US Bank 2004 Annual Report Download - page 103
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Please find page 103 of the 2004 US Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.subsidiaries’ borrowing arrangements, primarily representing card transactions processed. This contingent liability arises
guaranteed operating or capital lease payments or other in the event of a billing dispute between the merchant and a
debt obligations with maturity dates extending through cardholder that is ultimately resolved in the cardholder’s
2013. The maximum potential future payments guaranteed favor. In this situation, the transaction is ‘‘charged back’’ to
by the Company under these arrangements were the merchant and the disputed amount is credited or
approximately $1.9 billion at December 31, 2004. The otherwise refunded to the cardholder. If the Company is
Company’s recorded liabilities as of December 31, 2004, unable to collect this amount from the merchant, it bears
included $10.7 million representing outstanding amounts the loss for the amount of the refund paid to the
owed to these third-parties and required to be recorded on cardholder.
the Company’s balance sheet in accordance with accounting A cardholder, through its issuing bank, generally has
principles generally accepted in the United States. until the latter of up to four months after the date the
transaction is processed or the receipt of the product or
Commitments from Securities Lending The Company service to present a charge-back to the Company as the
participates in securities lending activities by acting as the merchant processor. The absolute maximum potential
customer’s agent involving the lending of securities. The liability is estimated to be the total volume of credit card
Company indemnifies customers for the difference between transactions that meet the associations’ requirements to be
the market value of the securities lent and the market value valid charge-back transactions at any given time.
of the collateral received. Cash collateralizes these Management estimates that the maximum potential
transactions. The maximum potential future payments exposure for charge-backs would approximate the total
guaranteed by the Company under these arrangements were amount of merchant transactions processed through the
approximately $11.4 billion at December 31, 2004, and credit card associations for the last four months. For the
represented the market value of the securities lent to third- last four months this amount totaled approximately
parties. At December 31, 2004, the Company held assets $51.5 billion. In most cases, this contingent liability is
with a market value of $11.7 billion as collateral for these unlikely to arise, as most products and services are delivered
arrangements. when purchased and amounts are refunded when items are
Asset Sales The Company has provided guarantees to returned to merchants. However, where the product or
certain third-parties in connection with the sale of certain service is not provided until a future date (‘‘future
assets, primarily loan portfolios and low-income housing delivery’’), the potential for this contingent liability
tax credits. These guarantees are generally in the form of increases. To mitigate this risk, the Company may require
asset buy-back or make-whole provisions that are triggered the merchant to make an escrow deposit, may place
upon a credit event or a change in the tax-qualifying status maximum volume limitations on future delivery transactions
of the related projects, as applicable, and remain in effect processed by the merchant at any point in time, or may
until the loans are collected or final tax credits are realized, require various credit policy enhancements (including letters
respectively. The maximum potential future payments of credit and bank guarantees). Also, merchant processing
guaranteed by the Company under these arrangements were contracts may include event triggers to provide the
approximately $487.5 million at December 31, 2004, and Company more financial and operational control in the
represented the total proceeds received from the buyer in event of financial deterioration of the merchant. At
these transactions where the buy-back or make-whole December 31, 2004, the Company held $35.7 million of
provisions have not yet expired. Recourse available to the merchant escrow deposits as collateral.
Company includes guarantees from the Small Business The Company currently processes card transactions for
Administration (for SBA loans sold), recourse against the several of the largest airlines in the United States. In the
correspondent that originated the loan or to the private event of liquidation of these airlines, the Company could
mortgage issuer, the right to collect payments from the become financially liable for refunding tickets purchased
debtors, and/or the right to liquidate the underlying through the credit card associations under the charge-back
collateral, if any, and retain the proceeds. Based on its provisions. Charge-back risk related to an airline is
established loan-to-value guidelines, the Company believes evaluated in a manner similar to credit risk assessments and
the recourse available is sufficient to recover future merchant processing contracts consider the potential risk of
payments, if any, under the loan buy-back guarantees. default. At December 31, 2004, the value of future delivery
airline tickets purchased was approximately $1.9 billion,
Merchant Processing The Company, through its and the Company held collateral of $191.9 million in
subsidiaries NOVA Information Systems, Inc. and NOVA escrow deposits and letters of credit related to airline
European Holdings Company, provides merchant processing customer transactions.
services. Under the rules of credit card associations, a
merchant processor retains a contingent liability for credit
U.S. BANCORP 101