PNC Bank 2013 Annual Report Download - page 147

M ARKET S TREET
During the fourth quarter of 2013, PNC finalized the wind
down of Market Street, a multi-seller asset-backed
commercial paper conduit administered by PNC Bank, N.A.
As part of the wind down process, the commitments and
outstanding loans of Market Street were assigned to PNC
Bank, N.A., which will fund these commitments and loans by
utilizing its diversified funding sources. In conjunction with
the assignment of commitments and loans, the associated
liquidity facilities were terminated along with the program-
level credit enhancement provided to Market Street. At
December 31, 2013, Market Street’s commercial paper was
repaid in full. The wind down did not have a material impact
to PNC’s financial condition or results of operations.
C REDIT C ARD S ECURITIZATION T RUST
We were the sponsor of several credit card securitizations
facilitated through a trust. This bankruptcy-remote SPE was
established to purchase credit card receivables from the
sponsor and to issue and sell asset-backed securities created
by it to independent third-parties. The SPE was financed
primarily through the sale of these asset-backed securities.
These transactions were originally structured to provide
liquidity and to afford favorable capital treatment.
Our continuing involvement in these securitization
transactions consisted primarily of holding certain retained
interests and acting as the primary servicer. For each
securitization series that was outstanding, our retained
interests held were in the form of a pro-rata undivided interest
in the transferred receivables, subordinated tranches of asset-
backed securities, interest-only strips, discount receivables
and subordinated interests in accrued interest and fees in
securitized receivables. We consolidated the SPE as we were
deemed the primary beneficiary of the entity based upon our
level of continuing involvement. Our role as primary servicer
gave us the power to direct the activities of the SPE that most
significantly affect its economic performance and our holding
of retained interests gave us the obligation to absorb expected
losses, or the ability to receive residual returns that could be
potentially significant to the SPE. The underlying assets of the
consolidated SPE were restricted only for payment of the
beneficial interests issued by the SPE. Additionally, creditors
of the SPE have no direct recourse to PNC.
During the first quarter of 2012, the last series issued by the
SPE, Series 2007-1, matured. At December 31, 2013, the SPE
continued to exist and we consolidated the entity as we
continued to be the primary beneficiary of the SPE through
our holding of seller’s interest and our role as the primary
servicer.
T AX C REDIT I NVESTMENTS AND O THER
We make certain equity investments in various tax credit
limited partnerships or limited liability companies (LLCs).
The purpose of these investments is to achieve a satisfactory
return on capital and to assist us in achieving goals associated
with the Community Reinvestment Act.
Also, we are a national syndicator of affordable housing
equity. In these syndication transactions, we create funds in
which our subsidiaries are the general partner or managing
member and sell limited partnership or non-managing member
interests to third parties. In some cases PNC may also
purchase a limited partnership or non-managing member
interest in the fund. The purpose of this business is to generate
income from the syndication of these funds, generate servicing
fees by managing the funds, and earn tax credits to reduce our
tax liability. General partner or managing member activities
include selecting, evaluating, structuring, negotiating, and
closing the fund investments in operating limited partnerships
or LLCs, as well as oversight of the ongoing operations of the
fund portfolio.
Typically, the general partner or managing member will be the
party that has the right to make decisions that will most
significantly impact the economic performance of the entity.
However, certain partnership or LLC agreements provide the
limited partner or non-managing member the ability to remove
the general partner or managing member without cause. This
results in the limited partner or non-managing member being
the party that has the right to make decisions that will most
significantly impact the economic performance of the entity.
The primary sources of benefits for these investments are the
tax credits and passive losses which reduce our tax liability.
We have consolidated investments in which we have the
power to direct the activities that most significantly impact the
entity’s performance, and have an obligation to absorb
expected losses or receive benefits that could be potentially
significant. The assets are primarily included in Equity
investments and Other assets on our Consolidated Balance
Sheet with the liabilities classified in Other borrowed funds,
Accrued expenses, and Other liabilities and the third-party
investors’ interests included in the Equity section as
Noncontrolling interests. Neither creditors nor equity investors
in these investments have any recourse to our general credit.
The consolidated assets and liabilities of these investments are
provided in Table 59 and reflected in the “Other” business
segment.
For tax credit investments in which we do not have the right to
make decisions that will most significantly impact the
economic performance of the entity, we are not the primary
beneficiary and thus they are not consolidated. These
investments are disclosed in Table 60. The table also reflects
our maximum exposure to loss exclusive of any potential tax
credit recapture. Our maximum exposure to loss is equal to
our legally binding equity commitments adjusted for recorded
impairment and partnership results. We use the equity method
to account for our equity investment in these entities with the
investments reflected in Equity investments on our
Consolidated Balance Sheet as appropriate. In addition, we
increase our recognized investments and recognize a liability
The PNC Financial Services Group, Inc. – Form 10-K 129