PNC Bank 2008 Annual Report Download - page 105

Beginning with fourth quarter 2006, we recognize gain or loss
each quarter-end on our remaining liability to provide shares
of BlackRock common stock to help fund certain BlackRock
LTIP programs as that liability is marked to market based on
changes in BlackRock’s common stock price. We recognized
a pretax gain of $82 million in the first quarter of 2007 from
the transfer of BlackRock shares for certain payouts under one
of these programs. Additional BlackRock shares were
distributed to LTIP participants in the first quarter of 2008,
resulting in a $3 million pretax gain.
The overall balance sheet impact of the BlackRock/MLIM
transaction was an increase to our shareholders’ equity of $1.6
billion. The increase to equity was comprised of an after-tax
gain of $1.3 billion, net of the expense associated with the
LTIP liability and the deferred taxes, and an after-tax increase
to capital surplus of $.3 billion. The recognition of the gain is
consistent with our existing accounting policy for the sale or
issuance by subsidiaries of their stock to third parties. The
gain represents the difference between our basis in BlackRock
stock prior to the BlackRock/MLIM transaction and the new
book value per share and resulting increase in value of our
investment realized from the transaction. The direct increase
to capital surplus rather than inclusion in the gain resulted
from the accounting treatment required due to existing
BlackRock repurchase commitments or programs.
For the nine months ended September 30, 2006, our
Consolidated Income Statement included our former 69% –
71% ownership interest in BlackRock’s net income through
the closing date. However, beginning September 30, 2006, our
Consolidated Balance Sheet no longer reflected the
consolidation of BlackRock’s balance sheet but recognized
our ownership interest in BlackRock as an investment
accounted for under the equity method. Since that date, our
share of BlackRock’s net income is reported within asset
management noninterest income in PNC’s Consolidated
Income Statement.
N OTE 3V ARIABLE I NTEREST E NTITIES
We are involved with various entities in the normal course of
business that were deemed to be VIEs. We consolidated
certain VIEs as of December 31, 2008 and 2007 for which we
were determined to be the primary beneficiary.
Consolidated VIEs – PNC Is Primary Beneficiary
In millions
Aggregate
Assets
Aggregate
Liabilities
Partnership interests in low income housing
projects (a)
December 31, 2008 $1,499 $1,455
December 31, 2007 $1,108 $1,108
Credit Risk Transfer Transaction (b)
December 31, 2008 $1,070 $1,070
(a) Amounts for December 31, 2008 include National City, which PNC acquired on that
date.
(b) National City-related transaction.
We hold significant variable interests in VIEs that have not
been consolidated because we are not considered the primary
beneficiary. Information on these VIEs follows:
Non-Consolidated VIEs – Significant Variable Interests
In millions
Aggregate
Assets
Aggregate
Liabilities
PNC Risk
of Loss
December 31, 2008
Market Street $4,916 $5,010 $6,965(a)
Collateralized debt obligations 20 2
Partnership interests in tax
credit investments (b) (c) (d) 1,095 652 920
Total (c) $6,031 $5,662 $7,887
December 31, 2007
Market Street $5,304 $5,330 $9,019(a)
Collateralized debt obligations 255 177 6
Partnership interests in low
income housing projects 298 184 155
Total $5,857 $5,691 $9,180
(a) PNC’s risk of loss consists of off-balance sheet liquidity commitments to Market
Street of $6.4 billion and other credit enhancements of $.6 billion at December 31,
2008. The comparable amounts were $8.8 billion and $.2 billion at December 31,
2007.
(b) Amounts reported primarily represent low income housing projects.
(c) Amounts include the impact of National City.
(d) Aggregate assets and aggregate liabilities at December 31, 2008 represent
approximate balances due to limited availability of financial information associated
with the acquired National City partnerships that we did not sponsor.
M ARKET S TREET
Market Street Funding LLC (“Market Street”) is a multi-seller
asset-backed commercial paper conduit that is owned by an
independent third party. Market Street’s activities primarily
involve purchasing assets or making loans secured by interests
in pools of receivables from US corporations that desire
access to the commercial paper market. Market Street funds
the purchases of assets or loans by issuing commercial paper
which has been rated A1/P1 by Standard & Poor’s and
Moody’s, respectively, and is supported by pool-specific
credit enhancements, liquidity facilities and program-level
credit enhancement. Generally, Market Street mitigates its
potential interest rate risk by entering into agreements with its
borrowers that reflect interest rates based upon its weighted
average commercial paper cost of funds. During 2007 and
2008, Market Street met all of its funding needs through the
issuance of commercial paper.
PNC Bank, N.A. provides certain administrative services, the
program-level credit enhancement and 99% of liquidity
facilities to Market Street in exchange for fees negotiated
based on market rates. PNC recognized program administrator
fees and commitment fees related to PNC’s portion of the
liquidity facilities of $21 million and $4 million, respectively,
for the year ended December 31, 2008. The comparable
amounts were $13 million and $4 million for the year ended
December 31, 2007.
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