TD Bank 2014 Annual Report Download - page 168

TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS166
THIRD-PARTY SPONSORED STRUCTURED ENTITIES
In addition to structured entities sponsored by the Bank, the Bank is
also involved with structured entities sponsored by third parties. Key
involvement with third party sponsored structured entities is described
in the following section.
Third-party Sponsored Securitization Programs
The Bank participates in the securitization program of government-
sponsored structured entities, including the CMHC, a Crown corporation
of the Government of Canada, and similar U.S. government-sponsored
entities. The CMHC guarantees CMB issued through the CHT.
The Bank is exposed to the variable returns in the CHT, through
its retention of seller swaps resulting from its participation in the
CHT program. The Bank does not have power over the CHT as its key
economic activities are controlled by the Government of Canada. The
Bank’s exposure to the CHT is included in the balance of residential
mortgage loans noted in Note 9, Transfers of Financial Assets and is
not disclosed in the table accompanying this Note.
The Bank participates in the securitization programs sponsored by
U.S. government agencies. The Bank is not exposed to significant
variable returns from these agencies and does not have power over
the key economic activities of the agencies, which are controlled
by the U.S. government.
Investment Holdings and Derivatives
The Bank may hold interests in third party structured entities, predomi-
nantly in the form of direct investments in securities or partnership
interests issued by those structured entities, or through derivatives
transacted with counterparties which are structured entities. Invest-
ments in, and derivatives with, structured entities are recognized on
the Bank’s Consolidated Balance Sheet. The Bank does not typically
consolidate third party structured entities where its involvement is
limited to investment holdings and/or derivatives as the Bank would
not generally have power over the key economic decisions of the entity.
Financing Transactions
In the normal course of business, the Bank may enter into financing
transactions with third party structured entities including commercial
loans, reverse repurchase agreements, prime brokerage margin lending
and similar collateralized lending transactions. While such transactions
expose the Bank to the structured entities counterparty credit risk, this
exposure is mitigated by the collateral related to these transactions.
The Bank typically has neither power nor significant variable returns
due to financing transactions with structured entities and would
not generally consolidate such entities. Financing transactions with
third party-sponsored structured entities are included on the Bank’s
Consolidated Financial Statements and have not been included in
the table accompanying this Note.
Arm’s-length Servicing Relationships
In addition to the involvement outlined above, the Bank may also
provide services to structured entities on an arm’s-length basis,
for example as sub-advisor to an investment fund or asset servicer.
Similarly, the Bank’s asset management services provided to institu-
tional investors may include transactions with structured entities. As a
consequence of providing these services, the Bank may be exposed to
variable returns from these structured entities, for example, through
the receipt of fees or short-term exposure to the structured entity’s
securities. Any such exposure is typically mitigated by collateral or
some other contractual arrangement with the structured entity or its
sponsor. The Bank generally has neither power nor significant variable
returns from the provision of arm’s-length services to a structured
entity and, consequently does not consolidate such entities. Fees and
other exposures through servicing relationships are included on the
Bank’s Consolidated Financial Statements and have not been included
in the table accompanying this Note.
INVOLVEMENT WITH CONSOLIDATED STRUCTURED ENTITIES
Securitizations
The Bank securitizes credit card loans, consumer instalment and other
personal loans through securitization entities, predominantly single-
seller conduits. These conduits are consolidated by the Bank based on
the factors described above. Aside from the exposure resulting from
its involvement as seller and sponsor of consolidated securitization
conduits described above, including the liquidity facilities provided, the
Bank has no contractual or non-contractual arrangements to provide
financial support to consolidated securitization conduits. The Bank’s
interests in securitization conduits generally rank senior to interests
held by other parties, in accordance with the Bank’s investment and
risk policies. As a result, the Bank has no significant obligations to
absorb losses before other holders of securitization issuances.
Other Consolidated Structured Entities
Depending on the specific facts and circumstances of the Bank’s
involvement with structured entities, the Bank may consolidate asset
management entities, financing vehicles or third party-sponsored struc-
tured entities, based on the factors described above. Aside from its
exposure resulting from its involvement as sponsor or investor in the
structured entities as previously discussed, the Bank does not typically
have other contractual or non-contractual arrangements to provide
financial support to these consolidated structured entities.
INVOLVEMENT WITH UNCONSOLIDATED STRUCTURED ENTITIES
The following table presents information related to the Bank’s uncon-
solidated structured entities. Unconsolidated structured entities include
both TD and third-party sponsored entities. Securitizations include
holdings in TD-sponsored multi-seller conduits, as well as third-party
sponsored mortgage and asset-backed securitizations, including
government-sponsored agency securities such as CMBs, and U.S.
government agency issuances. Investment Funds and Trusts include
holdings in third party funds and trusts, as well as holdings in TD-
sponsored asset management funds and trusts. Amounts in Other
are predominantly related to investments in community-based U.S.
tax-advantage entities described in Note 12, Investment in Associates
and Joint Ventures.