PNC Bank 2011 Annual Report Download - page 206

whether or not any claims asserted against us or others to whom
we may have indemnification obligations, whether in the
proceedings or other matters described above or otherwise, will
have a material adverse effect on our results of operations in
any future reporting period, which will depend on, among other
things, the amount of the loss resulting from the claim and the
amount of income otherwise reported for the reporting period.
See Note 23 Commitments and Guarantees for additional
information regarding the Visa indemnification and our other
obligations to provide indemnification, including to current
and former officers, directors, employees and agents of PNC
and companies we have acquired, including National City.
N
OTE 23 C OMMITMENTS AND G UARANTEES
E QUITY F UNDING AND O THER C OMMITMENTS
Our unfunded commitments at December 31, 2011 included
private equity investments of $247 million, and other
investments of $3 million.
S TANDBY L ETTERS OF C REDIT
We issue standby letters of credit and have risk participations
in standby letters of credit and bankers’ acceptances issued by
other financial institutions, in each case to support obligations
of our customers to third parties, such as remarketing
programs for customers’ variable rate demand notes. Net
outstanding standby letters of credit and internal credit ratings
were as follows:
Net Outstanding Standby Letters of Credit
Dollars in billions
December 31
2011
December 31
2010
Net outstanding standby letters of credit $10.8 $10.1
Internal credit ratings (as a percentage
of portfolio):
Pass (a) 94% 90%
Below pass (b) 6% 10%
(a) Indicates that expected risk of loss is currently low.
(b) Indicates a higher degree of risk of default.
If the customer fails to meet its financial or performance
obligation to the third party under the terms of the contract or
there is a need to support a remarketing program, then upon
the request of the guaranteed party, we would be obligated to
make payment to them. The standby letters of credit and risk
participations in standby letters of credit and bankers’
acceptances outstanding on December 31, 2011 had terms
ranging from less than 1 year to 7 years. The aggregate
maximum amount of future payments PNC could be required
to make under outstanding standby letters of credit and risk
participations in standby letters of credit and bankers’
acceptances was $14.4 billion at December 31, 2011, of which
$7.4 billion support remarketing programs.
As of December 31, 2011, assets of $2.0 billion secured
certain specifically identified standby letters of credit.
Recourse provisions from third parties of $3.6 billion were
also available for this purpose as of December 31, 2011. In
addition, a portion of the remaining standby letters of credit
and letter of credit risk participations issued on behalf of
specific customers is also secured by collateral or guarantees
that secure the customers’ other obligations to us. The
carrying amount of the liability for our obligations related to
standby letters of credit and risk participations in standby
letters of credit and bankers’ acceptances was $247 million at
December 31, 2011.
S
TANDBY B OND P URCHASE A GREEMENTS AND O THER
L IQUIDITY F ACILITIES
We enter into standby bond purchase agreements to support
municipal bond obligations. At December 31, 2011, the
aggregate of our commitments under these facilities was $543
million. We also enter into certain other liquidity facilities to
support individual pools of receivables acquired by
commercial paper conduits. At December 31, 2011, our total
commitments under these facilities were $199 million.
I NDEMNIFICATIONS
We are a party to numerous acquisition or divestiture
agreements under which we have purchased or sold, or agreed
to purchase or sell, various types of assets. These agreements
can cover the purchase or sale of:
• Entire businesses,
• Loan portfolios,
• Branch banks,
• Partial interests in companies, or
• Other types of assets.
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.
In the ordinary course of business, we enter into certain types
of agreements that include provisions for indemnifying third
The PNC Financial Services Group, Inc. – Form 10-K 197