Wells Fargo 2015 Annual Report Download - page 184

Note 8: Securitizations and Variable Interest Entities
Involvement with SPEs SPEs formed in connection with securitization transactions
In the normal course of business, we enter into various types of
on- and off-balance sheet transactions with SPEs, which are
corporations, trusts or partnerships that are established for a
limited purpose. Generally, SPEs are formed in connection with
securitization transactions. In a securitization transaction, assets
are transferred to an SPE, which then issues to investors various
forms of interests in those assets and may also enter into
derivative transactions. In a securitization transaction where we
transferred assets from our balance sheet, we typically receive
cash and/or other interests in an SPE as proceeds for the assets
we transfer. Also, in certain transactions, we may retain the right
to service the transferred receivables and to repurchase those
receivables from the SPE if the outstanding balance of the
receivables falls to a level where the cost exceeds the benefits of
servicing such receivables. In addition, we may purchase the
right to service loans in an SPE that were transferred to the SPE
by a third party.
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.
are generally considered variable interest entities (VIEs). SPEs
formed for other corporate purposes may be VIEs as well. A VIE
is an entity that has either a total equity investment that is
insufficient to finance its activities without additional
subordinated financial support or whose equity investors lack
the ability to control the entity’s activities or lack the ability to
receive expected benefits or absorb obligations in a manner
that’s consistent with their investment in the entity. A VIE is
consolidated by its primary beneficiary, the party that has both
the power to direct the activities that most significantly impact
the VIE and a variable interest that could potentially be
significant to the VIE. A variable interest is a contractual,
ownership or other interest whose value changes with changes in
the fair value of the VIE’s net assets. To determine whether or
not a variable interest we hold could potentially be significant to
the VIE, we consider both qualitative and quantitative factors
regarding the nature, size and form of our involvement with the
VIE. We assess whether or not we are the primary beneficiary of
a VIE on an on-going basis.
We have segregated our involvement with VIEs between
those VIEs which we consolidate, those which we do not
consolidate and those for which we account for the transfers of
financial assets as secured borrowings. Secured borrowings are
transactions involving transfers of our financial assets to third
parties that are accounted for as financings with the assets
pledged as collateral. Accordingly, the transferred assets remain
recognized on our balance sheet. Subsequent tables within this
Note further segregate these transactions by structure type.
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