SunTrust 2007 Annual Report Download - page 68

We manage the credit risk associated with these commitments by subjecting them and the underlying collateral assets of
Three Pillars to our normal credit approval and monitoring processes. Losses on the commitments provided to Three Pillars
by us resulting from a loss due to nonpayment on the underlying assets are reimbursed to us from the subordinated note
reserve account, which is the amount outstanding on the subordinated note agreement.
During the year ended December 31, 2007, Three Pillars’ qualified ABS were funded by our liquidity facility supporting
those ABS (for a discussion of the nature of these securities see the “Trading Assets” discussion within MD&A). The
liquidity was drawn 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 us
in order to allow us to manage our associated credit and market risk. The purchase price under the liquidity facility for the
qualified ABS equaled the amortized cost of the ABS plus the related unpaid CP interest used to fund those investments
which, in total, amounted $725.0 million. Subsequent to the purchase, Three Pillars, along with us, 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, we recognized an unrealized loss
of $144.8 million during the fourth quarter of 2007 due to the significant decrease in the market value of the ABS. The
remaining assets in Three Pillars are primarily seller receivables and since inception, Three Pillars has not drawn on any
liquidity facilities for a customer receivable transaction. These receivables have the benefit of dynamic credit enhancement
features and are not subject to the same level of market risk as the ABS that were purchased from Three Pillars. We
considered these factors, among others, in assessing whether we would suffer additional losses based on our involvement
with Three Pillars and are not aware of additional uncertainties or unfavorable trends within Three Pillars for which we
expect to suffer material losses.
We have variable interests in certain other securitization vehicles that are variable interest entities (“VIEs”) that are not
consolidated because we are not the primary beneficiary. In such cases, we do not absorb the majority of the entities’
expected losses nor do we receive a majority of the expected residual returns. At December 31, 2007, total assets of these
entities not included on our Consolidated Balance Sheets were approximately $3.7 billion compared to $2.2 billion at
December 31, 2006. At December 31, 2007, our maximum exposure to loss related to these VIEs was approximately $386.9
million, which represents our investment in senior interests of $358.8 million as of December 31, 2007 and interests in
preference shares of $28.1 million compared to a maximum exposure of $32.2 million as of December 31, 2006, relating
exclusively to our interests in preference shares. We have no off-balance-sheet or other implicit variable interests related to
these entities.
As part of our community reinvestment initiatives, we invest in multi-family affordable housing properties throughout our
footprint as a limited and/or general partner. We receive affordable housing federal and state tax credits for these
investments. Partnership assets of approximately $713.3 million and $756.9 million in partnerships where we are only a
limited partner were not included in the Consolidated Balance Sheets at December 31, 2007 and 2006, respectively. Our
maximum exposure to loss for these limited partner investments totaled $297.2 million and $330.6 million at December 31,
2007 and 2006, respectively. Our maximum exposure to loss related to our affordable housing limited partner investments
consists of the limited partnership equity investments, unfunded equity commitments, and debt issued by us to the limited
partnerships. We recorded $57.7 million in impairment charges during the fourth quarter of 2007 in association with these
interests.
Trusco, a registered investment advisor and our wholly-owned subsidiary, serves as the investment advisor for various
private placement and publicly registered investment funds (collectively the “Funds”). We periodically evaluate these Funds
to determine if the Funds are voting interest or variable interest entities, and monitor the nature of our interests in each Fund
to determine if we are required to consolidate any of the Funds. While we do not have any contractual obligation to provide
monetary support to the Funds, we 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, combined with certain limitations on the third
party voting rights, led us to conclude that we were 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, we further elected to close the Fund in November 2007. As a result, we 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.
We are now managing the trading securities that were received from the Fund as part of our actively managed trading
portfolio. Due to increased losses with respect to the collateral underlying these securities, we recorded market valuation
losses of approximately $132 million during 2007. See, “Trading Assets” in MD&A for further discussion.
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