PNC Bank 2005 Annual Report Download - page 110

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These agreements generally include indemnification
provisions under which we indemnify the third parties to
these agreements against a variety of risks to the
indemnified parties as a result of the transaction in
question. When PNC is the seller, the indemnification
provisions will generally also provide the buyer with
protection relating to the quality of the assets we are selling
and the extent of any liabilities being assumed by the
buyer. Due to the nature of these indemnification
provisions, we cannot quantify the total potential exposure
to us resulting from them.
We provide indemnification in connection with securities
offering transactions in which we are involved. When we
are the issuer of the securities, we provide indemnification
to the underwriters or placement agents analogous to the
indemnification provided to the purchasers of businesses
from us, as described above. When we are an underwriter
or placement agent, we provide a limited indemnification
to the issuer related to our actions in connection with the
offering and, if there are other underwriters,
indemnification to the other underwriters intended to result
in an appropriate sharing of the risk of participating in the
offering. Due to the nature of these indemnification
provisions, we cannot quantify the total potential exposure
to us resulting from them.
We enter into certain types of agreements that include
provisions for indemnifying third parties, such as:
• Agreements relating to providing various
servicing and processing functions to third parties,
• Agreements relating to the creation of trusts or
other legal entities to facilitate leasing
transactions, commercial mortgage-backed
securities transactions (loan securitizations) and
certain other off-balance sheet transactions,
• Syndicated credit agreements, as a syndicate
member,
• Sales of individual loans,
• Arrangements with brokers to facilitate the
hedging of derivative and convertible arbitrage
activities, and
• Litigation settlement agreements.
Due to the nature of these indemnification provisions, we
cannot calculate our aggregate potential exposure under
them.
We enter into certain types of agreements, including leases,
assignments of leases, and subleases, in which we agree to
indemn ify third parties for acts by our agents, assignees
and/or sublessees, and employees. While we do not believe
these indemnification liabilities are material, either
individually or in total, we cannot calculate our potential
exposure.
We enter into contracts for the delivery of technology
service in which we indemnify the other party against
claims of patent and copyright infringement by third
parties. Due to the nature of these indemnification
provisions, we cannot calculate our aggregate potential
exposure under this type of indemnification.
We engage in certain insurance activities which require our
employees to be bonded. We satisfy this bonding
requirement by issuing letters of credit in a total amount of
approximately $5 million.
In the ordinary course of business, we enter into contracts with
third parties under which the third parties provide services on
behalf of PNC. In many of these contracts, we agree to
indemnify the third party service provider under certain
circumstances. The terms of the indemnity vary from contract
to contract and the amount of the indemnification liability, if
any, cannot be determined.
We are a general or limited partner in certain asset management
and investment limited partnerships, many of which contain
indemnification provisions that would require us to make
payments in excess of our remaining funding commitments.
While in certain of these partnerships the maximum liability to
us is limited to the sum of our unfunded commitments and
partnership distributions received by us, in the others the
indemnification liability is unlimited. As a result, we cannot
determine our aggregate potential exposure for these
indemnifications.
Pursuant to their bylaws, PNC and its subsidiaries provide
indemnification to directors, officers and, in some cases,
employees and agents against certain liabilities incurred as a
result of their service on behalf of or at the request of PNC and
its subsidiaries. PNC and its subsidiaries also advance on
behalf of covered individuals costs incurred in connection with
certain claims or proceedings, subject to written undertakings
by each such individual to repay all amounts so advanced if it
is ultimately determined that the individual is not entitled to
indemnification. We generally are responsible for similar
indemnifications and advancement obligations that companies
we acquire, including Riggs, had to their officers, directors and
sometimes employees and agents at the time of acquisition. We
advanced such costs on behalf of several such individuals
(including some from Riggs) with respect to pending litigation
or investigations during 2005. It is not possible for us to
determine the aggregate potential exposure resulting from the
obligation to provide this indemnity or to advance such costs.
In connection with the lending of securities held by PFPC as an
intermediary on behalf of certain of its clients, we provide
indemnification to those clients against the failure of the
borrowers to return the securities. The market value of the
securities lent is fully secured on a daily basis; therefore, the
exposure to us is limited to temporary shortfalls in the
collateral as a result of short-term fluctuations in trading prices
of the loaned securities. At December 31, 2005, the total
maximum potential exposure as a result of these indemnity
obligations was approximately $5 billion, although we held
collateral at the time in excess of that amount.
OTHER GUARANTEES
We write caps and floors for customers, risk management and
proprietary trading purposes. At December 31, 2005, the fair
value of the written caps and floors liability on our
Consolidated Balance Sheet was $14 million. Our ultimate
obligation under written options is based on future market
conditions and is only quantifiable at settlement. We manage
our market risk exposure from customer positions through
transactions with third-party dealers.