SunTrust 2007 Annual Report Download - page 137

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
Other
In the normal course of business, the Company enters into indemnification agreements and provides standard representations
and warranties in connection with numerous transactions. These transactions include those arising from underwriting
agreements, merger and acquisition agreements, loan sales, contractual commitments, payment processing sponsorship
agreements, and various other business transactions or arrangements. The extent of the Company’s obligations under these
indemnification agreements depends upon the occurrence of future events; therefore, the Company’s potential future liability
under these arrangements is not determinable.
Prior to December 21, 2007, third party investors held Series B Preferred Stock in STB Real Estate Holdings (Atlanta), Inc.
(“STBREH”), a subsidiary of SunTrust. The contract between STBREH and the third party investors contained an automatic
exchange clause which, under certain circumstances, required the Series B preferred shares to be automatically exchanged
for guaranteed preferred beneficial interest in debentures of the Company. The guaranteed preferred beneficial interest in
debentures was guaranteed to have a liquidation value equal to the sum of the issue price, $350.0 million, and an approximate
yield of 8.5% per annum subject to reduction for any cash or property dividends paid to date. This exchange agreement
remained in effect as long as any shares of Series B Preferred Stock were owned by the third party investors, not to exceed
30 years from the February 25, 2002 date of issuance. On December 21, 2007, SunTrust purchased the stock from the third
party investors. As a result, the guarantee is not in effect as of December 31, 2007. As of December 31, 2007 liabilities for
accrued principal and interest had been extinguished and as of December 31, 2006, $538.7 million was accrued in other
liabilities for the principal and interest.
SunTrust Investments Services, Inc., (“STIS”) and SunTrust Robinson Humphrey, Inc. (“STRH”), broker-dealer affiliates of
SunTrust, use a common third party clearing broker to clear and execute their customers’ securities transactions and to hold
customer accounts. Under their respective agreements, STIS and STRH agree to indemnify the clearing broker for losses that
result from a customer’s failure to fulfill its contractual obligations. As the clearing broker’s rights to charge STIS and STRH
have no maximum amount, the Company believes that the maximum potential obligation cannot be estimated. However, to
mitigate exposure, the affiliate may seek recourse from the customer through cash or securities held in the defaulting
customers’ account. For the year ended December 31, 2007 and December 31, 2006, STIS and STRH experienced minimal
net losses as a result of the indemnity. The clearing agreements expire in May 2010 for both STIS and STRH.
The Company has guarantees associated with credit derivatives, an agreement in which the buyer of protection pays a
premium to the seller of the credit derivatives for protection against an event of default. Events constituting default under
such agreements that would result in the Company making a guaranteed payment to a counterparty may include (i) default of
the referenced asset; (ii) bankruptcy of the client; or (iii) restructuring or reorganization by the client. The maximum
guarantee outstanding as of December 31, 2007 and December 31, 2006 was $331.7 million and $345.6 million, respectively.
As of December 31, 2007, the maximum guarantee amounts expire as follows: $87.0 million in 2008, $37.4 million in 2009,
$76.5 million in 2010, $46.2 million in 2011, $23.2 million in 2012 and $61.4 million thereafter. In the event of default under
the contract, the Company would make a cash payment to the holder of credit protection and would take delivery of the
referenced asset from which the Company may recover a portion of the credit loss. There were no cash payments made
during 2006 or 2007. In addition, there are certain purchased credit derivative contracts that mitigate a portion of the
Company’s exposure on written contracts. Such contracts are not included in this disclosure since they represent benefits to,
rather than obligations of, the Company. The Company records purchased and written credit derivative contracts at fair
value.
SunTrust CDC, LLC (“CDC”), a SunTrust subsidiary, obtains state and federal tax credits through the construction and
development of affordable housing properties. CDC or its subsidiaries are limited and/or general partners in various
partnerships established for the properties. If the partnerships generate tax credits, those credits may be sold to outside
investors. As of December 31, 2007, the CDC had completed six tax credit sales containing guarantee provisions stating that
the CDC will make payment to the outside investors if the tax credits become ineligible. The CDC also guarantees that the
general partner under the transaction will perform on the delivery of the credits. The guarantees are expected to expire within
a ten year period. As of December 31, 2007, the maximum potential amount that the CDC could be obligated to pay under
these guarantees is $38.6 million; however, the CDC can seek recourse against the general partner. Additionally, the CDC
can seek reimbursement from cash flow and residual values of the underlying affordable housing properties provided that the
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