Fifth Third Bank 2013 Annual Report Download - page 120

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
118 Fifth Third Bancorp
member will be the party that has the right to make decisions that
will most significantly impact the economic performance of the
entity. CDC serves as the managing member of certain LLCs
invested in business revitalization projects. The Bancorp has
provided an indemnification guarantee to the investor member of
these LLCs related to the qualification of tax credits generated by
the investor member’s investment. Accordingly, the Bancorp
concluded that it is the primary beneficiary and, therefore, has
consolidated these VIEs. As a result, the investor members’
interests in these VIEs are presented as noncontrolling interests in
the Bancorp’s Consolidated Financial Statements. This presentation
includes reporting separately the equity attributable to the
noncontrolling interests in the Consolidated Balance Sheets and
Consolidated Statements of Changes in Equity and reporting
separately the comprehensive income attributable to the
noncontrolling interests in the Consolidated Statements of
Comprehensive Income and the net income attributable to the
noncontrolling interests in the Consolidated Statements of Income.
The Bancorp’s maximum exposure related to these indemnifications
at December 31, 2013 and 2012 was $21 million and $18 million,
respectively, which is based on an amount required to meet the
investor members’ defined target rate of return.
Non-consolidated VIEs
The following tables provide a summary of assets and liabilities carried on the Bancorp’s Consolidated Balance Sheets related to non-consolidated
V
IEs for which the Bancorp holds an interest, but is not the primary beneficiary of the VIE, as well as the Bancorp’s maximum exposure to losses
associated with its interests in the entities:
Total Total Maximum
A
s of December 31, 2013 ($ in millions) Assets Liabilities Exposure
CDC investments $1,436 407 1,436
Private equity investments 204 - 294
Loans provided to VIEs 1,830 - 2,792
A
utomobile loan securitization 4 - 4
Restructured loans 1 - 1
Total Total Maximum
A
s of December 31, 2012 ($ in millions) Assets Liabilities Exposure
CDC investments $1,442 394 1,442
Private equity investments 189 - 310
Loans provided to VIEs 1,622 -2,465
Restructured loans 2 -2
CDC Investments
As noted previously, CDC typically invests in VIEs as a limited
partner or investor member in the form of equity contributions. The
Bancorp has determined that it is not the primary beneficiary of
these VIEs because it lacks the power to direct the activities that
most significantly impact the economic performance of the
underlying project or the VIEs’ ability to operate in compliance with
the rules and regulations necessary for the qualification of tax
credits generated by equity investments. This power is held by the
general partners/managing members who exercise full and exclusive
control of the operations of the VIEs. Accordingly, the Bancorp
accounts for these investments under the equity method of
accounting.
The Bancorp’s funding requirements are limited to its invested
capital and any additional unfunded commitments for future equity
contributions. The Bancorp’s maximum exposure to loss as a result
of its involvement with the VIEs is limited to the carrying amounts
of the investments, including the unfunded commitments. The
carrying amounts of these investments, which are included in other
assets in the Consolidated Balance Sheets, and the liabilities related
to the unfunded commitments, which are included in other liabilities
in the Consolidated Balance Sheets, are included in the previous
tables for all periods presented. The Bancorp has no other liquidity
arrangements or obligations to purchase assets of the VIEs that
would expose the Bancorp to a loss. In certain arrangements, the
general partner/managing member of the VIE has guaranteed a
level of projected tax credits to be received by the limited
partners/investor members, thereby minimizing a portion of the
Bancorp’s risk.
Private Equity Investments
The Bancorp, through a wholly owned subsidiary, invests as a
limited partner in private equity funds which provide the Bancorp
an opportunity to obtain higher rates of return on invested capital,
while also creating cross-selling opportunities for the Bancorp’s
commercial products. Each of the limited partnerships has an
unrelated third-party general partner responsible for appointing the
fund manager. The Bancorp has not been appointed fund manager
for any of these private equity funds. The funds finance primarily all
of their activities from the partners’ capital contributions and
investment returns. Under the VIE consolidation guidance still
applicable to the funds, the Bancorp has determined that it is not
the primary beneficiary of the funds because it does not absorb a
majority of the funds’ expected losses or receive a majority of the
funds’ expected residual returns. Therefore, the Bancorp accounts
for its investments in these limited partnerships under the equity
method of accounting.
The Bancorp is exposed to losses arising from negative
performance of the underlying investments in the private equity
funds. As a limited partner, the Bancorp’s maximum exposure to
loss is limited to the carrying amounts of the investments plus
unfunded commitments. The carrying amounts of these
investments, which are included in other assets in the Consolidated
Balance Sheets, are included in the previous tables. Also, as of
December 31, 2013 and 2012, the unfunded commitment amounts
to the funds were $90 million and $121 million, respectively. The
Bancorp made capital contributions of $31 million and $61 million
to private equity funds during 2013 and 2012, respectively.
Additionally, in response to the issuance of the Volcker Rule in the
fourth quarter of 2013, the Bancorp recognized $4 million of OTTI
on its investments in private equity funds. See Note 27 for further
information.