SunTrust 2007 Annual Report Download - page 135

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
in EITF Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited
Partnership or Similar Entity When the Limited Partners Have Certain Rights.” Under the terms of SunTrust’s non-registered
investment limited partnerships, the limited partners have certain rights, such as the right to remove the general partner, or
“kick-out rights”, as indicated in EITF Issue No. 04-5. Therefore, SunTrust, as the general partner, is precluded from
consolidating the limited partnerships.
Note 18 – Reinsurance Arrangements and Guarantees
Reinsurance
The Company provides mortgage reinsurance on certain mortgage loans included in the servicing portfolio through contracts
with several primary mortgage insurance companies. Under these contracts, the Company provides aggregate excess loss
coverage in a mezzanine layer in exchange for a portion of the pool’s mortgage insurance premium. As of December 31,
2007, approximately $16 billion of mortgage loans in the servicing portfolio were covered by such mortgage reinsurance
contracts. The reinsurance contracts place limits on the Company’s maximum exposure to losses. At December 31, 2007, the
maximum aggregate losses under the reinsurance contracts were limited to $750 million. The Company is required to
maintain a trust account to cover a portion of the potential liability. As of December 31, 2007 and 2006, the Company has
incurred a minimal amount of losses and has recorded a liability of $0.2 million and zero, respectively, for losses incurred
under its reinsurance contracts.
Guarantees
The Company has undertaken certain guarantee obligations in the ordinary course of business. In following the provisions of
FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others,” the Company must consider guarantees that have any of the following four characteristics:
(i) contracts that contingently require the guarantor to make payments to a guaranteed party based on changes in an
underlying factor that is related to an asset, a liability, or an equity security of the guaranteed party; (ii) contracts that
contingently require the guarantor to make payments to a guaranteed party based on another entity’s failure to perform under
an obligating agreement; (iii) indemnification agreements that contingently require the indemnifying party to make payments
to an indemnified party based on changes in an underlying factor that is related to an asset, a liability, or an equity security of
the indemnified party; and (iv) indirect guarantees of the indebtedness of others. The issuance of a guarantee imposes an
obligation for the Company to stand ready to perform, and should certain triggering events occur, it also imposes an
obligation to make future payments. Payments may be in the form of cash, financial instruments, other assets, shares of
stock, or provisions of the Company’s services. The following is a discussion of the guarantees that the Company has issued
as of December 31, 2007, which have characteristics as specified by FIN 45.
Visa
The Company issues and acquires credit and debit card transactions through the Visa, U.S.A. Inc. card association or its
affiliates (collectively “Visa”). On October 3, 2007, Visa completed a restructuring and issued shares of Visa Inc. common
stock to its financial institution members, including the Company, in contemplation of an initial public offering in 2008. In
addition, the Company is a defendant, along with Visa U.S.A. Inc. and MasterCard International (the “Card Associations”),
as well as several other banks, in one of several antitrust lawsuits challenging the practices of the Card Associations (the
“Litigation”). The Company has entered into judgment and loss sharing agreements with Visa and certain other banks in
order to apportion financial responsibilities arising from any potential adverse judgment or negotiated settlements related to
the Litigation. Additionally, in connection with the restructuring, a provision of the original Visa By-Laws, Section 2.05j,
was restated in Visa’s certificate of incorporation. Section 2.05j contains a general indemnification provision between a Visa
member and Visa, and explicitly provides that after the closing of the restructuring, each member’s indemnification
obligation is limited to losses arising from its own conduct and the specifically defined Litigation. The maximum potential
amount of future payments that the Company could be required to make under this indemnification provision cannot be
determined as there is no limitation provided under the By-Laws and the amount of exposure is dependent on the outcome of
the Litigation. While the Company could be required to fund its proportionate share of losses under the By-Laws, judgment
or loss sharing agreements, it is anticipated that an escrow account established and funded during the planned initial public
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