Wells Fargo 2007 Annual Report Download - page 55

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In addition, in securities available for sale, we held
approximately $1,735 million in tax-exempt bonds at
December 31, 2007, in the form of CDOs, consolidated
in our balance sheet with related liabilities, based on the
Company’s participation in certain municipal tender option
bond programs. The fair value includes a $69 million net
unrealized loss due to changes in interest rates which is
expected to be recovered over time. Approximately 98%
of the bonds are rated investment grade while 2% are not
rated. Under the municipal tender option bond programs
in which we participate, we place long-term tax-exempt
municipal bonds in a trust sponsored by a third party which
serves as the collateral for short-term tender option bonds
issued by the trust to investors. These tender option bonds
can be “put” or tendered by the investor to the trust at par
at predetermined times (generally weekly or monthly). We
are required to consolidate the trusts in accordance with
FIN 46R. We earn a spread between the long-term rate on
the municipal bonds and the short-term rate on the corre-
sponding tender option bonds.
For more information on securitizations, including sales
proceeds and cash flows from securitizations, see Note 8
(Securitizations and Variable Interest Entities) to Financial
Statements.
Our money market mutual funds are allowed to hold
investments in SIVs in accordance with approved investment
parameters for the respective funds and, therefore, may have
indirect exposure to CDOs. At December 31, 2007, our
money market mutual funds held $106 billion of assets
under management including investments in eight SIVs not
sponsored by the Company aggregating $1.6 billion, or
1.5% of the funds’ assets. Based on the maturity and pay-
down of these investments, by February 1, 2008, the funds
held three SIVs aggregating $1.0 billion. At February 1,
2008, the remaining assets held by the money market funds
were either U.S. government, high-grade municipal, or high-
grade corporate securities. At such time, to maintain an
investment rating of AAA for certain funds, we elected to
enter into a capital support agreement for up to $130 million
related to one SIV held by our AAA-rated non-government
money market mutual funds. We are generally not responsible
for investment losses incurred by our funds, and we do not
have a contractual or implicit obligation to indemnify such
losses or provide additional support to the funds. Based on
our estimate of the guarantee obligation at the time we entered
into the agreement, we recorded a liability of $39 million in
2008. While we elected to enter into the capital support
agreement for the AAA-rated funds, we are not obligated
and may elect not to provide additional support to these
funds or other funds in the future.
Wells Fargo Home Mortgage (Home Mortgage), in the
ordinary course of business, originates a portion of its mort-
gage loans through unconsolidated joint ventures in which
we own an interest of 50% or less. Loans made by these
joint ventures are funded by Wells Fargo Bank, N.A. through
an established line of credit and are subject to specified
underwriting criteria. At December 31, 2007, the total assets
of these mortgage origination joint ventures were approxi-
mately $55 million. We provide liquidity to these joint ven-
tures in the form of outstanding lines of credit and, at
December 31, 2007, these liquidity commitments totaled
$238 million.
We also hold interests in other unconsolidated joint
ventures formed with unrelated third parties to provide
efficiencies from economies of scale. A third party manages
our real estate lending services joint ventures and provides
customers title, escrow, appraisal and other real estate related
services. Our merchant services joint venture includes credit
card processing and related activities. At December 31, 2007,
total assets of our real estate lending and merchant services
joint ventures were approximately $775 million.
In connection with certain brokerage, asset management,
insurance agency and other acquisitions we have made, the
terms of the acquisition agreements provide for deferred
payments or additional consideration, based on certain
performance targets. At December 31, 2007, the amount
of additional consideration we expected to pay was not
significant to our financial statements.
As a financial services provider, we routinely commit to
extend credit, including loan commitments, standby letters of
credit and financial guarantees. A significant portion of com-
mitments to extend credit may expire without being drawn
upon. These commitments are subject to the same credit
policies and approval process used for our loans. For more
information, see Note 6 (Loans and Allowance for Credit
Losses) and Note 15 (Guarantees and Legal Actions) to
Financial Statements.
In our venture capital and capital markets businesses, we
commit to fund equity investments directly to investment
funds and to specific private companies. The timing of future
cash requirements to fund these commitments generally
depends on the related investment cycle, the period over
which privately-held companies are funded by investors and
ultimately sold or taken public. This cycle can vary based on
market conditions and the industry in which the companies
operate. We expect that many of these investments will become
public, or otherwise become liquid, before the balance of
unfunded equity commitments is used. At December 31, 2007,
these commitments were approximately $895 million. Our
other investment commitments, principally related to affordable
housing, civic and other community development initiatives,
were approximately $685 million at December 31, 2007.
In the ordinary course of business, we enter into
indemnification agreements, including underwriting agree-
ments relating to our securities, securities lending, acquisi-
tion agreements, and various other business transactions
or arrangements. For more information, see Note 15
(Guarantees and Legal Actions) to Financial Statements.