TD Bank 2014 Annual Report Download - page 67

TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS 65
In the normal course of operations, the Bank engages in a variety of
financial transactions that, under IFRS, are either not recorded on the
Bank’s Consolidated Balance Sheet or are recorded in amounts that
differ from the full contract or notional amounts. These off-balance
sheet arrangements involve, among other risks, varying elements of
market, credit, and liquidity risks which are discussed in the “Managing
Risk” section of this document. Off-balance sheet arrangements are
generally undertaken for risk management, capital management, and
funding management purposes and include securitizations, contractual
obligations, and certain commitments and guarantees.
STRUCTURED ENTITIES
TD carries out certain business activities through arrangements with
structured entities, including special purpose entities (SPEs). The Bank
uses SPEs to raise capital, obtain sources of liquidity by securitizing
certain of the Bank’s financial assets, to assist TD’s clients in securitiz-
ing their financial assets, and to create investment products for the
Bank’s clients. Securitizations are an important part of the financial
markets, providing liquidity by facilitating investor access to specific
portfolios of assets and risks. See Note 2 to the Consolidated Financial
Statements for further information regarding the accounting for SPEs.
Securitization of Bank-Originated Assets
The Bank securitizes residential mortgages, business and government
loans, personal loans, automobile loans, and credit card loans to
enhance its liquidity position, to diversify sources of funding, and
to optimize the management of the balance sheet.
The Bank securitizes residential mortgages under the National
Housing Act Mortgage-Backed Securities (NHA MBS) program spon-
sored by the Canada Mortgage and Housing Corporation (CMHC).
The securitization of the residential mortgages with the CMHC does
not qualify for derecognition and remain on the Bank’s Consolidated
Balance Sheet. Additionally, the Bank securitizes personal loans and
credit card loans by selling them to Bank-sponsored SPEs that are
consolidated by the Bank. The Bank also securitizes U.S. residential
mortgages with U.S. government-sponsored entities which qualify for
derecognition and are removed from the Bank’s Consolidated Balance
Sheet. All other products securitized by the Bank were originated in
Canada and sold to Canadian securitization structures. See Notes 9 and
10 to the Consolidated Financial Statements for further information.
GROUP FINANCIAL CONDITION
Securitization and Off-Balance Sheet Arrangements
(millions of Canadian dollars) As at
Significant
Significant consolidated
unconsolidated SPEs SPEs Non-SPE third-parties
Carrying Carrying
value of value of
Securitized retained Securitized Securitized retained
assets interests assets assets interests
October 31, 2014
Residential mortgage loans $ 23,796 $ – $ – $ 9,765 $ –
Consumer instalment and other personal loans2 – – 6,081 – –
Credit card loans2 – – – – –
Business and government loans 2 – – 2,031 44
Total exposure $ 23,798 $ – $ 6,081 $ 11,796 $ 44
October 31, 2013
Residential mortgage loans $ 23,157 $ – $ – $ 16,229 $ –
Consumer instalment and other personal loans2 – – 6,141 – –
Credit card loans2 – – 300 – –
Business and government loans 35 – – 2,322 52
Total exposure $ 23,192 $ – $ 6,441 $ 18,551 $ 52
EXPOSURES SECURITIZED BY THE BANK AS ORIGINATOR1
TABLE 50
1 Includes all assets securitized by the Bank, irrespective of whether they are
on-balance or off-balance sheet for accounting purposes, except for securitizations
through U.S. government-sponsored entities.
Residential Mortgage Loans
The Bank securitizes residential mortgage loans through significant
unconsolidated SPEs and Canadian non-SPE third-parties. Residential
mortgage loans securitized by the Bank may give rise to full derecogni-
tion of the financial assets depending on the individual arrangement
of each transaction. In instances where the Bank fully derecognizes
residential mortgage loans, the Bank may be exposed to the risks of
transferred loans through retained interests. As at October 31, 2014,
the Bank has not recognized any retained interests due to the securiti-
zation of residential mortgage loans on its Consolidated Balance Sheet.
Consumer Instalment and Other Personal Loans
The Bank securitizes consumer instalment and other personal loans
through consolidated SPEs. The Bank consolidates the SPEs as they
serve as financing vehicles for the Bank’s assets, the Bank has power
over the key economic decisions of the SPE, and the Bank is exposed to
the majority of the residual risks of the SPEs. As at October 31, 2014,
2 In securitization transactions that the Bank has undertaken for its own assets
it has acted as an originating bank and retained securitization exposure from
a capital perspective.
the SPEs had $4 billion of issued commercial paper outstanding
(October 31, 2013 – $5 billion) and $2 billion of issued notes
outstanding (October 31, 2013 – $1 billion). As at October 31, 2014,
the Bank’s maximum potential exposure to loss for these conduits
was $6 billion (October 31, 2013 – $6 billion) of which $1 billion
of underlying consumer instalment and other personal loans was
government insured (October 31, 2013 – $1 billion).
Credit Card Loans
The Bank securitizes credit card loans through a consolidated SPE as it
serves as a financing vehicle for the Bank’s assets; the Bank has power
over the key economic decisions of the SPE and is exposed to the
majority of the residual risks of the SPE. As at October 31, 2014, the
consolidated SPE had no issued notes outstanding as the remaining
notes matured during the third quarter of 2014 (October 31, 2013 –
$0.6 billion). As at October 31, 2014, the Bank’s maximum potential
exposure to loss for this SPE was nil (October 31, 2013 – $0.6 billion).