Huntington National Bank 2007 Annual Report Download - page 52

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PRICE RISK
(This section should be read in conjunction with Significant Item 6.)
Price risk represents the risk of loss arising from adverse movements in the prices of financial instruments that are carried at fair
value and are subject to fair value accounting. We have price risk from trading securities, which includes instruments to hedge
MSRs. We also have price risk from securities owned by our broker-dealer subsidiaries, foreign exchange positions, equity
investments, investments in securities backed by mortgage loans, and marketable equity securities held by our insurance
subsidiaries. We have established loss limits on the trading portfolio, on the amount of foreign exchange exposure that can be
maintained, and on the amount of marketable equity securities that can be held by the insurance subsidiaries.
Equity Investment Portfolios
In reviewing our equity investment portfolio, we consider general economic and market conditions, including industries in which
private equity merchant banking and community development investments are made, and adverse changes affecting the availability
of capital. We determine any impairment based on all of the information available at the time of the assessment. New information
or economic developments in the future could result in recognition of additional impairment.
From time to time, we invest in various investments with equity risk. Such investments include investment funds that buy and sell
publicly traded securities, investment funds that hold securities of private companies, direct equity investments in companies
(public and private), and direct equity interests in private companies in connection with our mezzanine lending activities. These
investments are reported as a component of “accrued income and other assets” on our consolidated balance sheet. At December 31,
2007, we had a total of $45.5 million of such investments, down from $55.0 million at December 31, 2006. The following table
details the components of this change during 2007.
Table 26 — Equity Investment Activity
(in thousands of dollars)
Balance at
December 31, 2006
New
Investments Acquired
Returns of
Capital Gain/(Loss)
Balance at
December 31, 2007
Type:
Public equity $34,173 $ — $2,143 $ — $(20,009) $16,307
Private equity 14,942 3,187 2,879 (660) (146) 20,202
Direct investment 5,900 3,137 — — — 9,037
Total $55,015 $6,324 $5,022 $(660) $(20,155) $45,546
The majority of the equity investment losses in 2007 was attributable to funds that buy and sell publicly traded securities. These
investments were in funds that focus on the financial services sector that, in 2007, performed worse than the broad equity market.
Investment decisions that incorporate credit risk require the approval of the independent credit administration function. The
degree of initial due diligence and subsequent review is a function of the type, size, and collateral of the investment. Performance
is monitored on a regular basis, and reported to the MRC and the Executive Credit Risk Committee.
Liquidity Risk
Liquidity risk arises from the possibility that funds may not be available to satisfy current or future commitments based on
external macro market issues, asset and liability activities, investor perception of financial strength, and events unrelated to the
company such as war, terrorism, or financial institution market specific issues. We manage liquidity risk at both the Bank and at
the parent company, Huntington Bancshares Incorporated.
Liquidity policies and limits are established by our board of directors, with operating limits set by the MRC, based upon analyses
of the ratio of loans to deposits, the percentage of assets funded with non-core or wholesale funding, and the amount of liquid
assets available to cover non-core funds maturities. In addition, guidelines are established to ensure diversification of wholesale
funding by type, source, and maturity and provide sufficient balance sheet liquidity to cover 100% of wholesale funds maturing
within a six-month time period. A contingency funding plan is in place, which includes forecasted sources and uses of funds under
various scenarios in order to prepare for unexpected liquidity shortages, including the implications of any rating changes. The
MRC meets monthly to identify and monitor liquidity issues, provide policy guidance, and oversee adherence to, and the
maintenance of, the contingency funding plan.
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MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED