US Bank 2014 Annual Report Download - page 148

Minimum Revenue Guarantees In the normal course of
business, the Company may enter into revenue share
agreements with third party business partners who generate
customer referrals or provide marketing or other services
related to the generation of revenue. In certain of these
agreements, the Company may guarantee that a minimum
amount of revenue share payments will be made to the third
party over a specified period of time. At December 31, 2014,
the maximum potential future payments required to be made
by the Company under these agreements were $6 million and
the Company had recorded a related liability of $6 million.
Other Guarantees and Commitments The Company has also
made other financial performance guarantees and
commitments related to the operations of its subsidiaries. At
December 31, 2014, the maximum potential future payments
guaranteed or committed by the Company under these
arrangements were approximately $502 million.
Litigation and Regulatory Matters The Company is subject
to various litigation and regulatory matters that arise in the
ordinary course of its business. The Company establishes
reserves for such matters when potential losses become
probable and can be reasonably estimated. The Company
believes the ultimate resolution of existing legal and
regulatory matters will not have a material adverse effect on
the financial condition, results of operations or cash flows of
the Company. However, changes in circumstances or
additional information could result in additional accruals or
resolution in excess of established accruals, which could
adversely affect the Company’s results from operations,
potentially materially.
Litigation Matters In the last several years, the Company and
other large financial institutions have been sued in their
capacity as trustee for residential mortgage–backed
securities trusts. Among these lawsuits are actions brought
in June 2014 by a group of institutional investors against six
bank trustees, including the Company. In BlackRock
Allocation Target Shares: Series S Portfolio, et al. v. U.S. Bank
National Association, et al. filed on June 18, 2014 in the
Supreme Court of the State of New York, New York County,
and then refiled on November 24, 2014 in the United States
District Court for the Southern District of New York (where it
is now pending), the investors allege that U.S. Bank National
Association as trustee caused them to incur losses by failing
to enforce loan repurchase obligations and failing to abide by
appropriate standards of care after events of default
allegedly occurred. In the lawsuit, the plaintiffs seek
monetary damages in an unspecified amount and also seek
equitable relief.
Regulatory Matters The Company is currently subject to
investigations and examinations by government agencies and
bank regulators concerning mortgage-related practices,
including those related to compliance with selling guidelines
relating to residential home loans sold to GSEs, foreclosure-
related expenses submitted to the Federal Housing
Administration or GSEs for reimbursement, and various
practices related to lender-placed insurance. The Company is
also regularly subject to examinations and inquiries in areas
of increasing regulatory scrutiny, such as compliance, risk
management, third party management, consumer protection,
anti-money laundering, and Bank Secrecy Act and Office of
Foreign Assets Control requirements. The Company is
cooperating fully with these examinations, inquiries and
investigations, any of which could lead to administrative or
legal proceedings or settlements. Remedies in these
proceedings or settlements may include fines, penalties,
restitution or alterations in the Company’s business practices
(which may increase the Company’s operating expenses and
decrease its revenue).
Certain federal and state governmental authorities
reached settlement agreements in 2012 and 2013 with other
major financial institutions regarding their mortgage
origination, servicing, and foreclosure activities. Those
governmental authorities have had settlement discussions
with other financial institutions, including the Company. The
Company has not agreed to any settlement; however, if a
settlement were reached it would likely include an
agreement to comply with specified servicing standards, and
settlement payments to governmental authorities as well as
a monetary commitment that could be satisfied under
various loan modification programs (in addition to the
programs the Company already has in place).
In April 2011, the Company and certain other large
financial institutions entered into Consent Orders with U.S.
federal banking regulators relating to residential mortgage
servicing and foreclosure practices. These regulators will
determine whether any of the institutions will be released
from the Consent Orders, based on their compliance with the
Consent Orders’ provisions. If the federal regulators
determine that the Company has not appropriately addressed
the requirements of the Consent Orders, the Company could
be required to enter into further orders and settlements, pay
additional fines or penalties, make restitution or further
modify the Company’s business practices (which may increase
the Company’s operating expenses and decrease its revenue).
Outlook Due to their complex nature, it can be years before
litigation and regulatory matters are resolved. For those
litigation and regulatory matters where the Company has
information to develop an estimate or range of loss, the
Company believes the upper end of reasonably possible losses
in aggregate, in excess of any reserves established for matters
where a loss is considered probable, will not be material to its
financial condition, results of operations or cash flows. The
Company’s estimates are subject to significant judgment and
uncertainties, and the matters underlying the estimates will
change from time to time. Actual results may vary significantly
from the current estimates.
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