Comerica 2011 Annual Report Download - page 78
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F-41
consolidated financial statements, banking subsidiaries are subject to regulation and may be limited in their ability to pay dividends
or transfer funds to the parent company. During 2012, the banking subsidiaries can pay dividends up to approximately $496 million
plus 2012 net profits, with prior regulatory approval. One measure of current parent company liquidity is investment in subsidiaries
as a percentage of shareholders' equity. A ratio over 100 percent represents the reliance on subsidiary dividends to repay liabilities.
As of December 31, 2011, the ratio was 102 percent. Refer to the “Contractual Obligations” table in this financial review for
information on parent company future minimum payments on medium- and long-term debt.
The Corporation regularly evaluates its ability to meet funding needs in unanticipated, stressed environments. In
conjunction with the quarterly 200 basis point interest rate simulation analyses, discussed in the “Interest Rate Sensitivity” section
of this financial review, liquidity ratios and potential funding availability are examined. Each quarter, the Corporation also evaluates
its ability to meet liquidity needs under a series of broad events, distinguished in terms of duration and severity. The evaluation
as of December 31, 2011 projected that sufficient sources of liquidity were available under each series of events.
Variable Interest Entities
The Corporation holds a significant interest in certain unconsolidated variable interest entities (VIEs). These
unconsolidated VIEs are principally low income housing limited partnerships. The Corporation defines a significant interest in
a VIE as a subordinated interest that exposes the Corporation to a significant portion of the VIEs expected losses or residual returns.
In general, a VIE is an entity that either (1) has an insufficient amount of equity to carry out its principal activities without additional
subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities,
or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its
operations. If any of these characteristics is present, the entity is subject to a variable interests consolidation model, and consolidation
is based on variable interests, not on ownership of the entity's outstanding voting stock. Variable interests are defined as contractual,
ownership, or other monetary interests in an entity that change with fluctuations in the entity's net asset value. A company must
consolidate an entity depending on whether the entity is a voting rights entity or a VIE. Refer to the “Principles of Consolidation”
section in Note 1 to the consolidated financial statements for a summary of the Corporation's consolidation policy. Also, refer to
Note 10 to the consolidated financial statements for a discussion of the Corporation's involvement in VIEs, including those in
which the Corporation holds a significant interest but for which it is not the primary beneficiary.
Other Market Risks
Market risk related to the Corporation's trading instruments is not significant, as trading activities are limited. Certain
components of the Corporation's noninterest income, primarily fiduciary income, are at risk to fluctuations in the market values
of underlying assets, particularly equity and debt securities. Other components of noninterest income, primarily brokerage fees,
are at risk to changes in the volume of market activity.
Share-based compensation expense recognized by the Corporation is dependent upon the fair value of stock options and
restricted stock at the date of grant. The fair value of both stock options and restricted stock is impacted by the market price of
the Corporation's stock on the date of grant and is at risk to changes in equity markets, general economic conditions and other
factors. For further information regarding the valuation of stock options and restricted stock, refer to the “Critical Accounting
Policies” section of this financial review.
Nonmarketable Equity Securities
At December 31, 2011, the Corporation had a $15 million portfolio of investments in indirect private equity and venture
capital funds, with commitments of $9 million to fund additional investments in future periods, compared to a portfolio of $42
million at December 31, 2010. During 2011, the Corporation sold 49 funds and recognized a net gain of $2 million upon sale. The
value of these investments is at risk to changes in equity markets, general economic conditions and a variety of other factors. The
majority of these investments are not readily marketable and are included in “accrued income and other assets” on the consolidated
balance sheets. The investments are individually reviewed for impairment on a quarterly basis by comparing the carrying value
to the estimated fair value. Income from indirect private equity and venture capital funds in 2011 was $18 million, which was
partially offset by $12 million of write-downs and expenses recognized on such investments in 2011. The following table provides
information on the Corporation's indirect private equity and venture capital funds investment portfolio.
(dollar amounts in millions)
Number of investments
Balance of investments
Largest single investment
Commitments to fund additional investments
December 31, 2011
105
$ 15
3
9
OPERATIONAL RISK
Operational risk represents the risk of loss resulting from inadequate or failed internal processes, people and systems, or
from external events. The definition includes legal risk, which is the risk of loss resulting from failure to comply with laws and