Fifth Third Bank 2013 Annual Report Download - page 119

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
117 Fifth Third Bancorp
10. 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 requires 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:
Automobile Loan CDC
December 31, 2013 ($ in millions) Securitization Investments Total
A
ssets:
Cash and due from banks $ 49 - 49
Commercial mortgage loans - 48 48
A
utomobile loans(a) 1,010 - 1,010
A
LL
L
(2) (13) (15)
Other assets 11 2 13
Total assets $ 1,068 37 1,105
Liabilities:
Other liabilities $ 1 - 1
Long-term debt 1,048 - 1,048
Total liabilities $ 1,049 - 1,049
Noncontrolling interests - 37 37
(a) Net of $52 of unamortized fees and discounts.
CDC
December 31, 2012 ($ in millions) Investments Total
A
ssets:
Commercial mortgage loans $ 50 50
A
LL
L
(5) (5)
Other assets 3 3
Total assets $48 48
Noncontrolling interests 48 48
Automobile Loan Securitization
In August of 2013, the Bancorp transferred approximately $1.3
billion in fixed-rate consumer automobile loans to a bankruptcy
remote trust which was deemed to be a VIE. The primary purposes
for which the VIE was created were to issue asset-backed securities
with varying levels of credit subordination and payment priority, as
well as residual interests, and to provide the Bancorp with access to
liquidity for its originated loans. The Bancorp retained residual
interests in the VIE and, therefore, has an obligation to absorb
losses and a right to receive benefits from the VIE that could
potentially be significant to the VIE. In addition, the Bancorp
retained servicing rights for the underlying loans and, therefore,
holds the power to direct the activities of the VIE that most
significantly impact the economic performance of the VIE. As a
result, the Bancorp concluded that it is the primary beneficiary of
the VIE and, therefore, has consolidated this VIE. The assets of the
VIE are restricted to the settlement of the notes and other
obligations of the VIE. Third-party holders of the notes do not
have recourse to the general assets of the Bancorp.
The economic performance of the VIE is most significantly
impacted by the performance of the underlying loans. The principal
risks to which the VIE are exposed include credit risk and
prepayment risk. The credit and prepayment risks are managed
through credit enhancements in the form of reserve accounts,
overcollateralization, excess interest on the loans and the
subordination of certain classes of asset-backed securities to other
classes.
CDC Investments
CDC, a wholly owned indirect subsidiary of the Bancorp, was
created to invest in projects to create affordable housing, revitalize
business and residential areas, and preserve historic landmarks.
CDC generally co-invests with other unrelated companies and/or
individuals and typically makes investments in a separate legal entity
that owns the property under development. The entities are usually
formed as limited partnerships and LLCs, and CDC typically invests
as a limited partner/investor member in the form of equity
contributions. The economic performance of the VIEs is driven by
the performance of their underlying investment projects as well as
the VIEs’ ability to operate in compliance with the rules and
regulations necessary for the qualification of tax credits generated by
equity investments. Typically, the general partner or managing