PNC Bank 2008 Annual Report Download - page 122

a disposition strategy that results in the highest recovery on a
net present value basis, thus protecting the interests of the trust
and its investors.
See Note 9 Goodwill and Other Intangible Assets for
additional information regarding servicing assets.
With our acquisition of National City on December 31, 2008,
we acquired residual and other interests associated with
National City’s credit card, automobile, mortgage, and SBA
loans securitizations. In addition, we also assumed certain
continuing involvement activities in these securitization
transactions.
The credit card, automobile, and mortgage securitizations
were transacted through QSPEs sponsored by National City.
These QSPEs were financed primarily through the issuance
and sale of beneficial interests to independent third parties and
were not consolidated on National City’s balance sheet.
Consolidation of these QSPEs could be considered if
circumstances or events subsequent to the securitization
transaction dates would cause the entities to lose their
“qualified” status. No such events have occurred. Qualitative
and quantitative information about these securitizations
follows.
The following summarizes the assets and liabilities of the
National City-sponsored securitization QSPEs at
December 31, 2008.
(In millions) Credit Card Automobile Mortgage
Assets (a) $2,129 $250 $319
Liabilities 1,824 250 319
(a) Represents period-end outstanding principal balances of loans transferred to the
securitization QSPEs.
Credit Card Loans
At December 31, 2008, National City’s credit card
securitization series 2005-1, 2006-1, 2007-1, 2008-1, 2008-2,
and 2008-3 were outstanding. Our continuing involvement in
the securitized credit cards receivables consists primarily of
servicing and a pro-rata undivided interest in all credit card
receivables, or seller’s interest, in the QSPE. Servicing fees
earned approximate current market rates for servicing fees;
therefore, no servicing asset or liability existed at
December 31, 2008. We hold a clean-up call repurchase
option to the extent a securitization series extends past its
scheduled note principal payoff date. To the extent this occurs,
the clean-up call option is triggered when the principal
balance of the asset-backed notes of any series reaches 5% of
the initial principal balance of the asset-back notes issued at
the securitization date. Our seller’s interest ranks equally with
the investors’ interests in the trust. As the amount of the assets
in the securitized pool fluctuates due to customer payments,
purchases, cash advances, and credit losses, the carrying
amount of the seller’s interest will vary. However, we are
required to maintain seller’s interest at a minimum level of 5%
of the initial invested amount in each series to ensure
sufficient assets are available for allocation to the investors’
interests. Seller’s interest, which is recognized in portfolio
loans on the Consolidated Balance Sheet, was well above the
minimum level at December 31, 2008.
Retained interests acquired consisted of seller’s interest, an
interest-only strip, and asset-backed securities issued by the
credit card securitization QSPE. The initial carrying values of
these retained interests were determined based upon their fair
values at December 31, 2008. Seller’s interest is recognized in
portfolio loans on the Consolidated Balance Sheet and totaled
approximately $315 million at December 31, 2008. The
interest-only strips are recognized in other assets on the
Consolidated Balance Sheet and totaled approximately $20
million at December 31, 2008. The asset-backed securities are
recognized in investment securities on the Consolidated
Balance Sheet and totaled approximately $25 million at
December 31, 2008. These retained interests represent the
maximum exposure to loss associated with our involvement in
this securitization.
Automobile Loans
At December 31, 2008, National City’s auto securitization
2005-A was outstanding. Our continuing involvement in the
securitized automobile loans consists primarily of servicing
and limited requirements to repurchase transferred loans for
breaches of representations and warranties. As servicer, we
hold a cleanup call on the serviced loans which gives us an
option to repurchase the transferred loans when their
outstanding principal balances reach 5% of the initial
outstanding principal balance of the automobile loans
securitized.
The Class A notes issued by National City’s 2005-A auto
securitization were purchased by a third-party commercial
paper conduit. National City’s subsidiary, National City Bank,
along with other financial institutions, agreed to provide
backup liquidity to the conduit. The conduit holds various
third-party assets including beneficial interests in the cash
flows of trade receivables, credit cards and other financial
assets. The conduit has no interests in subprime mortgage
loans. The conduit relies upon commercial paper for its
funding. In the event of a disruption in the commercial paper
markets, the conduit could experience a liquidity event. At
such time, the conduit may require National City Bank to
purchase a 49% interest in a note representing a beneficial
interest in National City’s securitized automobile loans.
Another financial institution, affiliated with the conduit, has
committed to purchase the remaining 51% interest in this
same note. Upon the conduit’s request, National City Bank
would pay cash equal to the par value of the notes, less the
corresponding portion of all defaulted loans, plus accrued
interest. In return, National City Bank would be entitled to
undivided interest in the cash flows of the collateral
underlying the note. National City Bank receives an annual
commitment fee of 7 basis points for providing this backup
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