TD Bank 2006 Annual Report Download - page 59

TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Management’s Discussion and Analysis 55
Our principal relationship with SPEs comes in the form of
administering multi-seller asset-backed commercial paper con-
duit programs (multi-seller conduits) totaling $10.3 billion as at
October 31, 2006, and $9.7 billion as at October 31, 2005. We
currently administer four multi-seller conduits. We are involved
in the multi-seller conduit markets because they generate a
favourable risk-adjusted return for us. Our clients primarily utilize
multi-seller conduits to diversify their financing sources and to
reduce funding costs by leveraging the value of high-quality
collateral.
CREATION OF OTHER INVESTMENT
AND FINANCING PRODUCTS
The Bank sells trading securities to VIEs in conjunction with its
balance sheet management strategies. The Bank holds a signifi-
cant variable interest in these VIEs, but is not considered to be
the primary beneficiary, and as a result does not consolidate
these VIEs. Also, the Bank does not retain effective control over
the assets sold. Assets sold under such arrangements at October
31, 2006 amounted to $1 billion as compared with $1 billion
in 2005. The Bank enters into total return swaps with the sale
counterparties in respect of the assets sold. Market risk for all
such transactions is tracked and monitored.
The Bank is also involved in Collateralized Debt Obligation
vehicles (CDOs). In relation to these CDOs, the Bank may serve in
the capacity of an underwriter, a third-party investor or a deriva-
tive counterparty. CDOs raise capital by issuing debt securities
and use their capital to invest in portfolios of securities and
derivatives. Any net income or loss is shared by the CDOs’ vari-
able interest holders. The CDOs we manage may from time to
time purchase collateral assets originated by us or thirdparties.
Wedo not consolidate these CDOs. We recognize fee income
from structuring and collateral management services and, where
indicated, interest income from investments in individual CDOs.
In addition, the Bank offers equity-linked notes, credit-linked
notes, interest-linked notes, and commodity-linked notes to
various VIEs and third-party clients. The Bank’s exposure to risk
from these transactions is not significant.
The Bank through The Canada Trust Company acts as a
trustee for personal and corporate trusts. In the capacity as a
trustee, fees are earned.
The Bank also sponsors numerous mutual funds. The Bank
acts as the administrator of these funds and does not guarantee
the principal or return to investors on these funds.
The Bank also offers other financial products to clients.
These financial products are, on occasion, created using a VIE as
issuer or obligor of the financial products. The Bank may provide
certain administrative services and other financial products to the
VIEs in exchange for market rate compensation.
GUARANTEES
In the normal course of business, we enter into various guaran-
tee contracts to support our clients. These guarantees, with the
exception of related premiums, are kept off-balance sheet unless
aprovision is needed to cover probable losses. Our significant
types of guarantee products are financial and performance
standby letters of credit, assets sold with recourse, credit
enhancements, written options and indemnification agreements.
Note 20 to the Consolidated Financial Statements provides
detailed information about the Bank’s guarantees.
COMMITMENTS
The Bank enters into various commitments to meet the financing
needs of the Bank’s clients and to earn fee income. Significant
commitments of the Bank include financial and performance
standby letters of credit, documentary and commercial letters of
credit and commitments to extend credit. These products may
expose the Bank to liquidity, credit and reputational risks. There
areadequate risk management and control processes in place to
mitigate these risks. Note 20 to the Bank’s Consolidated Financial
Statements provides detailed information about the maximum
amount of additional credit the Bank could be obligated to
commit.
CONTRACTUAL OBLIGATIONS
The Bank has contractual obligations to make futurepayments
on operating and capital lease commitments and certain
purchase obligations. These contractual obligations impact
the Bank’sshort-term and long-term liquidity and capital
resource needs. All contracts, with the exception of operating
lease commitments (those wherewe arecommitted to purchase
determined volumes of goods and services), are reflected on the
Bank’sConsolidated Balance Sheet. Table 34 below summarizes
our contractual obligations.
2006 2005
Within 1 1 to 3 3 to 5 Over 5
(millions of Canadian dollars) year years years years Total Total
Deposits1$ 202,655 $ 39,306 $17,387 $ 1,559 $ 260,907 $246,981
Subordinated notes and debentures 1 1 228 6,670 6,900 5,138
Operating lease commitments 309 551 373 561 1,794 1,829
Capital trust securities – – 900 – 900 900
Network service agreements 154 462 –– 616 657
Automated banking machines 68 180 55 – 303 371
Contact centre technology 15 61 83 55 214 –
Software licensing and equipment maintenance 81 54 – – 135 –
Total $ 203,283 $ 40,615 $19,026 $ 8,845 $ 271,769 $255,876
CONTRACTUAL OBLIGATIONS BY REMAINING MATURITY
TABLE 34
1As the timing of deposits payable on demand, and deposits payable after
notice, is non-specific and callable by the depositor, obligations have been
included as less than one year.