Fifth Third Bank 2014 Annual Report Download - page 119

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
117 Fifth Third Bancorp
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
member will be the party that has the right to make decisions that
will most significantly impact the economic performance of the
entity. The Bancorp’s subsidiaries serve 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 members’ 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, 2014 and 2013 was $24 million and $21 million,
respectively, which is based on an amount required to meet the
investor members’ defined target rate of return.
Non-consolidated VIEs
The following tables provide a summary of assets and liabilities carried on the Consolidated Balance Sheets related to non-consolidated VIEs for
w
hich the Bancorp holds an interest, but is not the primary beneficiary of the VIE, as well as the Bancorp’s maximum exposure to losses
associated with its interests in the entities as of:
Total Total Maximum
December 31, 2014 ($ in millions) Assets Liabilities Exposure
CDC investments $1,432 364 1,432
Private equity investments 189 - 267
Loans provided to VIEs 1,900 - 2,759
A
utomobile loan securitization 2 - 2
Total Total Maximum
December 31, 2013 ($ 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
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