SunTrust 2007 Annual Report Download - page 134

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
$763.4 million, respectively, as of December 31, 2007 compared to $8.0 billion and $697.8 million, respectively, as of
December 31, 2006. The liquidity commitments are revolving facilities that are sized based on the current commitments
provided by Three Pillars to its customers. Three Pillars had one additional liquidity commitment outstanding at
December 31, 2007 from a third party unrelated to the Company in the amount of $25.0 million. Obligation to fund and
repayment of any draws on the third party liquidity facility are pari passu to the liquidity commitment outstanding by the
Company.
During the year ended December 31, 2007, Three Pillars’ qualified asset backed securities (“ABS”) were funded by the
Company’s liquidity facility supporting those ABS based on Three Pillars’ decision to exit those types of investments due to
an acceleration in the deterioration of the performance of the underlying collateral and market illiquidity in the fourth quarter
of 2007 resulting in a material decrease in the market value of those securities. Pursuant to the liquidity facility agreement,
the ABS were sold to the Company in order to allow the Company to manage its associated credit and market risk. The
Company purchased the qualified ABS under the liquidity facility at amortized cost plus the related unpaid CP interest used
to fund that investment totaling $725.0 million, and subsequently Three Pillars and the Company canceled the related
liquidity agreement. Of the investments included in the purchase, only one security in the amount of $62 million had
experienced a decline in credit to such an extent that management believed a future realized loss on the ABS was likely to
occur if the security was held to maturity. As a result of the purchase of the qualified ABS, the Company recorded an
unrealized loss of $144.8 million during the fourth quarter of 2007. The Company is not aware of additional uncertainties or
unfavorable trends within Three Pillars for which the Company expects to suffer material losses.
The Company has variable interests in certain other securitization vehicles that are VIEs that are not consolidated because the
Company is not the primary beneficiary. In such cases, the Company does not absorb the majority of the entities’ expected
losses nor does it receive a majority of the expected residual returns. At December 31, 2007, total assets of these entities not
included on the Company’s Consolidated Balance Sheets were approximately $3.7 billion compared to $2.2 billion at
December 31, 2006. At December 31, 2007, the Company’s maximum exposure to loss related to these VIEs was
approximately $386.9 million, which represents the Company’s investment in senior interests of $358.8 million and interests
in preference shares of $28.1 million compared to maximum exposure of $32.2 million, as of December 31, 2006, which
related entirely to interests in preference shares. The Company has no off-balance-sheet or other implicit variable interests
related to these entities.
As part of its community reinvestment initiatives, the Company invests in multi-family affordable housing properties
throughout its footprint as a limited and/or general partner. The Company receives affordable housing federal and state tax
credits for these investments. Partnership assets of approximately $713.3 million and $756.9 million in partnerships where
SunTrust is only a limited partner were not included in the Consolidated Balance Sheets at December 31, 2007 and 2006,
respectively. The Company’s maximum exposure to loss for these limited partner investments totaled $297.2 million and
$330.6 million at December 31, 2007 and 2006, respectively. The Company’s maximum exposure to loss related to its
affordable housing limited partner investments consists of the limited partnership equity investments, unfunded equity
commitments, and debt issued by the Company to the limited partnerships.
Trusco, a registered investment advisor and wholly-owned subsidiary of the Company, serves as the investment advisor for
various private placement and publicly registered investment funds (collectively the “Funds”). The Company periodically
evaluates these Funds to determine if the Funds are voting interest or variable interest entities, as well as monitors the nature
of its interests in each Fund to determine if the Company is required to consolidate any of the Funds. While the Company
does not have any contractual obligation to provide monetary support to the Funds, the Company did elect to provide support
for specific securities within a single institutional private placement fund (the “Fund”) during the third quarter of 2007. This
action led the Company to conclude that SunTrust was the primary beneficiary, which resulted in the consolidation as of
September 30, 2007 of approximately $967 million in trading securities and a similar amount of other liabilities that
represented the minority interest obligations of the Fund. After a thorough evaluation of the Fund within the current market
conditions, the Company further elected to close the Fund in November 2007. As a result, the Company purchased the
securities of the Fund at the securities’ amortized cost plus accrued interest, and Fund shareholders received their full
principal and interest due in cash. The Company is now managing the trading securities that were received from the Fund as
part of its actively managed trading portfolio. Due to increased losses within the collateral underlying these securities, market
valuation write-downs of approximately $132 million were recorded during 2007.
SunTrust is the managing general partner of a number of non-registered investment limited partnerships which have been
established to provide alternative investment strategies for its clients. In reviewing the partnerships for consolidation,
SunTrust determined that these were voting interest entities and accordingly considered the consolidation guidance contained
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