TD Bank 2014 Annual Report Download - page 204

TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS202
Assets that can be Repledged or Sold
(millions of Canadian dollars) As at
October 31 October 31
2014 2013
Trading loans, securities, and other $ 30,642 $ 29,484
Other assets 100 120
Total $ 30,742 $ 29,604
In addition, the Bank may accept financial assets as collateral that the
Bank is permitted to sell or repledge in the absence of default. These
transactions are conducted under terms that are usual and customary
to standard lending, and security borrowing and lending activities.
As at October 31, 2014, the fair value of financial assets accepted as
collateral that the Bank is permitted to sell or repledge in the absence
of default was $22 billion (October 31, 2013 – $20 billion). The fair
value of financial assets accepted as collateral that have been sold or
repledged (excluding cash collateral) was $4 billion as at October 31,
2014 (October 31, 2013 – $3 billion).
Assets Sold with Recourse
In connection with its securitization activities, the Bank typically makes
customary representations and warranties about the underlying assets
which may result in an obligation to repurchase the assets. These
representations and warranties attest that the Bank, as the seller,
has executed the sale of assets in good faith, and in compliance with
relevant laws and contractual requirements. In the event that they do
not meet these criteria, the loans may be required to be repurchased
by the Bank.
GUARANTEES
The following types of transactions represent the principal guarantees
that the Bank has entered into.
Assets Sold with Contingent Repurchase Obligations
The Bank sells mortgage loans, which it continues to service, to the
TD Mortgage Fund (the “Fund”), a mutual fund managed by the Bank.
As part of its responsibilities, the Bank has an obligation to repurchase
mortgage loans when they default or if the Fund experiences a liquid-
ity event such that it does not have sufficient cash to honor unit holder
redemptions. For further details on the Bank’s involvement with the
Fund, please see Note 10, Structured Entities.
Credit Enhancements
The Bank guarantees payments to counterparties in the event that
third party credit enhancements supporting asset pools are insufficient.
Written Options
Written options are agreements under which the Bank grants the
buyer the future right, but not the obligation, to sell or buy at or by
a specified date, a specific amount of a financial instrument at a price
agreed when the option is arranged and which can be physically or
cash settled.
Written options can be used by the counterparty to hedge foreign
exchange, equity, credit, commodity, and interest rate risks. The Bank
does not track, for accounting purposes, whether its clients enter into
these derivative contracts for trading or hedging purposes and has not
determined if the guaranteed party has the asset or liability related to
the underlying. Accordingly, the Bank cannot ascertain which contracts
are guarantees under the definition contained in the accounting guide-
line for disclosure of guarantees. The Bank employs a risk framework
to define risk tolerances and establishes limits designed to ensure that
losses do not exceed acceptable pre-defined limits. Due to the nature
of these contracts, the Bank cannot make a reasonable estimate of the
potential maximum amount payable to the counterparties.
The total notional principal amount of the written options as at
October 31, 2014, was $86 billion (October 31, 2013 – $82 billion).
Indemnification Agreements
In the normal course of operations, the Bank provides indemnification
agreements to various counterparties in transactions such as service
agreements, leasing transactions, and agreements relating to acquisi-
tions and dispositions. Under these agreements, the Bank is required
to compensate counterparties for costs incurred as a result of various
contingencies such as changes in laws and regulations and litigation
claims. The nature of certain indemnification agreements prevents the
Bank from making a reasonable estimate of the maximum potential
amount that the Bank would be required to pay such counterparties.
The Bank also indemnifies directors, officers and other persons, to
the extent permitted by law, against certain claims that may be made
against them as a result of their services to the Bank or, at the Bank’s
request, to another entity.
The following table summarizes as at October 31, the maximum poten-
tial amount of future payments that could be made under guarantees
without consideration of possible recoveries under recourse provisions
or from collateral held or pledged.
Maximum Potential Amount of Future Payments
(millions of Canadian dollars) As at
October 31 October 31
2014 2013
Financial and performance standby letters of credit $ 18,395 $ 16,503
Assets sold with contingent repurchase obligations 267 341
Total $ 18,662 $ 16,844