting Basis

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Risk Management

Disciplined Risk Management is Key to

Profitable Growth in Turbulent Times

Treasury Operations

Portfolio & Credit Risk

1

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• One Centralized Treasury Function • Funding Matched to Assets at

Business Level – Currency – Term

– Fixed or Floating

• Small Exposure to Interest Rate Risk Maintained at Corporate

• Cash Belongs to Corporate • Not a Profit Center

GE Capital Approach:

• Trade for Own Account

• Allow Employees “A Piece of the Action”… GE Stock is the Only Currency

• Play in Emerging Markets

• Speculate in Derivatives or Foreign Currencies

GE Capital Does Not…

Tightly Controlled, Centrally Managed Treasury Operations

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European Equipment Finance

Funding Loan in U.K.

Matched Funding - Examples

Amount £10 £10

Currency £ £ No Currency Risk

Term 3 Yrs. 3 Yrs. No Term Risk

Type Fixed Fixed No Interest Rate

Rate Rate Risk

Asset

Liability & Equity

Objective: Eliminate Non-Credit Risk

0% 2% 4% 6% 8% 10% _Revenue Borrowing Cost Financing “Spread” 1 2 3 Amount $10 $10

Currency $U.S. $U.S. No Currency Risk

Term 3 Yrs. 3 Yrs. No Term Risk

Type Floating Floating No Interest Rate Risk Asset Liability & Equity 1 2 3 0% 2% 4% 6% 8% 10% Revenue Borrowing Cost Financing “Spread”

Commercial Equipment

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117 84 81 13 10 31 36 79 141 151 9 32 Issued $88B in LT Debt in ’02 – CP Balance in 25-35% Range Increased Back-Up Bank Lines

$21B to $54B

Reduced SPE Liquidity Support by $16B to $27B

Program Recognized by Investors:

International Finance Review Awards

– Corporate Borrower of the Year – N. American Borrower of the Year – Borrower of the Year

– Samurai Bond of the Year

Funding & Liquidity – 2002

’02 – Summary Debt Composition $240 $271 $273 Comm’l Paper Other LT Debt Liquidity Lines $34 $54 $54 % CP Coverage 29% 64% 67% 1-30 Day CP $55 $36 $37

Avg. Maturity (Days) 46 47 52

55% 15% 30% LT <1YR 2 3 1

Strong Balance Sheet, Strong Liquidity Position

($B)

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$14.8 Issued Year-to-Date

Funding & Liquidity – 2003

$88

~$60

Lower LTD Debt Issuance in ’03

Growth

Maturities

• $36B Rollover of Maturing Debt • Maintain CP at 25-35% of Total • Expand Retail Program

Fixed $1.7 Type Floating $13.1 89% 11% Source Non-U.S. $7.1 U.S. $7.7 48% 52% Debt Issuances ($B)

YTD Retail Issuances: $0.8

Strong Balance Sheet & Liquidity Position

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Securitization/Asset-Backed Funding

GE Capital Utilizes to:

• Manage Certain Risks • Source of Liquidity • Support Origination • Enhance Profitability

• Evaluating Effect for 7/1/03 Implementation

Still Active Source of Funding … Vehicles Will Change

FIN46 Will Impact Current Approach & Structures:

Use of Securitization Conduits

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Portfolio and Credit Risk Management

Risk Strategy Fundamentals

• Broad Spread of Risk

– Maintain Portfolio Diversification

• Senior Secured Risk Profile

– Credit & Collateral Expertise

– Stay with “What We Know”

• Strong Risk Management Resources

– Intense Focus on Underwriting, Collections, Account and

Portfolio Management – “Wing to Wing”

– 10,000 Global Resources

• Digitized Six Sigma Dashboards for Close-In Portfolio

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Total Assets at Dec ’02: $490B

Portfolio Snapshot

Credit & Asset Risk Remain Key Focus

• Broad Diversification

– 80% of Financing Exposure

(Ex Airlines) to Customers Aggregating Less than $50MM

– 53% of Insurance Investments <$50MM

• Global Spread of Risk, 42% International

• Secured Commercial Lending • Credit Evaluation Primary Screen • Asset Value Evaluation for Back-Up

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Risk Segment

Med Equip Commercial Aircraft Ind'l PP&E Office Equip Energy Transportation Corp Jets Other Trade Pay Telecom Real Estate A/R + Inv Cash Flow $100MM-$300MM $50MM-$100MM Over $1B $300MM-$500MM $14.8 _$4.8 $500MM-$1B $5.8 $6.1 $13.4

• Secured Portfolio with Broad Collateral Diversification • Underwrite Assets We Know Well – Primarily Long Lived • ~2,500 Portfolio/Asset Management Professionals

Highly Diversified Secured Portfolio.

Structure, Asset Collateral Mitigate Larger Exposures

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By Product By Geography Europe Americas Australia 41% 11%

Consumer Exposure

Asia 35% 8% 5%

Broad Range of Products and Broad Risk Diversification

with Large Customer Base

Japan

Commercial

Personal Loans Sales Finance

19% 39% 18% 7% 14% 3% Auto Private Label Mortgages • 103MM Active Customers • Delinquency Holding Steady

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Investment Portfolio Composition

~$132B Exposure at 12/02

Liquid & Diverse Investment Portfolio

Credit Quality*

Asset Class Geography

* Segmented KMV Or Lower Of S&P/Moody’s

Other 2% $3 ($B) Short-Term 2% $3 Mutual 1% $1 8% $11 High Yield 2% $2 10% $13 20% $26 41% $54 10% $13 Real Estate 4% $6 Private Corps Gov’t/Supra Structured Products Corporates Municipals Supernational <1% $1 ROW <1% _{Asia 6% $8} Latin America 1% $1 12% $16 81% $106 Europe North America 65% $85 AAA/AA/A B+ & Below 3% $5 BB 4% $6 BBB 6% $8 BBB- 5% $6 BBB+ 5% $7 12% $15 NR 40% $53 Finance, Ins. & Real Estate Manufacturing 11% $15

15% $20 14% $19 Public Administration Other

Services 2% $2 Retail Trade 4% $5

Mining 4% $5

Comm. 3% $4 Electric, Gas, & Sanitary Svcs. 7% $9

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Intense Focus On Collections

Risk Management - Summary

Resources, Rigor, Rhythm Results

Rigorous Processes

• 5.0 Reviews (Approval Authority)

• 6.0 Reviews (Portfolio Metrics)

• Monthly Portfolio Quality Reviews

Experienced Senior Risk Team

• ~6,500 Consumer Collectors

• ~1,000 Commercial Collectors

• ~3,000 Portfolio Managers

• Chief Risk Officers

– 15–25+ Years Experience

Proprietary Digital Smart Tools

X Y Z

Deal

Screening Underwriting Investment Approval

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Fin’l Svcs Portfolio • Dashboards

• Risk Assessment

Portfolio Monitoring Process (Policy 6.0)

Key Risk

Metrics

Policy 6.0 Review Product B Policy 6.0 Review Product C Policy 6.0 Review Product A Policy 6.0 Review Product D

Product

Level

Business

Level

Offices of CEO

Board Reviews

Cockpit Dashboards

“Bottom Up” Management of Portfolio Performance

Policy 6.0

• Defines Program Risk Parameters • Portfolio Diversification

• Credit Quality Mix • Single Exposure Limits • Sets Trigger Points

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Investment Approval Authorities (Policy 5.0)

• $500MM Consumer Portfolio Risk

with Strong Retailers ($200MM Int’l)

• $150MM Single Commercial Risk • $25MM Equities ($10MM Int’l)

Delegated Maximum

GE Capital Board of Directors

CEOs

& Chief Risk Officers

Acquisitions Over $500MM Go to GE Board

Up to 150% Of CEO Delegations (GE Consumer Finance, GE

Commercial Finance, GE Equipment Management, GE Insurance)

GE Capital Investment Committee

Risk-Based Approval Levels

Policy 5.0

• Prescribes Maximum Investment Authorities

• Authorities Based on Product Level Core Risk Parameters • All New Activities Require CEO & GRM Approval

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Portfolio Performance

Losses (% of ANI)

Comprehensive, Rigorous Approach to Risk Produces Results

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Opportunistic Growth – Recent Major Acquisitions

Commercial

Consumer

($B)

9Security Capital $5.6

9Deutsche Financial Services 3.3

9Westpac – AGC 2.2

9ABB 2.2

Assets

9First National Bank $7.1

9Westpac – AGC 3.8 9Conseco 2.2 9Kingfisher 0.6 9Kawai Assist 0.2 9WKV Bank 0.2 Assets