US Bank 2013 Annual Report Download - page 59

The Company has not bought or sold credit protection
on the debt of any European country or any company
domiciled in Europe, nor does it provide retail lending
services in Europe. While the Company does not offer
commercial lending services in Europe, it does provide
financing to domestic multinational corporations that
generate revenue from customers in European countries and
provides a limited number of corporate credit cards to their
European subsidiaries. While an economic downturn in
Europe could have a negative impact on these customers’
revenues, it is unlikely that any effect on the overall credit
worthiness of these multinational corporations would be
material to the Company.
The Company provides merchant processing and
corporate trust services in Europe either directly or through
banking affiliations in Europe. Operating cash for these
businesses is deposited on a short-term basis with certain
European banks. However, exposure is mitigated by the
Company placing deposits at multiple banks and managing
the amounts on deposit at any bank based on institution-
specific deposit limits. At December 31, 2013, the Company
had an aggregate amount on deposit with European banks
of approximately $382 million.
The money market funds managed by a subsidiary of
the Company do not have any investments in European
sovereign debt, other than approximately $315 million
guaranteed by the country of Germany. Other than
investments in banks in the countries of the Netherlands,
France and Germany, those funds do not have any
unsecured investments in banks domiciled in the Eurozone.
Off-Balance Sheet Arrangements Off-balance sheet
arrangements include any contractual arrangements to
which an unconsolidated entity is a party, under which the
Company has an obligation to provide credit or liquidity
enhancements or market risk support. Off-balance sheet
arrangements also include any obligation related to a
variable interest held in an unconsolidated entity that
provides financing, liquidity, credit enhancement or market
risk support. The Company has not utilized private label
asset securitizations as a source of funding.
Commitments to extend credit are legally binding and
generally have fixed expiration dates or other termination
clauses. Many of the Company’s commitments to extend
credit expire without being drawn, and therefore, total
commitment amounts do not necessarily represent future
liquidity requirements or the Company’s exposure to credit
loss. Commitments to extend credit also include consumer
credit lines that are cancelable upon notification to the
consumer. Total contractual amounts of commitments to
extend credit at December 31, 2013 were $230.3 billion. The
Company also issues various types of letters of credit,
including standby and commercial. Total contractual
amounts of letters of credit at December 31, 2013 were
$17.2 billion. For more information on the Company’s
commitments to extend credit and letters of credit, refer to
Note 22 in the Notes to Consolidated Financial Statements.
The Company’s off-balance sheet arrangements with
unconsolidated entities primarily consist of private
investment funds or partnerships that make equity
investments, provide debt financing or support community-
based investments in tax-advantaged projects. In addition to
providing investment returns, these arrangements in many
cases assist the Company in complying with requirements of
the Community Reinvestment Act. The investments in these
entities generate a return primarily through the realization of
federal and state income tax credits. The entities in which the
Company invests are generally considered VIEs. The
Company’s recorded investment in these entities as of
December 31, 2013 was approximately $2.5 billion.
The Company also has non-controlling financial
investments in private funds and partnerships considered
VIEs. The Company’s recorded investment in these entities
was approximately $44 million at December 31, 2013, and
the Company had unfunded commitments to invest an
additional $8 million. For more information on the Company’s
interests in unconsolidated VIEs, refer to Note 7 in the Notes
to Consolidated Financial Statements.
Guarantees are contingent commitments issued by the
Company to customers or other third parties requiring the
Company to perform if certain conditions exist or upon the
occurrence or nonoccurrence of a specified event, such as a
scheduled payment to be made under contract. The
Company’s primary guarantees include commitments from
securities lending activities in which indemnifications are
provided to customers; indemnification or buy-back
provisions related to sales of loans and tax credit
investments; merchant charge-back guarantees through the
Company’s involvement in providing merchant processing
services; and minimum revenue guarantee arrangements.
For certain guarantees, the Company may have access to
collateral to support the guarantee, or through the exercise
of other recourse provisions, be able to offset some or all of
any payments made under these guarantees.
The Company and certain of its subsidiaries, along with
other Visa U.S.A. Inc. member banks, have a contingent
guarantee obligation to indemnify Visa Inc. for potential
losses arising from antitrust lawsuits challenging the
practices of Visa U.S.A. Inc. and MasterCard International.
The indemnification by the Company and other Visa U.S.A.
Inc. member banks has no maximum amount. Refer to
Note 22 in the Notes to Consolidated Financial Statements
for further details regarding guarantees, other commitments,
and contingent liabilities, including maximum potential future
payments and current carrying amounts.
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