PNC Bank 2009 Annual Report Download - page 166

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 and residential mortgage-backed
securities transactions (loan securitizations) and
certain other off-balance sheet transactions,
• Confidentiality agreements,
• Syndicated credit agreements, as a syndicate
member,
• Sales of individual loans and equipment leases,
• 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
indemnify third parties for acts by our agents, assignees and/or
sublessees, and employees. Due to the nature of these
indemnification provisions, we cannot calculate our aggregate
potential exposure under them.
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 which were insignificant at
December 31, 2009.
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
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 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
with respect to pending litigation or investigations during
2009. 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 facilitated by
Global Investment Servicing 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, 2009, the total maximum
potential exposure as a result of these indemnity obligations
was $7.5 billion, although the collateral at the time exceeded
that amount.
V
ISA I NDEMNIFICATION
Our payment services business issues and acquires credit and
debit card transactions through Visa U.S.A. Inc. card
association or its affiliates (Visa).
In October 2007 Visa completed a restructuring and issued
shares of Visa Inc. common stock to its financial institution
members (Visa Reorganization) in contemplation of its initial
public offering (IPO). As part of the Visa Reorganization, we
received our proportionate share of a class of Visa Inc.
common stock allocated to the US members. Prior to the IPO,
the US members, which included PNC, were obligated to
indemnify Visa for judgments and settlements related to the
specified litigation. We continue to have an obligation to
indemnify Visa for judgments and settlements for the
remaining specified litigation.
As a result of the acquisition of National City, we became
party to judgment and loss sharing agreements with Visa and
certain other banks. The judgment and loss sharing
agreements were designed to apportion financial
responsibilities arising from any potential adverse judgment or
negotiated settlements related to the specified litigation.
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