US Bank 2012 Annual Report Download - page 138

Other Guarantees and Contingent Liabilities
The following table is a summary of other guarantees and contingent liabilities of the Company at December 31, 2012:
(Dollars in Millions)
Collateral
Held
Carrying
Amount
Maximum
Potential
Future
Payments
Standby letters of credit ............................................................................... $ — $ 83 $18,481
Third-party borrowing arrangements .................................................................. — — 303
Securities lending indemnifications .................................................................... 5,748 — 5,634
Asset sales ............................................................................................. — 324 2,797
Merchant processing .................................................................................. 623 82 77,804
Contingent consideration arrangements ............................................................... — 12 14
Tender option bond program guarantee ............................................................... 5,337 — 5,027
Minimum revenue guarantees ......................................................................... — 15 17
Other ................................................................................................... — 19 3,466
Letters of Credit Standby letters of credit are commitments the
Company issues to guarantee the performance of a customer
to a third party. The guarantees frequently support public and
private borrowing arrangements, including commercial paper
issuances, bond financings and other similar transactions. The
Company issues commercial letters of credit on behalf of
customers to ensure payment or collection in connection with
trade transactions. In the event of a customer’s
nonperformance, the Company’s credit loss exposure is the
same as in any extension of credit, up to the letter’s
contractual amount. Management assesses the borrower’s
credit to determine the necessary collateral, which may
include marketable securities, receivables, inventory,
equipment and real estate. Since the conditions requiring the
Company to fund letters of credit may not occur, the
Company expects its liquidity requirements to be less than the
total outstanding commitments. The maximum potential
future payments guaranteed by the Company under standby
letter of credit arrangements at December 31, 2012, were
approximately $18.5 billion with a weighted-average term of
approximately 20 months. The estimated fair value of standby
letters of credit was approximately $83 million at
December 31, 2012.
The contract or notional amount of letters of credit at December 31, 2012, were as follows:
Term
(Dollars in Millions)
Less Than
One Year
Greater
Than
One Year Total
Standby .............................................................................................. $7,958 $10,523 $18,481
Commercial .......................................................................................... 273 43 316
Guarantees Guarantees are contingent commitments issued by
the Company to customers or other third parties. The
Company’s guarantees primarily include parent guarantees
related to subsidiaries’ third party borrowing arrangements;
third party performance guarantees inherent in the Company’s
business operations, such as indemnified securities lending
programs and merchant charge-back guarantees;
indemnification or buy-back provisions related to certain asset
sales; and contingent consideration arrangements related to
acquisitions. For certain guarantees, the Company has
recorded a liability related to the potential obligation, or has
access to collateral to support the guarantee or through the
exercise of other recourse provisions can offset some or all of
the maximum potential future payments made under these
guarantees.
Third Party Borrowing Arrangements The Company provides
guarantees to third parties as a part of certain subsidiaries’
borrowing arrangements, primarily representing guaranteed
operating or capital lease payments or other debt obligations
with maturity dates extending through 2013. The maximum
potential future payments guaranteed by the Company under
these arrangements were approximately $303 million at
December 31, 2012.
Commitments from Securities Lending The Company
participates in securities lending activities by acting as the
customer’s agent involving the loan of securities. The
Company indemnifies customers for the difference between
the fair value of the securities lent and the fair value of the
collateral received. Cash collateralizes these transactions. The
maximum potential future payments guaranteed by the
Company under these arrangements were approximately $5.6
billion at December 31, 2012, and represented the fair value
of the securities lent to third parties. At December 31, 2012,
the Company held $5.7 billion of cash as collateral for these
arrangements.
134 U.S. BANCORP