SunTrust 2008 Annual Report Download - page 157

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
In accordance with SFAS No. 159, the Company has elected to record specific financial assets and financial liabilities at fair
value. These instruments include all, or a portion, of the following: fixed rate debt, loans and loans held for sale, brokered
deposits, and trading loans. The following is a description of each financial asset and liability class as of December 31, 2008
for which fair value has been elected, including the specific reasons for electing fair value and the strategies for managing the
financial assets and liabilities on a fair value basis.
Fixed Rate Debt
The debt that the Company initially elected to carry at fair value was all of its fixed rate debt that had previously been
designated in qualifying fair value hedges using receive fixed/pay floating interest rate swaps, pursuant to the provisions
of SFAS No. 133. As of December 31, 2008, the fair value of such fixed rate debt was comprised of $3.7 billion of fixed
rate Federal Home Loan Bank advances and $3.5 billion of publicly-issued debt. The Company elected to record this
debt at fair value in order to align the accounting for the debt with the accounting for the derivative without having to
account for the debt under hedge accounting, thus avoiding the complex and time consuming fair value hedge
accounting requirements of SFAS No. 133. This move to fair value introduced earnings volatility due to changes in the
Company’s credit spread that was not required to be valued under the SFAS No. 133 hedge designation. Most of the
debt, along with certain of the interest rate swaps previously designated as hedges under SFAS No. 133, continues to
remain outstanding; however, in February 2009, the Company repaid all of the FHLB advances outstanding and closed
out its exposures on the interest rate swaps. Approximately $150.3 million of FHLB stock was redeemed in conjunction
with the repayment of the advances.
During the year ended December 31, 2007, the Company consummated two fixed rate debt issuances. On September 10,
2007, the Company issued $500 million of Senior Notes, which carried a fixed coupon rate of 6.00% and had a term of
10 years. The Company did not enter into any derivatives to hedge this debt and, therefore, did not elect to carry the
debt at fair value. On November 5, 2007, the Company issued $500 million of Senior Notes, which carried a fixed
coupon rate of 5.25% and had a term of 5 years. The Company entered into interest rate swaps in connection with this
debt issuance and, as a result, elected to carry this debt at fair value.
During the year ended December 31, 2008, the Company consummated two fixed rate debt issuances and repurchased
certain debt carried at fair value. On March 4, 2008, the Company issued $685 million of trust preferred securities,
which carried a fixed coupon rate of 7.875% and had a term of 60 years. The Company did not enter into any derivatives
to hedge this debt and, therefore, did not elect to carry the debt at fair value. On March 17, 2008, the Company issued
$500 million of subordinated notes, which carried a fixed coupon rate of 7.25% and had a term of 10 years. The
Company entered into interest rate swaps in connection with this debt issuance and, as a result, elected to carry this debt
at fair value. During the year ended December 31, 2008, $294.2 million of the Company’s fair value debt matured, and
the Company repurchased principal amounts of approximately $384 million of debt carried at fair value to mitigate
volatility from credit spread changes.
In September 2008, the Federal Reserve Bank of Boston (the “Fed”) instituted the ABCP MMMF Liquidity Facility
program (the “Program”) that allows eligible depository institutions, bank holding companies and affiliated broker/
dealers to purchase certain asset-backed commercial paper (“ABCP”) from certain money market mutual funds (the
“MMMF”). These purchases will be made by the participating institution at a price equal to the MMMF’s amortized
cost. The Fed will then make a fixed rate non-recourse loan to the participating institution that will mature on the same
date as the ABCP that was purchased with a specific draw. As of December 31, 2008, SunTrust Robinson Humphrey
(“STRH”) owned $400 million of eligible ABCP at a price of $399.6 million. At December 31, 2008, this ABCP had a
weighted average maturity of 9 days and a risk weighting of 0% for regulatory capital purposes. Per the terms of the
Program, STRH also had outstanding loans from the Fed in the amount of $399.6 million. Subsequent to December 31,
2008 all of this ABCP matured, STRH collected 100% of the par amount of this ABCP from the issuer and repaid the
loan to the Fed. At December 31, 2008, this ABCP was classified within trading assets and carried at fair value, and the
loans from the Fed were elected to be carried at fair value pursuant to the provisions of SFAS No. 159 and classified
within other short-term borrowings. Because of the non-recourse nature of the loan, the Company did not recognize
through earnings any differences in fair value between the loans and the ABCP.
Brokered Deposits
Prior to adopting SFAS No. 159, the Company had adopted the provisions of SFAS No. 155 and elected to carry certain
certificates of deposit at fair value. These debt instruments include embedded derivatives that are generally based on
underlying equity securities or equity indices, but may be based on other underlyings that are generally not clearly and
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