TD Bank 2014 Annual Report Download - page 68

TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS66
(millions of Canadian dollars, except as noted) As at
October 31, 2014 October 31, 2013
Exposure and Exposure and
ratings profile of Expected ratings profile of Expected
unconsolidated weighted- unconsolidated weighted-
SPEs average life SPEs average life
AAA1 (years)2 AAA
1,3
(years)
2
Residential mortgage loans $ 6,395 3.3 $ 5,701 2.9
Credit card loans – – – –
Automobile loans and leases 1,777 1.3 2,208 1.3
Equipment loans and leases – – – –
Trade receivables 1,753 1.7 1,887 2.3
Total exposure $ 9,925 2.7 $ 9,796 2.4
EXPOSURE TO THIRD PARTY-ORIGINATED ASSETS SECURITIZED BY BANK-SPONSORED CONDUITS
TABLE 51
Business and Government Loans
The Bank securitizes business and government loans through significant
unconsolidated SPEs and Canadian non-SPE third parties. Business and
government loans securitized by the Bank may be derecognized from
the Bank’s balance sheet depending on the individual arrangement of
each transaction. In instances where the Bank fully derecognizes busi-
ness and government loans, the Bank may be exposed to the risks of
transferred loans through retained interests. There are no expected
credit losses on the retained interests of the securitized business and
government loans as the mortgages are all government insured.
Securitization of Third-Party Originated Assets
Significant Consolidated Special Purpose Entities
The Bank has a securitization exposure to certain third-party originated
assets through a consolidated SPE. The Bank consolidates the SPE since
TD has power over the key economic decisions of the SPE, it is wholly-
funded by the Bank, and the Bank is exposed to the majority of the
risks of the SPE. As at October 31, 2014, the consolidated SPE had
$524 million (October 31, 2013 – $312 million) of assets secured by
underlying trade receivables originated in the U.S. The weighted-aver-
age life of these assets is 2.4 years (October 31, 2013 – 3.4 years).
The Bank’s maximum potential exposure to loss due to its funding
of the SPE as at October 31, 2014, was $524 million (October 31,
2013 – $312 million). As at October 31, 2014, the funding is
provided primarily through a senior facility that has an AA rating
from the credit rating agency. Further, as at October 31, 2014,
the Bank had committed to provide an additional $96 million
(October 31, 2013 – $53 million) in funding to the SPE.
Significant Non-Consolidated Special Purpose Entities
Multi-Seller Conduits
The Bank administers multi-seller conduits and provides liquidity
facilities as well as securities distribution services; it may also provide
credit enhancements. Third-party originated assets are securitized
through Bank-sponsored SPEs, which are not consolidated by the Bank.
TD’s maximum potential exposure to loss due to its ownership interest
in commercial paper and through the provision of liquidity facilities
for multi-seller conduits was $9.9 billion as at October 31, 2014
(October 31, 2013 – $9.8 billion). Further, as at October 31, 2014,
the Bank had committed to provide an additional $1.4 billion in
liquidity facilities that can be used to support future asset-backed
commercial paper (ABCP) in the purchase of deal-specific assets
(October 31, 2013 – $2 billion).
All third-party assets securitized by the Bank’s non-consolidated
multi-seller conduits were originated in Canada and sold to Canadian
securitization structures. Details of TD-administered multi-seller ABCP
conduits are included in the following table.
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.
As at October 31, 2014, the Bank held $1.3 billion of ABCP issued
by Bank-sponsored multi-seller conduits within the Available-for-sale
securities and Trading loans, securities, and other categories on its
Consolidated Balance Sheet (October 31, 2013 – $1.7 billion).
EXPOSURE TO THIRD PARTY SPONSORED CONDUITS
The Bank has exposure to U.S. third party-sponsored conduits arising
from providing liquidity facilities of $564 million as at October 31, 2014
(October 31, 2013 – $521 million), of which nil has been drawn
(October 31, 2013 – nil). The assets within these conduits are
comprised of individual notes backed by automotive loan receivables.
As at October 31, 2014, these assets have maintained ratings from
various credit rating agencies, with a minimum rating of AA.
The Bank did not have any exposure to Canadian third party-
sponsored conduits in the form of margin funding facilities as at
October 31, 2014, and October 31, 2013.
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
3 Certain comparative amounts have been restated to conform with the presentation
adopted in the current period.
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
theConsolidated Financial Statements are leveraged finance credit
commitments. Leveraged finance credit 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 credit commitments as at October 31, 2014, was
not significant (October 31, 2013 – not significant).
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, written options,
and indemnification agreements. Certain guarantees remain off-
balance sheet. See Note 29 to the Consolidated Financial Statements
for further information regarding the accounting for guarantees.