SunTrust 2012 Annual Report Download - page 183

Notes to Consolidated Financial Statements (Continued)
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representing the fair value of the contingent payments was $30 million and $10 million as of December 31, 2012 and 2011,
respectively. If required, these contingent payments will be payable within the next four years.
Visa
The Company issues and acquires credit and debit card transactions through Visa. The Company is a defendant, along with
Visa 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 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 Visa's
restructuring in 2007, 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.
Agreements associated with Visa's IPO have provisions that Visa will fund a litigation escrow account, established for the
purpose of funding judgments in, or settlements of, the Litigation. Since inception of the escrow account, Visa has funded
$8.2 billion, approximately $4.1 billion of which has been paid out in Litigation settlements. If the escrow account is
insufficient to cover the Litigation losses, then Visa will issue additional Class A shares (“loss shares”). The proceeds from
the sale of the loss shares would then be deposited in the escrow account. The issuance of the loss shares will cause a
dilution of Visa's Class B shares as a result of an adjustment to lower the conversion factor of the Class B shares to Class
A shares. Visa U.S.A.'s members are responsible for any portion of the settlement or loss on the Litigation after the escrow
account is depleted and the value of the Class B shares is fully-diluted. In May 2009, the Company sold its 3.2 million
Visa Inc. Class B shares to the Visa Counterparty and entered into a derivative with the Visa Counterparty. The Company
received $112 million and recognized a gain of $112 million in connection with these transactions. Under the derivative,
the Visa Counterparty is compensated by the Company for any decline in the conversion factor as a result of the outcome
of the Litigation. Conversely, the Company is compensated by the Visa Counterparty for any increase in the conversion
factor. The amount of payments made or received under the derivative is a function of the 3.2 million shares sold to the
Visa Counterparty, the change in conversion rate, and Visa’s share price. The Visa Counterparty, as a result of its ownership
of the Class B shares, is impacted by dilutive adjustments to the conversion factor of the Class B shares caused by the
Litigation losses. The conversion factor at the inception of the derivative in May 2009 was 0.6296 and as of December 31,
2012, the conversion factor had decreased to 0.4206 due to Visa’s funding of the litigation escrow account. The decreases
in the conversion factor triggered payments by the Company to the Visa Counterparty of $26 million, $8 million, and $17
million, during the years ended December 31, 2012, 2011, and 2010, respectively. The estimated fair value of the derivative
liability recorded as of December 31, 2012 and 2011, was $1 million and $22 million, respectively.
During 2012, the Card Associations and defendants signed a memorandum of understanding to enter into a settlement
agreement to resolve the plaintiffs' claims in the Litigation. Visa's share of the claims represents approximately $4.4 billion,
of which, $0.3 billion has been paid from the escrow account as of December 31, 2012, and the remaining $4.1 billion,
which will be paid upon settlement from its escrow account. As the escrow account is sufficient to cover the expected
liability, the Company does not expect the conversion ratio to decrease below the 0.4206 ratio as of December 31, 2012,
and thus, is not expecting any additional payments to the Visa Counterparty, other than certain fixed charges included in
the liability, which are payable until the final settlement occurs.
Tax Credit Investments Sold
SunTrust Community Capital, a SunTrust subsidiary, previously obtained state and federal tax credits through the
construction and development of affordable housing properties and continues to obtain state and federal tax credits through
investments in affordable housing developments. SunTrust Community Capital or its subsidiaries are limited and/or general
partners in various partnerships established for the properties. Some of the investments that generate state tax credits may
be sold to outside investors. As of December 31, 2012, SunTrust Community Capital has completed six sales containing
guarantee provisions stating that SunTrust Community Capital will make payment to the outside investors if the tax credits
become ineligible. SunTrust Community Capital 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 fifteen year period from inception. As of
December 31, 2012, the maximum potential amount that SunTrust Community Capital could be obligated to pay under
these guarantees is $37 million; however, SunTrust Community Capital can seek recourse against the general partner.
Additionally, SunTrust Community Capital can seek reimbursement from cash flow and residual values of the underlying
affordable housing properties provided that the properties retain value. As of December 31, 2012 and 2011, $3 million and
$5 million, respectively, was accrued, representing the remainder of tax credits to be delivered, and were recorded in other
liabilities in the Consolidated Balance Sheets.