Capital One 2009 Annual Report Download - page 187

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The Company’s involvement in these arrangements can take many different forms, including securitization activities, servicing
activities, the purchase or sale of mortgage-backed securities (“MBS”) and other asset-backed securities (“ABS”) in connection with
our investment portfolio, and loans to VIEs that hold debt, equity, real estate or other assets. In certain instances, the Company also
provides guarantees to VIEs or holders of variable interests in VIEs. In addition to the information contained in this Note, the
Company has disclosed its involvement with other types of VIEs in “Note 15—Mortgage Servicing Rights”, “Note 20-
Securitizations” and “Note 21- Commitments, Contingencies and Guarantees”.
The Company may purchase and sell mortgage-backed securities and other asset-backed securities related to its investment portfolio.
The Company’s investment portfolio consists of collateralized mortgage obligations (“CMO”), MBS and ABS investments that were
issued by QSPEs or VIEs that are subject to the requirements of ASC 810-10/FIN 46(R). The Company’s variable interest in these
structures is limited to high quality or investment grade securities and the Company does not hold subordinate residual interests or
enter into other guarantees or liquidity agreements with these structures. The Company records its investment securities at fair value
and has no other loss exposure over and above the recorded fair value. The Company is not considered to be the primary beneficiary
and the Company does not hold a significant interest in any specific structure.
As part of its community reinvestment initiatives, the Company invests in private investment funds that hold ownership interests in
VIEs or provide debt financing to VIEs to support multi-family affordable housing properties. The Company receives affordable
housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity capital and
debt. The assets of these entities at December 31, 2009 and December 31, 2008 were approximately $7.3 billion and $5.2 billion,
respectively. The Company is not required to consolidate these entities because it does not absorb the majority of the entities’
expected losses nor does it receive a majority of the entities’ expected residual returns. The Company records its interests in these
unconsolidated VIEs in loans held for investment, other assets and other liabilities. As referenced in the table below, the Company’s
maximum exposure to these entities is limited to its variable interests in the entities. The creditors of the VIEs have no recourse to the
general credit of the Company. The Company has not provided additional financial or other support during the period that it was not
previously contractually required to provide.
The Company holds variable interests in entities (“Investor Entities”) that invest in community development entities (“CDEs”) that
provide debt financing to businesses and non-profit entities in low-income and rural communities. Investments of the consolidated
Investor Entities are also variable interests of the Company. The activities of the Investor Entities are financed with a combination of
invested equity capital and debt. The activities of the CDEs are financed solely with invested equity capital. The Company receives
federal and state tax credits for these investments. The Company consolidates the VIEs for which it absorbs the majority of the
entities’ expected losses or receives a majority of the entities’ expected residual returns. The assets of the entities consolidated by the
Company at December 31, 2009 and December 31, 2008 were approximately $155.4 million and $135.7 million, respectively. The
assets and liabilities of these consolidated VIEs were recorded in cash, loans held for investment, interest receivable, other assets and
other liabilities. The assets of the entities that the Company held a significant interest in but were not required to consolidate at
December 31, 2009 and December 31, 2008 were approximately $58.4 million and $46.6 million, respectively. The Company records
its interests in these unconsolidated VIEs in loans held for investment and other assets. As referenced in the table below, the
Company’s maximum exposure to these entities is limited to its variable interests in the entities. The creditors of the VIEs have no
recourse to the general credit of the Company. The Company has not provided additional financial or other support during the period
that it was not previously contractually required to provide.
The Company also has a variable interest in a trust that is included in the other unconsolidated VIEs in the table below. The trust has a
royalty interest in certain oil and gas properties. The activities of the trust are financed solely with debt. The assets of the trust at
December 31, 2009 and December 31, 2008 were approximately $429.9 million and $538.5 million, respectively. The Company is not
required to consolidate the trust because it does not absorb the majority of the trust’s expected losses nor does it receive a majority of
the trust’s expected residual returns. The Company records its interest in the trust in loans held for investment. As referenced in the
table below, the Company’s maximum exposure to the trust is limited to its variable interest. The creditors of the trust have no
recourse to the general credit of the Company. The Company has not provided additional financial or other support during the period
that it was not previously contractually required to provide.