SunTrust 2009 Annual Report Download - page 127

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
Total Return Swaps
The Company has had involvement with various VIEs related to its TRS business. The Company decided to temporarily
suspend this business in late 2008 and terminated its existing transactions during 2009. Under the TRS business model,
the VIEs purchase portfolios of loans at the direction of third parties. These third parties are not related parties to the
Company, nor are they and the Company de facto agents of each other. In order for the VIEs to purchase the loans, the
Company provides senior financing to these VIEs. At December 31, 2008, the Company had $603.4 million in such
financing outstanding, which was classified within trading assets on the Consolidated Balance Sheets and none was
outstanding at December 31, 2009. The Company enters into TRS transactions with the VIEs that the Company mirrors
with a TRS with the third party who controls the loans owned by the VIE. The TRS transactions pass through all interest
and other cash flows on the loans to the third party, along with exposing the third parties to any depreciation on the
loans and providing them with the rights to all appreciation on the loans. The terms of the TRS transactions require the
third parties to post initial margin, in addition to ongoing margin as the fair values of the underlying loans decrease.
Previously, the Company had concluded it was not the primary beneficiary of the VIEs, as the VIEs were designed for
the benefit of the third parties. The third parties have implicit VIs in the VIEs via their TRS transactions with the
Company, whereby these third parties absorb the majority of the expected losses and are entitled to the majority of the
expected residual returns of the VIEs. At December 31, 2008, these VIEs had entered into TRS with the Company that
had outstanding notional of $602.1 million and none was outstanding at December 31, 2009. The Company has not
provided any support that it was not contractually obligated to for the year ended December 31, 2009 or December 31,
2008. For additional information on the Company’s TRS with these VIEs, see Note 17, “Derivative Financial
Instruments” to the Consolidated Financial Statements.
Community Development Investments
As part of its community reinvestment initiatives, the Company invests almost exclusively within its footprint in multi-
family affordable housing developments and other community development entities as a limited and/or general partner
and/or a debt provider. The Company receives tax credits for its partnership investments. The Company has determined
that these partnerships are VIEs when SunTrust does not own 100% of the entity because the holders of the equity
investment at risk do not have the direct or indirect ability to make decisions that have a significant impact on the
business. Accordingly, the Company’s general partner, limited partner, and/or debt interests are VIs that the Company
evaluates for purposes of determining whether the Company is the primary beneficiary. During 2009 and 2008,
SunTrust did not provide any financial or other support to its consolidated or unconsolidated investments that it was not
previously contractually required to provide. Beginning on January 1, 2010, the Company adopted the amendments to
ASC 810-10 and determined that the Company will continue to consolidate those partnerships in which it acts as the
general partner or the indemnifying party. In these situations, the Company has both the power to direct the activities of
the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the
rights to receive benefits that could potentially be significant to the VIE. The Company will continue to not consolidate
those partnerships in which it acts solely as the limited partner. As the limited partner the Company does not have the
power to direct the activities of the VIE that most significantly impact the entity’s economic performance.
The Company manages certain community development projects that generate tax credits and help it meet the
requirements of the CRA. The related interests in these projects are recorded within the other assets line item on the
Consolidated Balance Sheets. During 2007, the Company completed a strategic review of these properties and
determined that the sale of certain properties was possible, which resulted in the Company recording a $57.7 million
impairment charge in other noninterest expense within the Commercial line of business. Total impairment charges
recorded within the Commercial line of business in 2009 and 2008 totaled $46.8 million and $19.9 million, respectively.
For some partnerships, SunTrust operates strictly as a general partner or the indemnifying party and, as such, is exposed
to a majority of the partnerships’ expected losses. Accordingly, SunTrust consolidates these partnerships on its
Consolidated Balance Sheets. As the general partner or indemnifying party, SunTrust typically guarantees the tax credits
due to the limited partner and is responsible for funding construction and operating deficits. As of December 31, 2009
and December 31, 2008, total assets, which consist primarily of fixed assets and cash attributable to the consolidated
partnerships, were $14.4 million and $20.5 million, respectively, and total liabilities, excluding intercompany liabilities,
were $3.2 million and $3.3 million, respectively. Security deposits from the tenants are recorded as liabilities on the
Company’s Consolidated Balance Sheets. The Company maintains separate cash accounts to fund these liabilities and
these assets are considered restricted. The tenant liabilities and corresponding restricted cash assets were $0.1 million as
of December 31, 2009 and December 31, 2008. While the obligations of the general partner or indemnifying entity are
generally non-recourse to SunTrust, the Company, as the general partner or the indemnifying entity, may from time to
time step in when needed to fund deficits. During 2009 and 2008, SunTrust did not provide any significant amount of
funding as the general partner or the indemnifying entity to cover any deficits the partnerships may have generated.
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