US Bank 2008 Annual Report Download - page 110

The Company has also made financial performance
guarantees related to the operations of its subsidiaries. The
maximum potential future payments guaranteed by the
Company under these arrangements were approximately
$8.2 billion at December 31, 2008.
OTHER CONTINGENT LIABILITIES
Visa Restructuring and Card Association Litigation The
Company’s payment services business issues and acquires
credit and debit card transactions through the Visa U.S.A.
Inc. card association or its affiliates (collectively “Visa”). In
2007, Visa completed a restructuring and issued shares of
Visa Inc. common stock to its financial institution members
in contemplation of its initial public offering (“IPO”)
completed in 2008 (the “Visa Reorganization”). As part of
the Visa Reorganization, the Company received its
proportionate number of Class U.S.A. shares of Visa Inc.
common stock. In addition, the Company and certain of its
subsidiaries have been named as defendants along with Visa
U.S.A. Inc. and MasterCard International (collectively, the
“Card Associations”), as well as several other banks, in
antitrust lawsuits challenging the practices of the Card
Associations (the “Visa Litigation”). Visa U.S.A. member
banks have a contingent obligation to indemnify Visa, Inc.
under the Visa U.S.A. bylaws (which were modified at the
time of the restructuring in 2007) for potential losses arising
from the Visa Litigation. The Company has also entered into
judgment and loss sharing agreements with Visa U.S.A. and
certain other banks in order to apportion financial
responsibilities arising from any potential adverse judgment
or negotiated settlements related to the Visa Litigation.
In 2007, Visa announced the settlement of the portion
of the Visa Litigation involving American Express, and
accordingly, the Company recorded a $115 million charge in
2007 for its proportionate share of this settlement. In
addition to the liability related to the settlement with
American Express, Visa U.S.A. member banks remain
obligated to indemnify Visa Inc. for potential losses arising
from the remaining Visa Litigation. The contingent
obligation of member banks under the Visa U.S.A. bylaws
has no specific maximum amount. While the estimation of
any potential losses related to this litigation is highly
judgmental, the Company recognized a charge of
approximately $215 million in 2007 for its proportionate
share of the guarantee of these matters.
In 2008, Visa Inc. completed its IPO, redeemed a
portion of the Class U.S.A. shares, converted the remaining
Class U.S.A. shares to Class B shares, and set aside
$3.0 billion of the proceeds from the IPO in an escrow
account for the benefit of member financial institutions to
fund the expenses of the Visa Litigation, as well as the
members’ proportionate share of any judgments or
settlements that may arise out of the Visa Litigation. The
Company recorded a $339 million gain for the portion of its
shares that were redeemed for cash and a $153 million gain
for its proportionate share of the escrow account. The
receivable related to the escrow account is classified in other
liabilities as a direct offset to the related Visa Litigation
liabilities and will decline as amounts are paid out of the
escrow account.
Also in 2008, Visa announced the settlement of certain
litigation matters with Discover Financial Services. The
Company’s proportionate share of the guarantee of this
amount was not materially different than the amount
recorded in 2007.
On December 19, 2008, Visa Inc. deposited additional
shares directly into the escrow account thereby further
reducing the conversion ratio of the Class B shares held by
the Company. The deposit had the effect of repurchasing a
specified amount of Class A common share equivalents from
Class B shareholders. The Company recorded a $56 million
gain for its proportionate share of the additional escrow
funding. As of December 31, 2008, the carrying amount of
the Company’s liability related to the remaining Visa
Litigation, was $132 million. The remaining Visa Inc. shares
held by the Company will be eligible for conversion to
Class A shares three years after the IPO or upon settlement
of the Visa Litigation, whichever is later.
Other The Company is subject to various other litigation,
investigations and legal and administrative cases and
proceedings that arise in the ordinary course of its
businesses. Due to their complex nature, it may be years
before some matters are resolved. While it is impossible to
ascertain the ultimate resolution or range of financial
liability with respect to these contingent matters, the
Company believes that the aggregate amount of such
liabilities will not have a material adverse effect on the
financial condition, results of operations or cash flows of the
Company.
The Company accepts certain state and local
government deposits through participation in pooled public
funds programs. Those programs generally include
provisions requiring participating depository institutions to
post collateral in varying amounts. Under those programs,
participating depository institutions effectively indemnify the
state and local governments from losses that might be
incurred on uninsured deposits if other participating
depository institutions fail. Because the programs require
collateral, and because the deposits of failed institutions are
generally assumed by an acquiring institution, the Company
does not expect to incur significant losses under these
programs.
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