Wells Fargo 2008 Annual Report Download - page 113

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Note 8: Securitizations and Variable Interest Entities
Involvement with SPEs
We enter into various types of on and off-balance sheet
transactions with special purpose entities (SPEs) in the
normal course of business. SPEs are corporations, trusts
or partnerships that are established for a limited purpose.
We use SPEs to create sources of financing, liquidity and
regulatory capital capacity for the Company, as well as
sources of financing and liquidity, and investment products
for our clients. Our use of SPEs generally consists of various
securitization activities with SPEs whereby financial assets
are transferred to an SPE and repackaged as securities or
similar interests that are sold to investors. In connection
with our securitization activities, we have various forms
of ongoing involvement with SPEs, which may include:
• underwriting securities issued by SPEs and subsequently
making markets in those securities;
• providing liquidity facilities to support short-term
obligations of SPEs issued to third party investors;
• providing credit enhancement on securities issued by
SPEs or market value guarantees of assets held by SPEs
through the use of letters of credit, financial guarantees,
credit default swaps and total return swaps;
• entering into other derivative contracts with SPEs;
• holding senior or subordinated interests in SPEs;
• acting as servicer or investment manager for SPEs; and
• providing administrative or trustee services to SPEs.
The SPEs we use are primarily either qualifying SPEs
(QSPEs) or variable interest entities (VIEs). A QSPE represents
a specific type of SPE. A QSPE is a passive entity that has
significant limitations on the types of assets and derivative
instruments it may own and the extent of activities and decision
making in which it may engage. For example, a QSPE’s
activities are generally limited to purchasing assets, passing
along the cash flows of those assets to its investors, servicing
its assets and, in certain transactions, issuing liabilities. Among
other restrictions on a QSPE’s activities, a QSPE may not
actively manage its assets through discretionary sales or
modifications. A QSPE is exempt from consolidation.
A VIE is an entity that has either a total equity investment
that is insufficient to permit the entity to finance its activities
without additional subordinated financial support or whose
equity investors lack the characteristics of a controlling financial
interest. A VIE is consolidated by its primary beneficiary,
which is the entity that, through its variable interests, absorbs
the majority of a VIE’s variability. A variable interest is a
contractual, ownership or other interest that changes with
changes in the fair value of the VIE’s net assets.
The classifications of assets and liabilities in our balance
sheet associated with our transactions with QSPEs and VIEs
are as follows:
(in millions) December 31, 2008
QSPEs VIEs that we VIEs that we Transfers that Total
do not consolidate we account
consolidate for as secured
borrowings
Cash $ — $ — $ 117 $ 287 $ 404
Trading account assets 1,261 5,241 71 141 6,714
Securities (1) 18,078 15,168 922 6,094 40,262
Mortgages held for sale 56 — — — 56
Loans (2) — 16,882 217 4,126 21,225
MSRs 14,106 — — — 14,106
Other assets 345 5,022 2,416 55 7,838
Total assets 33,846 42,313 3,743 10,703 90,605
Short-term borrowings — — 307 1,440 1,747
Accrued expenses and other liabilities 528 1,976 330 26 2,860
Long-term debt — — 1,773 7,125 8,898
Minority interests — — 121 — 121
Total liabilities and minority interests $ 528 $ 1,976 $2,531 $ 8,591 $ 13,626
(1) Excludes certain debt securities related to loans serviced for the Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and
Government National Mortgage Association (GNMA).
(2) Excludes related allowance for loan losses.
The following disclosures regarding our significant
continuing involvement with QSPEs and unconsolidated VIEs
exclude entities where our only involvement is in the form
of: (1) investments in trading securities, (2) investments in
securities or loans underwritten by third parties, (3) certain
derivatives such as interest rate swaps or cross currency
swaps that have customary terms, and (4) administrative
or trustee services. We have also excluded investments
accounted for in accordance with the AICPA Investment
Company Audit Guide, investments accounted for under
the cost method, and investments accounted for under the
equity method.