KeyBank 2008 Annual Report Download - page 98

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES
The partnership agreement for each guaranteed fund requires the fund
to be dissolved by a certain date. In accordance with SFAS No. 150,
“Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity,” the third-party interests associated with
these funds are considered mandatorily redeemable instruments and are
recorded in “accrued expense and other liabilities” on the balance
sheet. The FASB has indefinitely deferred the measurement and
recognition provisions of SFAS No. 150 for mandatorily redeemable
third-party interests associated with finite-lived subsidiaries, such as Key’s
LIHTC guaranteed funds. Key adjusts the financial statements each
period for the third-party investors’ share of the funds’ profits and losses.
At December 31, 2008, the settlement value of these third-party interests
was estimated to be between $188 million and $198 million, while the
recorded value, including reserves, totaled $238 million.
Unconsolidated VIEs
LIHTC nonguaranteed funds. Although Key holds significant interests
in certain nonguaranteed funds that Key formed and funded,
management has determined that Key is not the primary beneficiary of
those funds because Key does not absorb the majority of the expected
losses of the funds. At December 31, 2008, assets of these unconsolidated
nonguaranteed funds totaled $158 million. Key’smaximum exposure to
loss in connection with these funds is minimal, and Key does not have
any liability recorded related to the funds. Management elected to
cease forming these funds in October 2003.
LIHTC investments. Through the Community Banking line of business,
Key has made investments directly in LIHTC operating partnerships
formed by third parties. As a limited partner in these operating
partnerships, Key is allocated tax credits and deductions associated with
the underlying properties. Management has determined that Key is
not the primary beneficiary of these investments because the general
partners aremoreclosely associated with the business activities of
these partnerships. At December 31, 2008, assets of these unconsolidated
LIHTC operating partnerships totaled approximately $707 million.
Key’s maximum exposure to loss in connection with these partnerships
is the unamortized investment balance of $272 million at December 31,
2008, plus $72 million of tax credits claimed but subject to recapture.
Key does not have any liability recorded related to these investments
because Key believes the likelihood of any loss in connection with
these partnerships is remote. In 2008, Key did not obtain significant
direct investments (either individually or in the aggregate) in LIHTC
operating partnerships.
Key has additional investments in unconsolidated LIHTC operating
partnerships that are held by the consolidated LIHTC guaranteed
funds. Total assets of these operating partnerships were approximately
$1.527 billion at December 31, 2008. The tax credits and deductions
associated with these properties are allocated to the funds’ investors
based on their ownership percentages. Management has determined that
Key is not the primary beneficiary of these partnerships because the
general partners are more closely associated with the business activities
of these partnerships. Information regarding Key’s exposure to loss in
connection with these guaranteed funds is included in Note 18 under
the heading “Return guarantee agreement with LIHTC investors” on
page 114.
Commercial and residential real estate investments and principal
investments. Key’s Principal Investing unit and the Real Estate Capital
and Corporate Banking Services line of business make equity and
mezzanine investments, some of which are in VIEs. These investments
are held by nonregistered investment companies subject to the provisions
of the American Institute of Certified Public Accountants (“AICPA”)
Audit and Accounting Guide, “Audits of Investment Companies.” Key
is not currently applying the accounting or disclosureprovisions of
Revised Interpretation No. 46 to these investments, which remain
unconsolidated; the FASB deferred the effective date of Revised
Interpretation No. 46 for such nonregistered investment companies
until the AICPA clarifies the scope of the Audit Guide.