TD Bank 2011 Annual Report Download - page 60

TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT’S DISCUSSION AND ANALYSIS58
As at October 31, 2011, TD held $1,083 million (October 31, 2010 –
$354 million) of ABCP issued by Bank-sponsored multi-seller and
single-seller conduits within the trading securities category on its
Consolidated Balance Sheet.
EXPOSURE TO THIRD PARTY SPONSORED CONDUITS
The Bank has exposure to U.S. third party-sponsored conduits arising
from providing liquidity facilities of $349 million as at October 31, 2011
(October 31, 2010 – nil) of which nil (October 31, 2010 – nil) has been
drawn. The assets within these conduits comprise of individual notes
backed by automotive loan receivables. As at the three months ended
October 31, 2011 and subsequently, these assets have maintained
ratings from various credit rating agencies, ranging from AAA to AA.
The Bank’s exposure to Canadian third party-sponsored conduits in
the form of margin funding facilities as at October 31, 2011 and
October 31, 2010 was not significant.
Exposure to Collateralized Debt Obligations
Since the decision was made in 2005 to exit the structured products
business, the Bank no longer originates Collateralized Debt Obligation
vehicles (CDOs). The total net fair value of unfunded protection related
to CDOs is ($4) million as of October 31, 2011 (October 31, 2010 -
($3) million), and represents the residual exposures before hedging.
These CDOs are referenced to corporate debt securities and contain
no exposure to U.S. subprime mortgages. All exposures are managed
within risk limits that have been approved by the Bank’s risk manage-
ment group and are hedged with various financial instruments,
including credit derivatives and bonds within the trading portfolio.
The Bank’s CDO positions are fair valued using valuation techniques
with significant non-observable market inputs and included in Level 3
of the fair value hierarchy as described in Note 2 to the Consolidated
Financial Statements.
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 are adequate risk management and
control processes in place to mitigate these risks. Certain commitments
still remain off-balance sheet. Note 29 to the Consolidated Financial
Statements provides detailed information about the maximum amount
of additional credit the Bank could be obligated to extend.
Leveraged Finance Credit Commitments
Also included in ‘Commitments to extend credit’ in Note 29 to the
Consolidated Financial Statements are leveraged finance commitments.
Leveraged finance commitments are agreements that provide funding
to a wholesale borrower with higher levels of debt, measured by the
ratio of debt capital to equity capital of the borrower, relative to the
industry in which it operates. The Bank’s exposure to leveraged finance
commitments as at October 31, 2011 was not significant (October 31,
2010 – not significant).
CAPITAL TRUSTS
The Bank sponsors SPEs to raise capital which are considered VIEs. As
the Bank is not the primary beneficiary of these SPE’s, the Bank does
not consolidate them for accounting purposes. For further details on
capital trust activity and the terms of the SPE’s instruments issued and
outstanding, see Note 16 to the Consolidated Financial Statements.
GUARANTEES
In the normal course of business, the Bank enters into various guaran-
tee contracts to support its clients. The Bank’s significant types of
guarantee products are financial and performance standby letters of
credit, assets sold with recourse, credit enhancements, and indemnifi-
cation agreements. Certain guarantees remain off-balance sheet. See
Note 29 to the Consolidated Financial Statements for further informa-
tion regarding the accounting for guarantees.
(millions of Canadian dollars, except as noted) As at
Oct. 31 2011
Oct. 31 2010
Exposure and Expected Exposure and Expected
Ratings profile of weighted Ratings profile of weighted
unconsolidated average life unconsolidated average life
SPEs AAA1 (years)2 SPEs AAA1 (years)2
Residential mortgage loans $ 2,215 2.9 $ 1,637 3.0
Credit card loans 150 2.1 500 1.7
Automobile loans and leases 1,789 1.6 1,561 1.7
Equipment loans and leases 92 0.7 306 1.1
Trade receivables 1,223 2.7 1,287 2.2
Total $ 5,469 2.4 $ 5,291 2.2
EXPOSURE TO THIRD PARTY-ORIGINATED ASSETS SECURITIZED BY BANK-SPONSORED CONDUITS
TABLE 48
1 The Bank’s total liquidity facility exposure only relates to ‘AAA’ rated assets.
2 Expected weighted-average life for each asset type is based upon each of the
conduit’s remaining purchase commitment for revolving pools and the expected
weighted-average life of the assets for amortizing pools.
All third-party assets securitized by the Bank were originated in
Canada and sold to Canadian securitization structures. Details of the
Bank-administered multi-seller, ABCP conduits are as follows: