Wells Fargo 2011 Annual Report Download - page 172

Note 8: Securitizations and Variable Interest Entities (continued)
investors. Other than this limited contractual support, the assets
of the VIEs are the sole source of repayment of the securities
held by third parties. The liquidity support we provide to the
multi-seller commercial paper conduit ensures timely repayment
of commercial paper issued by the conduit and is described
further below.
NONCONFORMING RESIDENTIAL MORTGAGE LOAN
SECURITIZATIONS
We have consolidated certain of our
nonconforming residential mortgage loan securitizations in
accordance with consolidation accounting guidance. We have
determined we are the primary beneficiary of these
securitizations because we have the power to direct the most
significant activities of the entity through our role as primary
servicer and also hold variable interests that we have determined
to be significant. The nature of our variable interests in these
entities may include beneficial interests issued by the VIE,
mortgage servicing rights and recourse or repurchase reserve
liabilities. The beneficial interests issued by the VIE that we hold
include either subordinate or senior securities held in an amount
that we consider potentially significant.
MULTI-SELLER COMMERCIAL PAPER CONDUIT We administer
a multi-seller asset-based commercial paper conduit that
finances certain client transactions. This conduit is a bankruptcy
remote entity that makes loans to, or purchases certificated
interests, generally from SPEs, established by our clients
(sellers) and which are secured by pools of financial assets. The
conduit funds itself through the issuance of highly rated
commercial paper to third party investors. The primary source of
repayment of the commercial paper is the cash flows from the
conduit’s assets or the re-issuance of commercial paper upon
maturity. The conduit’s assets are structured with deal-specific
credit enhancements generally in the form of
overcollateralization provided by the seller, but may also include
subordinated interests, cash reserve accounts, third party credit
support facilities and excess spread capture. The timely
repayment of the commercial paper is further supported by
asset-specific liquidity facilities in the form of liquidity asset
purchase agreements that we provide. Each facility is equal to
102% of the conduit’s funding commitment to a client. The
aggregate amount of liquidity must be equal to or greater than
all the commercial paper issued by the conduit. At the discretion
of the administrator, we may be required to purchase assets
from the conduit at par value plus accrued interest or discount
on the related commercial paper, including situations where the
conduit is unable to issue commercial paper. Par value may be
different from fair value.
We receive fees in connection with our role as administrator
and liquidity provider. We may also receive fees related to the
structuring of the conduit’s transactions. In 2010, the conduit
terminated its subordinated note to a third party investor and
repaid all amounts due under the terms of the note agreement.
We are the primary beneficiary of the conduit because we have
power over the significant activities of the conduit and have a
significant variable interest due to our liquidity arrangement.
INVESTMENT FUNDS We have consolidated certain of our
investment funds where we manage the assets of the fund and
our interests absorb a majority of the funds’ variability. In 2011,
we redeemed our interest in an unconsolidated investment fund
and placed the assets received upon redemption into new VIEs.
We consolidate these VIEs because we have discretion over the
management of the assets and are the sole investor in these
funds.
170