Fifth Third Bank 2011 Annual Report Download - page 105

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 103
11. VARIABLE INTEREST ENTITIES
The Bancorp, in the normal course of business, engages in a variety
of activities that involve VIEs, which are legal entities that lack
sufficient equity to finance their activities, or the equity investors of
the entities as a group lack any of the characteristics of a controlling
interest. The primary beneficiary of a VIE is generally the enterprise
that has both the power to direct the activities most significant to
the economic performance of the VIE and the obligation to absorb
losses or receive benefits that could potentially be significant to the
VIE. For certain investment funds, the primary beneficiary is the
enterprise that will absorb a majority of the fund’s expected losses
or receive a majority of the fund’s expected residual returns. The
Bancorp evaluates its interest in certain entities to determine if these
entities meet the definition of a VIE and whether the Bancorp is the
primary beneficiary and should consolidate the entity based on the
variable interests it held both at inception and when there is a
change in circumstances that require a reconsideration. If the
Bancorp is determined to be the primary beneficiary of a VIE, it
must account for the VIE as a consolidated subsidiary. If the
Bancorp is determined not to be the primary beneficiary of a VIE
but holds a variable interest in the entity, such variable interests are
accounted for under the equity method of accounting or other
accounting standards as appropriate.
Consolidated VIEs
The following table provides a summary of the classifications of
consolidated VIE assets, liabilities and noncontrolling interests
included in the Bancorp’s Consolidated Balance Sheets as of:
Home Equity Automobile Loan CDC
December 31, 2011 ($ in millions) Securitization Securitizations Investments Total
A
ssets:
Cash and due from banks $ 5 25 - 30
Other short-term investments - 7 - 7
Commercial mortgage loans - - 50 50
Home equity 223 - - 223
A
utomobile loans - 259 - 259
A
LL
L
(5) (3) (2) (10)
Other assets 1 1 2 4
Total assets 224 289 50 563
Liabilities:
Other liabilities $ - 4 - 4
Long-term debt 22 169 - 191
Total liabilities $ 22 173 - 195
Noncontrolling interests 50 50
Home Equity Automobile Loan CDC
December 31, 2010 ($ in millions) Securitization Securitizations Investments Total
A
ssets:
Cash and due from banks $ 7 45 - 52
Other short-term investments - 7 - 7
Commercial mortgage loans - - 29 29
Home equity 241 - - 241
A
utomobile loans - 648 - 648
A
LL
L
(5) (8) (1) (14)
Other assets 1 5 1 7
Total assets 244 697 29 970
Liabilities:
Other liabilities $ - 12 - 12
Long-term debt 133 559 - 692
Total liabilities $ 133 571 - 704
Noncontrolling interest 29 29
Home Equity and Automobile Loan Securitizations
The Bancorp previously sold $903 million of home equity lines of
credit to an isolated trust. Additionally, the Bancorp previously sold
$2.7 billion of automobile loans to an isolated trust and conduits in
three separate transactions. Each of these transactions isolated the
related loans through the use of a VIE that, under accounting
guidance effective prior to January 1, 2010, was not consolidated by
the Bancorp. The VIEs were funded through loans from large
multi-seller asset-backed commercial paper conduits sponsored by
third party agents, asset-backed securities issued with varying levels
of credit subordination and payment priority, and residual interests.
The Bancorp retained residual interests in these entities and,
therefore, has an obligation to absorb losses and a right to receive
benefits from the VIEs that could potentially be significant to the
VIEs. In addition, the Bancorp retained servicing rights for the
underlying loans and, therefore, holds the power to direct the
activities of the VIEs that most significantly impact the economic
performance of the VIEs. As a result, the Bancorp determined it is
the primary beneficiary of these VIEs and, effective January 1, 2010,
these VIEs have been consolidated in the Bancorp’s Consolidated
Financial Statements. The assets of each VIE are restricted to the
settlement of the long-term debt and other liabilities of the
respective entity. Third-party holders of this debt do not have
recourse to the general assets of the Bancorp.
The economic performance of the VIEs is most significantly
impacted by the performance of the underlying loans. The principal
risks to which the entities are exposed include credit risk and
interest rate risk. Credit risk is managed through credit enhancement
in the form of reserve accounts, overcollateralization, excess interest
on the loans, the subordination of certain classes of asset-backed