PNC Bank 2014 Annual Report Download - page 111

Market Risk Management – Equity And Other Investment
Risk
Equity investment risk is the risk of potential losses associated
with investing in both private and public equity markets. In
addition to extending credit, taking deposits, securities
underwriting and trading financial instruments, we make and
manage direct investments in a variety of transactions,
including management buyouts, recapitalizations and growth
financings in a variety of industries. We also have investments
in affiliated and non-affiliated funds that make similar
investments in private equity and in debt and equity-oriented
hedge funds. The economic and/or book value of these
investments and other assets such as loan servicing rights are
directly affected by changes in market factors.
The primary risk measurement for equity and other
investments is economic capital. Economic capital is a
common measure of risk for credit, market and operational
risk. It is an estimate of the potential value depreciation over a
one year horizon commensurate with solvency expectations of
an institution rated single-A by the credit rating agencies.
Given the illiquid nature of many of these types of
investments, it can be a challenge to determine their fair
values. See Note 7 Fair Value in the Notes To Consolidated
Financial Statements in Item 8 of this Report for additional
information.
Various PNC business units manage our equity and other
investment activities. Our businesses are responsible for
making investment decisions within the approved policy limits
and associated guidelines.
A summary of our equity investments follows:
Table 54: Equity Investments Summary
In millions
December 31
2014
December 31
2013
BlackRock $ 6,265 $ 5,940
Tax credit investments (a) 2,616 2,572
Private equity 1,615 1,656
Visa 77 158
Other 155 234
Total $10,728 $10,560
(a) The December 31, 2013 amount has been updated to reflect the first quarter 2014
adoption of ASU 2014-01 related to investments in low income housing tax credits.
BlackRock
PNC owned approximately 35 million common stock
equivalent shares of BlackRock equity at December 31, 2014,
accounted for under the equity method. The primary risk
measurement, similar to other equity investments, is economic
capital. The Business Segments Review section of this Item 7
includes additional information about BlackRock.
Tax Credit Investments
Included in our equity investments are direct tax credit
investments and equity investments held by consolidated
partnerships which totaled $2.6 billion at both December 31,
2014 and December 31, 2013. These equity investment
balances include unfunded commitments totaling $717 million
and $802 million at December 31, 2014 and December 31,
2013, respectively. These unfunded commitments are included
in Other Liabilities on our Consolidated Balance Sheet.
Note 2 Loan Sale and Servicing Activities and Variable
Interest Entities in the Notes To Consolidated Financial
Statements in Item 8 of this Report has further information on
Tax Credit Investments.
Private Equity
The private equity portfolio is an illiquid portfolio comprised
of mezzanine and equity investments that vary by industry,
stage and type of investment.
Private equity investments carried at estimated fair value totaled
$1.6 billion at December 31, 2014 and $1.7 billion at
December 31, 2013. As of December 31, 2014, $1.1 billion was
invested directly in a variety of companies and $.5 billion was
invested indirectly through various private equity funds.
Included in direct investments are investment activities of two
private equity funds that are consolidated for financial reporting
purposes. The noncontrolling interests of these funds totaled
$212 million as of December 31, 2014. The interests held in
indirect private equity funds are not redeemable, but PNC may
receive distributions over the life of the partnership from
liquidation of the underlying investments. See Item 1 Business
– Supervision and Regulation and Item 1A Risk Factors of this
Report for discussion of the potential impacts of the Volcker
Rule provisions of Dodd-Frank on our interests in and
sponsorship of private funds covered by the Volcker Rule.
Our unfunded commitments related to private equity totaled
$140 million at December 31, 2014 compared with $164
million at December 31, 2013.
The PNC Financial Services Group, Inc. – Form 10-K 93