The Goldman Sachs Business Principles

Description
Working together, with our clients, across the globe.

Clients.
Collaboration.
Capital.
Ideas.
Growth.
2012
Annual
Report
The Goldman Sachs
Business Principles

would, if it came to a choice, rather

imagination in everything we do.
become standard in the industry.

We want to be big enough to undertake
We constantly strive to anticipate
the rapidly changing needs of our
clients and to develop new services

Cover: Radha Tilton, Investment Banking Division, New York
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1 Goldman Sachs 2012 Annual Report
Working together, with our clients,
across the globe. This is the business
of Goldman Sachs.
In a challenging and rapidly changing
environment, our ?rm continues to
help clients grow — providing the
capital they need, enabling them to
invest, helping them seize opportunities
and managing their risks. By helping
our clients reach their objectives, we
help to support economic progress.
2 Goldman Sachs 2012 Annual Report
When we wrote to you last, the global economy was experiencing macroeconomic strains,
punctuated by concerns over potential sovereign defaults in Europe and struggling labor and housing
markets in the U.S. These concerns weighed on markets and hindered a broad-based recovery.
While 2012 presented its own challenges amidst rapidly shifting investor sentiment, we are pleased
to report that Goldman Sachs performed relatively well, posting solid results. This performance
was the result of a competitive position de?ned by our deep and global client franchise, a mix of
core businesses to which we have demonstrated a longstanding commitment, a healthy and strong
balance sheet and the focus and enduring commitment of our people to our client-centered culture.
Fellow Shareholders:
The Operating Environment in 2012
While the sovereign debt crisis in Europe and a weak
recovery in the U.S. continued to persist throughout much of
2012, the deep uncertainty that permeated the recent past
began to show signs of abating in the second half of the year.
Despite ongoing political ambiguity both in the U.S. and
Europe, generally improving economic data coupled with
continued strong central bank actions helped stabilize
corporate and investor sentiment. The European Central Bank
enhanced its Long-Term Re?nancing Operations to provide
term liquidity at the end of 2011, and af?rmed its support for
the Euro. It also expressed its willingness to make outright
purchases in the secondary bond market. While the potential
for instability remains, these actions reduced systemic risk
across Europe. In the U.S., the Federal Reserve continued to
take steps to support markets and economic growth, while
the labor and housing markets produced encouraging signs of
stability and even some improvement.
As corporate and investing clients digested these
macroeconomic developments, activity levels increased in
some areas and remained sluggish in others. For example,
global debt issuance increased by 11 percent year over year,
with high-yield issuance increasing by 38 percent. Conversely,
global equity underwriting volumes were up only one percent
and completed global mergers and acquisitions (M&A)
volumes decreased by 18 percent and remained very low
as a percentage of market capitalization.
For 2012, the ?rm produced net revenues of $34.2 billion,
a 19 percent increase from $28.8 billion in the prior year.
Net earnings of $7.5 billion increased by 68 percent from
$4.4 billion in 2011. Diluted earnings per common share
were $14.13, up more than three times from $4.51 in 2011.
Our return on average common shareholders’ equity was
10.7 percent. Book value per common share increased by
11 percent during 2012, and has grown from $20.94 at the
end of our ?rst year as a public company in 1999 to $144.67,
a compounded annual growth rate of nearly 16 percent over
this period. Our capital management in 2012 re?ected a
prudent approach, as our capital ratios improved signi?cantly,
despite returning $5.5 billion to common shareholders
through share buybacks and dividends.
In this year’s letter, we would like to review the economic
and market environment in 2012 and discuss the steps
we have taken to differentiate Goldman Sachs across the
competitive landscape to ensure we are poised to seize upon
new opportunities as they unfold. We then will address our
response to structural changes reshaping the marketplace,
including regulatory change, globalization and technology.
Lastly, we will provide you with an update on the important
work taking place across our corporate engagement initiatives
that we believe are making a meaningful difference for
many individuals and communities.
3 Goldman Sachs 2012 Annual Report
Our Competitive Position
For Goldman Sachs, the past few years have been a
period of both introspection and deliberate action, including
a comprehensive examination of our business practices,
a disciplined focus on costs and how we allocate capital
and a renewed sense of the importance of identifying the
difference between cyclical and secular trends. This last
area is especially important to our overall strategic
framework.
We never lose sight of the fact that we are stewards
of an industry-leading franchise that was built over
nearly 145 years. This means that while we have an
obligation to meet the near-term demands of the current
environment in which we operate, we need not
completely surrender to them.
Nonetheless, the cyclical pressures facing our industry
are real, and we have responded by reducing costs and
proactively managing our capital. If the environment
deteriorates further, we will take additional action.
At the same time, we will continue our investment in
and commitment to our broad set of institutionally focused
businesses that have a track record of providing higher returns
than many other businesses within ?nancial services.
We believe that providing effective advice, ?nancing
signi?cant transactions and providing liquidity, especially in
dif?cult markets, will be no less important going forward.
Our focused business model, global footprint and culture
of teamwork-oriented professionals put us in a strong
position to meet our clients’ needs and generate superior
returns for our shareholders. In addition, durable long-term
trends, such as regulation, globalization and technology,
will continue to have a profound effect on economies and
markets. And, in these areas, we have protected our
ability to be proactive.
“Our focused business
model, global footprint
and culture of teamwork-
oriented professionals put
us in a strong position to
meet our clients’ needs and
generate superior returns
for our shareholders.”
Lloyd C. Blankfein
Chairman and
Chief Executive Of?cer
Gary D. Cohn
President and
Chief Operating Of?cer
4 Goldman Sachs 2012 Annual Report
Letter to Shareholders
In another area related to expenses, we have demonstrated
a strong commitment to aligning compensation with
performance, establishing a very close relationship
between the ?rm’s revenue and compensation. In short,
we compensate better in good years and have restricted
pay in weaker ones.
For example, in 2011, our net revenues were down
26 percent. As a result, our compensation and bene?ts
expenses were down 21 percent. In 2012, net revenues
rose 19 percent from the previous year and compensation
and bene?ts expenses increased by six percent.
Our approach to compensation ?exibility is also
demonstrated through our compensation ratio, which has
averaged 39 percent over the past four years — more than
six percentage points lower than our average ratio in the
four years before the ?nancial crisis. Last year, our
compensation ratio was the second lowest since we
became a public company.
Opportunities & Our Client Franchise
While tactical and strategic actions are always important,
ultimately, our success begins and ends with our clients.
It is only through ongoing discussions with our clients that
we gain a better understanding of emerging trends, the
challenges and goals that are our clients’ focus and the role
we can play to help them. The opportunities we ?nd most
attractive are invariably rooted in our fundamental strategy
of integrating capital with advice to help our clients meet
their near-term needs and long-term objectives.
Like no other time in recent history, access to diversi?ed
sources of funding is becoming a strategic imperative and
is driving the further development of capital markets in
many parts of the world. Roughly 70 percent of all corporate
funding in the U.S. comes from capital markets activity; in
Europe, the situation is nearly the opposite, with the bulk
of funding coming from bank loans.
In leveraged ?nance, however, 58 percent of the issuance
in Europe since 2010 were bonds — compared to just
14 percent in the three years preceding the 2008 crisis.
We expect that higher capital requirements, which we
As we have often stated, our businesses do not lend
themselves to predictable earnings. However, over the
long term, we are committed to the goal of providing our
shareholders with returns on equity at the top of our industry,
while continuing to grow book value and earnings per share.
Controlling Costs
A signi?cant element of providing healthy returns is a
disciplined focus on expenses. Our ability to achieve
operating leverage was particularly important in 2012
when economic growth remained challenged.
Markets, by their construction, re?ect the natural ebb and
?ow of economic activity, which means moving between
periods of expansion and contraction. For this reason, it
should not be surprising that in a period of contraction and
uncertainty we would experience lower levels of corporate
and investor activity and risk appetite.
Of course, we respect cycles, which can sometimes last a
very long time. They can be so consequential that, if one does
not react early enough, you not only forego the bene?ts of
the cyclical upturn, but also risk the ability to recover at all.
With this in mind, we announced a $1.2 billion expense
savings initiative with our second quarter 2011 earnings.
We subsequently increased that to a run-rate of $1.9 billion
in expense savings.
As part of our expense initiative, our overall headcount was
down nine percent over the past six quarters. At the same
time, we have increased the number of people in certain
high value locations, including Bangalore, Salt Lake City,
Dallas and Singapore. Since 2007, the number of our people
in these locations has nearly doubled, and today represents
23 percent of the ?rm’s population.
We also have focused on closing certain businesses that
are not core, have lower returns and/or impose excessive
capital charges. For example, we sold our hedge fund
administration business, which provides various accounting
and processing services to hedge funds. Many of the
activities in that business were less central to the services
we provide hedge funds through prime brokerage, an
important business for the ?rm.
5 Goldman Sachs 2012 Annual Report
Regulation & Capital Management
New requirements expected under Basel 3 — a global
regulatory standard on capital adequacy and liquidity
risk — make the ef?cient use of capital more important than
ever. Basel 3 will signi?cantly impact the amount of capital
attributed to certain businesses. Risk-weighted assets under
Basel 3 are estimated to be roughly 40 percent higher for
?nancial institutions in the U.S. than under Basel 1 as of
the end of 2012.
As the industry awaits greater clarity on the ?nal rules, we
are carefully managing our risk-adjusted capital levels. We
have a long track record of allocating capital and other scarce
resources based on risk-adjusted returns, providing greater
balance sheet and resources to higher return businesses
while downsizing or eliminating lower return businesses.
To assist us in making the right decisions as they relate to
capital allocation, we have begun to roll out technology that
enables us to see capital charges at a granular level — often
by individual security. We use the software to run analyses
when buying or selling securities in our sales and market-
making businesses in order to understand the capital
implications associated with different scenarios.
By understanding the key drivers of our risk positions, our
securities professionals can more effectively deploy and
manage our capital. It also helps us to serve clients better.
Sales professionals can better understand how different
clients consume capital through added exposure, risk
weightings and other contributors to their overall pro?le.
Managing capital usage more precisely can translate into
greater risk capacity for our clients and greater capital
ef?ciency for the ?rm. This provides not only a basis from
which to understand and improve returns, but also operating
leverage when the opportunity set expands.
While Basel 3 capital rules are not ?nal and not expected
to be fully phased in until 2019, we expect that we will
ultimately operate with a capital cushion of about 100
basis points above our regulatory requirement.
will discuss in greater detail, will mean less bank lending
and more bond issuance. This presents a real opportunity
for Goldman Sachs to engage with and help our clients to
secure the funding they need to expand and prosper.
Clients call on us throughout their company’s lifecycle when
looking for funding, when they debut on a public exchange,
when they face critical decisions, such as whether to buy or
sell a business line, or when they are looking for a business
partner that may be halfway around the world. In every
instance, we look to develop the relationship based on the
evolving needs of our clients, and understand that by
focusing on their success, our own will follow.
We are pleased that in 2012 Goldman Sachs ranked ?rst
in worldwide announced and completed M&A as well as in
global equity and equity-related offerings.
Providing liquidity and making markets for our clients has
also grown in importance at a time when the industry’s
collective capacity to assume risk has decreased with the
exit or downsizing of many of our competitors. We believe
that our early and long-term investments in both technology
and people have allowed us to maintain a ?rst-tier institutional
client platform that is being scaled ef?ciently for increased
volumes and reduced transaction costs for our clients.
Secular Trends
While always mindful of cyclical conditions and potential
outcomes, we have long been focused on the structural
trends that will have long-term effects on economies and
the underlying structure of markets. Regulation, globalization
and technology are especially signi?cant.
“The opportunities we
?nd most attractive are
invariably rooted in our
fundamental strategy of
integrating capital with
advice to help our clients
meet their near-term
needs and long-term
objectives.”
6 Goldman Sachs 2012 Annual Report
In addition, emerging market companies and investors,
particularly those in Asia and Latin America, are increasingly
looking for value and opportunistic acquisitions in key
developed markets. In 2012, transactions volumes within the
BRICs represented nearly one-?fth of global M&A and IPOs.
More speci?cally, we anticipate further reforms in China’s
capital markets over the next ?ve years, which will
meaningfully increase the size of these markets, and by
extension, the opportunity for Goldman Sachs to play a role
in facilitating market activity on behalf of our clients.
Technology
Technology plays a crucial role in our response to
regulatory change, as well as in optimizing operational
ef?ciency, managing risk and serving our clients. The ?rm
has long been a technological innovator, helping found
Archipelago, ICE, TradeWeb, FXaII and BrokerTec, among
other leading-edge marketplaces.
Within our Equities business, a majority of shares are now
traded through low-touch channels. We also are seeing a
similar trend in the ?xed income markets. In the cash ?xed
income markets, electronic execution is well developed,
representing approximately 80 percent of the FX spot forward
market and nearly 20 percent of the rates and credit cash
markets. In derivatives, approximately 50 percent of the liquid
credit index market trades electronically; in the FX options
market, the number is ten percent.
To keep pace with the rapid evolution in electronic trading,
it is critical that we continue to innovate and create greater
operational ef?ciencies. In fact, the automation of our
back-of?ce processing has been a natural follow-on to
more electronic trading.
Letter to Shareholders
New Capital Requirements and Size & Complexity
The increase in the cost of capital has been joined by a
corresponding rise in the cost associated with an institution’s
scale. For more than a decade, larger size and complexity
were viewed entirely as synergistic and virtuous. However,
as capital surcharges associated with size and complexity
are introduced, the costs and barriers to entry in some
businesses will be raised and institutions will be forced to
be more disciplined about their resource allocation.
Although we have signi?cant scale in each of our businesses,
many of our investment banking competitors also have
sizeable commercial and consumer businesses, which will
cause them to hold additional capital against their entire
balance sheet. Any synergy from housing multiple businesses
together must be weighed against the requirements for
more capital and liquidity. For the ?rst time, it is clear that
size and complexity come with a higher cost.
Globalization
One theme that we believe will continue to play an integral
part in economic growth is globalization. Among other trends,
it re?ects the emergence of vital new markets across regions
of the world, as well as the evolution and integration of these
economies into the global ?nancial system. We continue
to expect many of these economies, notably the BRICs, to
remain on a path to becoming important anchors for the
global economy, as their ?nancial systems mature.
Cross-border transactions represent roughly one-third
of global volume, as companies with large exposure to
developed markets continue to look beyond their borders
for attractive acquisition targets to enhance growth.
7 Goldman Sachs 2012 Annual Report
We are pleased that Harvey Schwartz is our new
CFO. Harvey’s risk management judgment and broad
understanding of our businesses and our clients have
de?ned his career and will be the basis of his strengths
as an effective CFO.
In addition to David, we were pleased to announce two
additions to our Board of Directors, Mark Tucker and
Adebayo Ogunlesi.
Mark is the group chief executive and president of AIA
Group Limited, the world’s largest independent, publicly listed
pan-Asian life insurance group. Mark brings broad and deep
operating and strategic experience across Asia Paci?c,
Europe and North America. He has nearly three decades
of leadership in the insurance and banking sectors and a
proven understanding of effective risk management.
Adebayo is the managing partner and chairman of Global
Infrastructure Partners, a private equity ?rm that invests
worldwide in infrastructure assets in the energy, transport,
and water and waste industry sectors. He brings over
20 years of experience in ?nance and the global capital
markets to our Board of Directors. He has advised companies
and institutions around the world and invested in many of
the most important sectors in the global economy.
We know that our Board, our shareholders and our people
will bene?t from their strengths and perspectives.
Our People and Culture
The strength of our business has always been de?ned by
the quality of our people and our performance-driven culture.
Since the days of our founding, we have recognized that the
quality of our people differentiates the ?rm and will serve
as the cornerstone of our success. Over the past two years,
we have received nearly 300,000 applications. We hired
fewer than three percent of our applicants and nearly nine
out of 10 people accepted the offer to join Goldman Sachs.
We are proud to report that, in 2012, Goldman Sachs was
named one of Fortune magazine’s “100 Best Companies to
Work For,” one of only 13 companies that have earned that
distinction each year since the list’s inception 16 years ago.
One example is the migration of our low-touch equities
?ow to electronic processing. Of the ?ow that has moved
over, failed trades have declined by more than 95 percent.
We expect that, over time, all low-touch trades and a
signi?cant amount of high-touch trades will be processed
digitally as well.
We also rely on technology to manage risk effectively.
While judgment remains paramount, the speed,
comprehensiveness and accuracy of information can
materially enhance or hinder effective risk decision making.
We mark to market approximately 6 million positions
every day. And, we rely on our systems to run stress
scenarios across multiple products and regions. In a single
day, our systems use roughly 1 million computing hours
for risk management calculations.
As a ?rm, our ability to adapt to regulatory change is
enhanced from having all of our positions represented on
one risk system, improving our ef?ciency and communication.
Not having to manage and integrate different systems
across our businesses will be critical to taking full advantage
of the move to standardization, which bene?ts our clients
and the ?nancial system’s transparency and resiliency.
A Legacy and New Additions
to Our Board of Directors
After 32 years at Goldman Sachs and 12 years as chief
?nancial of?cer, David Viniar retired from the ?rm at the end
of January 2013. We are pleased that he has joined our
Board of Directors as a non-independent director.
David helped transform the ?rm’s risk control and operating
infrastructure from the time we were a private company
through a period of unprecedented market challenges
and regulatory change. David represents the very best of
Goldman Sachs, and will remain an example of rigor, work
ethic, collegiality and decency for many years to come.
We thank David for his remarkable service, and look forward
to continuing to bene?t from his judgment and experience
as a member of our Board.
8 Goldman Sachs 2012 Annual Report
10,000 Women
10,000 Women is providing 10,000 underserved women
entrepreneurs with a business and management education,
access to mentors and networks and links to capital. Since
its inception in 2008, the program has assisted nearly
7,500 women-owned businesses drawn from more than
40 countries, and is on track to reach its 10,000th woman in
2013. Delivered through a network of nearly 100 academic
and non-pro?t partners, 10,000 Women continues to yield
promising results. An independent report reviewing program
graduates in India published by the International Center
for Research on Women found that nearly 80 percent of
surveyed scholars have increased revenues and 66 percent
have added new jobs within 18 months after graduation.
10,000 Small Businesses
In 2012, 10,000 Small Businesses continued to expand its
network of cities and partners to provide small businesses
with the education, business services and capital they need
to grow and create jobs. In the U.S., Salt Lake City and
Cleveland joined the program, while the ?rst cohort graduated
in Chicago. By year’s end, the program was operating in
14 markets in the U.S. and U.K. In 2012, the program also
launched an access to capital initiative speci?cally targeted
at rural regions in the U.S., such as those in Montana and
eastern Kentucky. In all markets where 10,000 Small
Businesses operates, we continue to see a wide variety
of business owners from all industries participate, as we
convene local public, private and non-pro?t institutions to
ensure the program addresses speci?c community needs.
Goldman Sachs Gives
Goldman Sachs Gives is a donor-advised fund through
which participating managing directors of the ?rm can
recommend grants to quali?ed non-pro?t organizations
around the world. Since the beginning of 2010, the ?rm has
contributed nearly $1.1 billion to Goldman Sachs Gives, and
10,000 grants totaling more than $575 million have been
made to various organizations in 35 countries. Since the
fund was created, more than $270 million has been granted
to community organizations supporting veterans, poverty
alleviation, medical research and other signi?cant areas
Letter to Shareholders
We were also recognized by Working Mother, which named
us to its “100 Best Companies for Working Mothers” list.
Further, our diversity efforts were noted by the Human
Rights Campaign, which awarded us the Corporate Equality
Award for the ?rst time, and included us on its “Best
Place to Work for LGBT Equality” list.
Corporate Engagement
Since 2008, Goldman Sachs has committed in excess of
$1.6 billion to philanthropic endeavors, including 10,000
Women, 10,000 Small Businesses and Goldman Sachs Gives.
While the amounts are signi?cant, it is the quality and
effect of these programs that matter the most.
In 2012, each of our initiatives was expanded to include
new participants and partners, and today, 10,000 Women
and 10,000 Small Businesses reach small business owners
in more than 50 markets around the world, through a
network of nearly 200 academic and non-pro?t partners.
“Since the days of
our founding, we have
recognized that the
quality of our people
differentiates the ?rm
and will serve as
the cornerstone of
our success.”
9 Goldman Sachs 2012 Annual Report
of need and in excess of $105 million has been granted
to approximately 125 colleges and universities to support
?nancial aid. In 2012, more generally, approximately
$157 million was distributed through more than 4,500
individual grants.
In October 2012, the ?rm played a leading role in helping to
respond to the destruction caused by Hurricane Sandy in the
New York and New Jersey area. Goldman Sachs committed
a total of $10 million to relief and recovery efforts, including
$5 million in small business loans and $5 million in grants
from Goldman Sachs Gives. These grants also helped fund
long-term housing and small business reconstruction and
recovery. Equally important, nearly 1,200 volunteers across
the ?rm donated their time to help in the immediate and
ongoing recovery efforts.
Looking Ahead
Each year as we look to the next, we also are prompted
to consider our recent past. It has been a period of re?ection
as an organization, an opportunity to focus on improving
wherever we could to make us a better ?rm, and a time
to think about our future — where we can most help our
clients and advance their interests to spur more economic
growth and opportunity.
In 2008 and 2009, our focus was on stabilizing and
fortifying the ?rm amidst the most turbulent days of the
global ?nancial crisis. In 2010 and 2011, we engaged in
a rigorous and comprehensive review of our business
practices, committed to self-prescribed changes and
took aggressive steps to implement them. In 2012,
while navigating constantly shifting economic and market
sentiment, we remained true to our core businesses,
investing in our client franchise and our people.
Heading into 2013, we remain cautious given the
ever-present risks and challenges to the markets and
global economy. At the same time, we are encouraged
by early signs of broad-based improvement. When
one considers many of the issues that still weigh on market
sentiment — such as the Eurozone crisis, China’s growth
trajectory and ?scal cliff concerns in the U.S. — most are
not intractable and will be resolved.
We believe strongly that Goldman Sachs is well positioned
to realize the opportunities presented by the emerging
competitive landscape, hopefully more normalized economic
growth trajectories and the expanded opportunity set that
the con?uence of these developments will provide.
We can achieve these goals by remaining focused on the
needs of our clients, committed to prudent risk management,
disciplined with our capital and expenses, focused on
superior execution and intent on building on our market-
leading positions. Our people and the culture they re?ect
put us in a position to meet these imperatives, and, in doing
so, we have never been more con?dent in our ability to
achieve attractive returns and create long-term value for
our shareholders.
Lloyd C. Blankfein
Chairman and Chief Executive Of?cer
Gary D. Cohn
President and Chief Operating Of?cer
“We believe strongly
that Goldman Sachs
is well positioned to
realize the opportunities
presented by the
emerging competitive
landscape.”
10 Goldman Sachs 2012 Annual Report
Access
How can an airline ?nance the purchase
of the next generation of planes in order
to execute its business strategy?
11 Goldman Sachs 2012 Annual Report
“We found a
way to solve
a problem
for three big
constituents—
and in a way
that had never
been tried
outside the
United
States.”
In 2012, Emirates, one of the world’s preeminent airlines,
sought to continue the expansion of its ?eet of Airbus
A380s, the largest passenger plane in the world. The
challenge, despite the company’s stature, was how to lease
the planes, since banks, which once stood ready to lend,
were now more constrained in their ability to back long-
term aircraft leases. Doric, a leasing company, worked with
Goldman Sachs to ?nd a solution. The most likely alternative
was the capital markets, but access to them was limited by
the fact that neither Doric nor Emirates had raised funds
in the U.S. capital markets before and that the legal structure
required to do so would be new and untested.
Working closely with Doric, Emirates and Airbus, Goldman
Sachs developed a solution based on a ?nancing concept
used in the United States. Under the plan, the transaction
would involve an offering of dollar-denominated securities
known as Enhanced Equipment Trust Certi?cates, or EETCs.
These securities, which use the aircraft as collateral, are
commonly employed by American carriers and are traditionally
sold in the U.S. bond markets. A recent international treaty
had enabled the same kind of collateral arrangement outside
the United States; given this development, the Goldman
Sachs team saw an opportunity to use EETCs in countries
that had signed the treaty.
In June, the $587.5 million transaction was quickly
oversubscribed, as global institutional investors seized the
opportunity to acquire long-term, dollar-denominated assets.
The deal attracted investors from Europe and Asia, a ?rst
for an EETC offering. The success has not only enabled
Emirates to achieve its immediate business objective, but
it also enabled us to introduce a new way to bring companies
from growth markets into the global capital markets.
With bank loans more dif?cult to
obtain, Goldman Sachs helps Emirates
and Doric break new ground.
Watch video
Radha Tilton and Greg Lee (both New York),
Ali Al-Ali (Dubai) and Elena Paitra (London), all
Investment Banking Division, talk about their
experiences working on the Doric transaction.
Go to: goldmansachs.com/annual-report/doric
Radha Tilton
Investment Banking Division, New York
12 Goldman Sachs 2012 Annual Report
Access
An emerging markets
company breaks new ground
Doric and Emirates’ historic ?nancing was more than a standard
bond offering. It was a landmark deal that continues to help connect
growth market airlines and global investors, according to three
investment bankers who worked on the deal.
Q: With whom was the ?rm working?
Tilton: Three constituents: Doric, the leasing company; Emirates, the airline; and Airbus,
the manufacturer.
Q: What was the mission?
Al-Ali: To ?nd a way for Doric to purchase planes, now that traditional lenders — European
banks — were increasingly dif?cult to tap. For Doric and Emirates, capital markets were
obviously the next step — particularly the U.S. market, the world’s largest and most liquid.
Q: What made this unique?
Tilton: The fact that we were dealing with so many ?rsts. The A380, the world’s largest
commercial aircraft, had never been ?nanced in the United States before, and Doric, a
relatively new company, was an unknown there. Emirates, the ultimate user and credit,
had never raised money in the United States either, and the transaction would rely on
protections given by a special treaty in the United Arab Emirates that U.S. investors had
not relied on before. So we needed a solution that would overcome all the challenges.
A roundtable discussion
with Goldman Sachs
investment bankers
Radha Tilton,
Vice President, New York
Greg Lee,
Managing Director, New York
Ali Al-Ali,
Managing Director, Dubai
Opening
the door
to global
capital
13 Goldman Sachs 2012 Annual Report
capital worldwide, more companies have
turned to capital market instruments, such
United States, where funding streams are
As traditional sources
pull back, capital
markets step up
Q: What was the biggest challenge?
Tilton: For investors, perceived risk. “What if something goes wrong?
Can I retrieve the plane and sell it to get my money back?” That required
laws that speci?cally gave investors this right — laws that exist in the United
States and make collateralized instruments like EETCs common for United
States-based carriers.
Lee: The thing is, we now had that framework because of the Cape Town
Convention, a treaty that bound countries that signed to a similar set of
rules. Because the United Arab Emirates had signed, there was no reason
we couldn’t use EETCs — or that investors wouldn’t be interested. But that
was yet to be tested.
Q: How did you start?
Lee: By mapping out everything that had to go right, from positioning the
A380 as an asset to creating an instrument for a leasing company many
investors were not aware of. Doric didn’t just want a deal, they wanted to
set a benchmark — a transaction that would pave the way for many others.
Al-Ali: We knew we were doing something new, but we also knew it could
be done — and that, if anyone could do it, it was probably Goldman Sachs.
Our biggest advantage is a global culture based on collaboration and
teamwork — the kind of thing where, if you have to solve a problem,
people jump in, no questions asked.
Tilton: We had a team in Dubai covering Emirates, a team in London
working with Doric, and sales teams around the world who could educate
and work with investors. We also had a structuring team in New York with
a lot of experience in the transport sector — and all of these people were
extremely used to working well together.
Q: How did you successfully market the deal?
Lee: By focusing on the concerns of investors in each market — in Europe,
it was the structure; in Asia, the Emirates brand and its business strategy;
in the United States, the quality of the plane as an asset, because most
Americans are unfamiliar with the A380.
Tilton: We even ?ew potential investors around New York airspace in an
Emirates A380 so they could experience the plane and Emirates’ level of
service. For most investors, this was the ?rst time they were able to
experience the quality of the Emirates brand.
Q: What was the impact of our success?
Lee: The transaction was a landmark — for our clients, for other airlines,
and for Airbus, which wants to promote EETCs as a way to ?nance planes.
Al-Ali: Also, it was especially important for companies from the growth
markets — and not just airlines. Others now see this as a creative new
way to access the capital markets.
From top: Michael Fox,
Nader Al Salim and
Elena Paitra (all London),
Radha Tilton, Greg Lee
(both New York); all
Investment Banking
Division
ee r
ch
ee
14 Goldman Sachs 2012 Annual Report
“For the client, the time
had come to reshape a
large piece of its portfolio.
It was a complex issue,
and we were able to deliver
a very clear solution.”
Trust
In a complex investment world, how does
a pension fund balance its short-term cash
?ow needs with long-term liabilities?
Craig Russell
Investment Management

Division, New York
15 Goldman Sachs 2012 Annual Report
Verizon focuses on a key part of their pension
portfolio, with help from Goldman Sachs.
As the Verizon Investment Management Corp. (VIMCO) focused on a key part of Verizon’s pension portfolio,
it turned to the Alternative Investments & Manager Selection (AIMS) Group within the Investment Management
business of Goldman Sachs to execute its long-term asset allocation strategy. At VIMCO, an almost $11 billion
private equity and real estate portfolio represented a signi?cant portion of the pension plan’s total assets. Goldman
Sachs AIMS professionals helped Verizon evaluate the investments in their portfolio, forecast cash ?ows and
shape the program for the long-term bene?t of the pension plan.
Goldman Sachs has been an investment manager for Verizon’s pension plans for many years, including corporate
relationships with predecessor companies GTE and Bell Atlantic. Our new mandate involves not only managing
assets, but also extends to active portfolio management responsibility across hundreds of private equity
investments. Through this engagement, Goldman Sachs will assist VIMCO in reshaping its private equity and
real estate portfolio, by leveraging Goldman Sachs’ expertise in structuring complex portfolios and helping
clients ?nd the right avenues to achieve liquidity.
Because of the depth and breadth of the Goldman Sachs AIMS team, the ?rm has become a strategic advisor
in the private equity space — not just ?nding and recommending investment opportunities, but helping to reshape
private portfolios to meet speci?c, and sometimes very complex, needs.
Clockwise from top left:
Chris Kojima, Michael Moran
and Alec Stais, Suzanne
Gauron, Craig Russell
(all New York), Investment
Management Division
16 Goldman Sachs 2012 Annual Report
With Goldman Sachs’ assistance,
Daimler AG sells a big stake in EADS,
the European aerospace giant.
“Daimler still
had a signi?cant
ownership stake
in the business,
but their strategy
had evolved.
It was on their
agenda for some
time to further
reduce that stake,
but the question
was, how?”
After more than a decade as a major shareholder
in EADS, a global leader in aerospace and defense
services, Daimler’s management wanted to further
increase focus on its core business of making some
of the world’s ?nest cars and trucks. Relinquishing
parts of its stake in EADS would require collaboration
on both ?nancial and political fronts.
The challenge, above all, was maintaining the delicate
balance that made EADS possible from the beginning.
A transnational conglomerate, the company was based
primarily on a partnership between France, Germany
and Spain. The Spanish component was represented by
the Spanish government; the French component was
represented by the French government and the media
group Lagardère; and the German component was
represented by Daimler.
To facilitate a reduction of Daimler’s stake in EADS,
any transaction would have to ensure the “balance”
between French and German interests. As a prerequisite,
the German government agreed to become a shareholder
of record through its Kreditanstalt für Wiederaufbau
(KfW), the state-owned lender, while all three
governments at the same time agreed to limit their
overall ownership in EADS.
In December 2012, all involved parties came to an
agreement that enabled all of the above — including
a ?nal ownership structure that envisions a balanced
interest between the German and French sides,
enables Daimler to sell approximately 61.1 million
shares and helps to signi?cantly increase EADS free
?oat. As joint bookrunner, Goldman Sachs executed
an accelerated bookbuild offering to which investors
across Europe, the United States and Asia quickly
signed on.
Strategy
How can a company increase focus
on its core business if it can’t shed
non-core investments?
17 Goldman Sachs 2012 Annual Report
Watch video
Axel Höfer and Wolfgang Fink (both Frankfurt)
and Christoph Stanger (London), all Investment
Banking Division, talk about the Daimler transaction.
Go to: goldmansachs.com/annual-report/daimler
Axel Höfer
Investment Banking Division, Frankfurt
18 Goldman Sachs 2012 Annual Report
Through Goldman Sachs’ efforts,
Daimler receives proceeds of
over $2.1 billion from the ABO.
This cash infusion improves the
company’s ability to focus on its
core business — including, in a very
competitive industry, investment
in research and development.
To enable the sale, France, Germany
and Spain agree to a new ownership
structure that maintains the balance of
interests but reduces the overall stake
the governments hold in the company.
Goldman Sachs helps Daimler place 61.1 million shares with investors
after the preparation of the transaction, which requires the coordination
of numerous different public and private institutions. Though the placement
of Daimler’s EADS shares appears to be structured as a straightforward
ABO transaction, it requires an intricate series of steps tying complex
components together to make the deal a success. Quickly oversubscribed,
the offering closes in less than an hour, with demand especially heavy
in the U.S., Germany and the U.K.
Following the agreement of all relevant parties on the
new governance structure for EADS, Goldman Sachs,
as joint bookrunner, helps to structure and execute the
deal — a block trade of EADS stock known as an
“accelerated bookbuild offering” (ABO).
THE CHALLENGE
AGREEMENT
THE
THE EXECUTION
THE SUCCESS
A complex transaction succeeds — and
helps Daimler to focus on its core business.
THE DEAL
61.1M
in shares
From left:
Arne Uekötter
and Axel Höfer
(both Frankfurt),
Investment
Banking Division
Strategy
An automaker navigates
a complex course
150 INVESTORS
6PM 9PM 3AM 12AM
OVE RNI GHT DE AL
7:15AM
For Daimler to sell half its economic stake in the
European aerospace company EADS, investors must
feel con?dent about the long-term value of EADS stock.
Issues include a complex governance structure and
the continued interest of the French, German and
Spanish governments.
DAIMLER
OUTSIDE
INVESTORS
LAGARDÈRE
GOVT
GOVT
BANK
CONSORTIUM
GERMAN GROUP
FRENCH GROUP
SPAIN
OUTSIDE
INVESTORS
2.1B
$
MONETI ZED
Unlocking value
19 Goldman Sachs 2012 Annual Report
Clockwise from top: Arne Uekötter, Ansgar Wimber, Wolfgang Fink (all Frankfurt); Antoine Noblot,
Christoph Stanger (both London); all Investment Banking Division
Source: Thomson Reuters
Germany
#1 bookrunner for
common stock offerings
Despite challenging conditions in 2012,
Goldman Sachs’ EMEA team led 32 common
stock offerings, including major block trades of
clients’ shares like Daimler’s EADS accelerated
bookbuild. This made the ?rm the number one
bookrunner in the region, as well as number
one in Germany. This is a testament to the
?rm’s ability to structure especially complex
transactions, execute multinational deals
seamlessly, and leverage strong relationships
with major institutional investors worldwide.
Raising capital
through common
stock offerings
Europe, Middle East and Africa
in
shares
in
shares
$3.9B
$14.2B
24.4%
Market Share
12.0%
Market Share
20 Goldman Sachs 2012 Annual Report

“with a signi?cant pro?t for taxpayers.”
In 2012, American International Group (AIG) completed a series of major transactions that
enabled the U.S. Treasury to monetize its stake at a pro?t to U.S. taxpayers. Together with
the company’s re-IPO the year before, these transactions represented a full sell-down of
the U.S. Treasury’s 92 percent ownership. Goldman Sachs was the Lead Joint Global
Coordinator for the re-IPO in 2011 and Joint Global Coordinator for four of the ?ve follow-on
offerings in 2012. Through innovative and ef?cient execution, Goldman Sachs contributed
to accomplishing the plan developed by AIG and the U.S. Treasury to sell shares at an
expeditious pace. The transactions occurred at successively higher prices and each above
the U.S. Treasury’s “breakeven” price. In September 2012, the Goldman Sachs-led
$20.7 billion transaction became the largest-ever U.S. common equity offering.
This monetization was facilitated in part by a series of block trades through which AIG
divested AIA Group Limited of Hong Kong. These offerings followed the successful 2010
IPO of AIA in which Goldman Sachs helped raise approximately $20.5 billion for AIG. In
2012, the ?rm led three block trades, enabling AIG to sell its remaining 33 percent stake
in AIA and raise, in total, over $14 billion. With the ?nal sale of AIA shares in December 2012,
AIG was able to complete the divestiture of one of its largest non-core assets and complete
yet another step in its restructuring.
Using proceeds from the AIA share sales and its own internal resources, AIG participated
as an investor in the U.S. Treasury’s offerings of AIG stock in the U.S. and bought back
some of its own shares, alongside outside investors drawn by the company’s restructuring
and improving prospects. On December 11, 2012, the U.S. Treasury sold the last of its
AIG shares, with Goldman Sachs helping convert strong investor interest into a signi?cantly
oversubscribed transaction. At year’s end, according to AIG’s calculations, the U.S. taxpayer
had realized a pro?t of nearly $23 billion from the U.S. Treasury’s AIG investment — and AIG,
once dependent on government support, was a strong enterprise once again.
“At a time when many in D.C. thought the government was going to lose
substantial money on AIG, Goldman worked closely with Treasury and
the company itself on implementing a restructuring plan that ended up
netting billions of dollars in pro?t for taxpayers.”
James Millstein, Chief Restructuring Of?cer, U.S. Treasury Department, 2009-2011
Execution
How can an iconic company
complete its turnaround and
repay taxpayer assistance?
AIG repays U.S. government assistance
21 Goldman Sachs 2012 Annual Report
From top: Michael Tesser and Terence Lim
(both New York), Chris Cole (New York), Dan Dees
(Hong Kong); all Investment Banking Division
“We worked closely
with AIG and the
U.S. Treasury to
help execute their
monetization plan
through a complex
series of trades in
Hong Kong and New
York. This enabled
AIG to repay the
U.S. government —
and at a pro?t for
the public.”
Watch video
Devanshu Dhyani and Andrea Vittorelli (both
New York), Investment Banking Division, discuss
their experience working on the AIG transactions.
Go to: goldmansachs.com/annual-report/aig
Devanshu Dhyani
Investment Banking Division, New York
22 Goldman Sachs 2012 Annual Report
“They didn’t just
want to expand
their capital.
They wanted
strategic
investors who
would become
an important
part of their
shareholder
base.”
Opportunity
How can a company in a dynamic
growth market attract the attention
of world-class investors?
23 Goldman Sachs 2012 Annual Report
Goldman Sachs manages a
successful private placement
for one of China’s largest
insurance companies.
Driven by a burgeoning middle class, insurance
companies in China are growing fast. This growth
makes them unique, and often desirable, opportunities
for investors. But for the China Paci?c Insurance
Group, the question was, which investors? Speci?cally,
how could they attract investors who were willing to
make a substantial investment in the company, with
a long-term view.
To achieve this, the company turned to Goldman
Sachs, as sole bookrunner and placement agent, to
?nd a group of international investors to purchase
462 million shares.
With strong relationships around the world, the
Goldman Sachs team soon focused on three leading
sovereign wealth funds: the Government of Singapore
Investment Corporation, Norges Bank (the central
bank of Norway) and the Abu Dhabi Investment
Authority. For the funds — all of them Goldman Sachs
clients — it was among the largest investments they
ever made in China. For China Paci?c, it meant the
addition of three very well-known and well-respected
investors to the company’s shareholder base.
The $1.3 billion deal, executed in September 2012,
was a substantial win for all parties. While China
Paci?c strengthened its capital base to support future
business growth, the investors themselves got
precisely what they were looking for: a signi?cant
stake in a high-growth business in the largest and
most dynamic growth market in the world.
Jian Mei Gan
Investment Banking Division, Hong Kong
Watch video
Jian Mei Gan (Hong Kong) and Xi Pei (Beijing),
both Investment Banking Division, talk about
their experiences working on the China Paci?c
Insurance transaction.
Go to: goldmansachs.com/annual-report/cpig
24 Goldman Sachs 2012 Annual Report
Q: Tell us about the ?rm’s relationship with China Paci?c. How did we
become the sole bookrunner and placing agent for this transaction?
BT: China Paci?c has been a key client of the ?rm for years. We led
their IPO in 2009 and have worked on a number of transactions since.
Q: So there was already a level of con?dence?
JM: Oh yes — con?dence — it facilitated collaboration. So, early last
year, we began to contemplate a transaction that would meet their current
objectives: ?rst, to raise capital that would help continue to expand their
business throughout China and, second, to add high-quality, strategic
global investors to their shareholder base.
China Paci?c’s recent sale of stock — fully managed by
Goldman Sachs — stands out as an example of client
trust and strong connections to global investors.
Clockwise from top left:
Emma Wang (Hong Kong),
Jian Mei Gan (Hong Kong),
Xi Pei (Beijing), Chito
Jeyarajah and Jian Mei Gan
(both Hong Kong), Wei Wang
(Hong Kong); all Investment
Banking Division
Opportunity
An insurance company strengthens
its shareholder base
A global quest to
match capital with
the right opportunity
A discussion with the team from
the Investment Banking Division
Jian Mei Gan, Managing Director, Hong Kong
Xi Pei, Vice President, Beijing
Bernard Teo, Managing Director, Hong Kong
25 Goldman Sachs 2012 Annual Report
Evan Xu (Hong Kong),
Investment Banking Division
Chito Jeyarajah (Hong Kong),
Investment Banking Division
Q: What made Goldman Sachs particularly
well suited to this endeavor?
XP: Among other things, our strong relationships with exactly
the kind of investors they were looking for. They also trusted
our global team and its ability to work across geographies and
divisions to deliver a solution that would be right for the
company and potential shareholders alike.
Q: From the perspective of the investors,
what made this opportunity important?
JMG: Clearly, the potential growth of the insurance
industry here. China is the world’s most populous country
and insurance penetration is only about two percent of
GDP — very low by Western standards.
BT: Another thing is that just a few top companies, including
China Paci?c, control a very big market share. So these
companies offer major investment opportunities, but those
opportunities, given the small number of top players, are
also fairly rare.
Q: So this really was a case of matching needs
and opportunities?
XP: It was, absolutely. A big advantage to working
with Goldman Sachs is our role as intermediary between
companies and investors. We deeply understand the needs
of both, and we have the ability to bring those needs and
interests together. For China Paci?c, these were investors
who could provide the capital they needed to grow. For the
investors, this was a great opportunity to strengthen their
portfolios, and for each of them it was one of the largest
investments they had made in China to date.
Q: How is China Paci?c putting that capital to work?
JMG: This is one of the most satisfying things about the work
we do — not just presenting ideas for transactions, but ideas
that solve problems and create opportunities. Our ability to
do that doesn’t evolve overnight, or over a couple of days,
but over years. It takes getting to know our clients and their
businesses, and understanding their goals. It means not just
thinking from a ?nancial perspective, but from a business
perspective — what clients need to make their businesses
better, stronger and more valuable.
BT: They will use it to ?nance expansion — even into deep
pockets in the countryside. This will enhance their ability,
throughout China, to meet people’s basic insurance needs.
Client
Shanghai
Investors
Abu Dhabi
Oslo
Singapore
GS Locations
Beijing
Hong Kong
London
New York
A global solution
26 Goldman Sachs 2012 Annual Report
From left: David Gorleku and Alicia Glen,
David Gorleku (both New York), Urban
Investment Group
Innovation
Where can governments ?nd
more capital to address endemic
societal challenges?
Andrea Phillips
Urban Investment Group, New York
27 Goldman Sachs 2012 Annual Report
The tendency of juvenile offenders to return to jail is a major issue —
so much so that in New York City, the mayor, Michael Bloomberg, focused
on it squarely in 2012. To help address the problem, Goldman Sachs,
along with Bloomberg Philanthropies, worked with nonpro?ts and the
City of New York to structure an innovative funding mechanism whose
return depends entirely on the effectiveness of the program it supports.
Known as a social impact bond, this ?nancial instrument can become
a model for driving positive change.
In this case, Goldman Sachs has invested approximately $10 million
in a program that ?ghts recidivism by delivering education, training and
intensive counseling to incarcerated youths. The greater the success
of the program, the greater the return to the investor. If the intervention
isn’t successful, the City pays nothing, but if the recidivism rate drops
by 20 percent, the City itself would save as much as $20 million in
incarceration costs after repaying the loan with a return.
The New York City program is intended to show how such instruments
can be designed: with clear goals, metrics, and risk/reward pro?les that
can draw investors. It is a demonstration of Goldman Sachs’ strong
commitment to the idea of social impact investing — of leveraging private
capital to generate returns that are both ?nancially and socially desirable.
As city budgets decline, an innovative effort
suggests a new way to leverage private capital.
From top: Sherry Wang, Margaret
Anadu, Margaret Anadu (both New York),
Urban Investment Group
“We realized that an
investment that offers
returns while delivering
crucial social services
was a potential game
changer.”
28 Goldman Sachs 2012 Annual Report
Corporate Engagement
A Strategic Approach
to Philanthropy
Goldman Sachs supports communities
worldwide through initiatives aimed at
addressing critical social and economic
issues. We apply our energies and
capabilities in ways we believe are most
likely to make a difference, through
programs based on innovation, research
and measurement. From year to year,
Goldman Sachs is identi?ed as a leader
in corporate philanthropy in The Chronicle
of Philanthropy.
Since 2008, the ?rm has contributed in
excess of $1.6 billion to philanthropic
initiatives. Of these initiatives, two of the
most important are 10,000 Women and
10,000 Small Businesses, both designed
to drive growth and job creation in
underserved communities by offering
small and medium-sized enterprises
business and management education,
as well as links to capital, mentors and
networks. Launched in 2008, 10,000
Women is a ?ve-year, $100 million global
initiative helping to grow local economies
by advancing the businesses of 10,000
women entrepreneurs. 10,000 Small
Businesses, a $500 million program, is
designed to unlock the growth and job
creation potential of small businesses in the
U.S. and U.K. Both programs are supported
by the Goldman Sachs Foundation.
In 2010, 10,000 Small Businesses U.K. was launched to help drive
local job creation and economic growth. Now up and running in London,
the Midlands, Yorkshire and the Humber and North West England, the
program offers training and support to ambitious small businesses and
social enterprises, based on experts’ views that this kind of support
helps small ?rms overcome barriers to success.
10,000 Small Businesses is run through partnerships with leading
universities and business schools. In the U.K., Goldman Sachs and
the Goldman Sachs Foundation have partnered with University College
London and the business schools of Oxford-Saïd, Leeds, Aston and
Manchester Metropolitan universities.
By year end 2012, the program had reached approximately 400 leaders
of high-growth small ?rms and social enterprises across the country.
Preliminary research reveals that 70 percent of our participants are
creating net new jobs (versus a U.K. average of 15 percent for small
businesses), and on average they are growing revenue by over
20 percent per annum.
10,000 Small Businesses
in the U.K.
29 Goldman Sachs 2012 Annual Report
Jim Grif?n
In the United States, 10,000 Small Businesses is helping entrepreneurs
maximize opportunities in cities across the country. Currently, the program is
active in 11 markets. To date, nearly 1,000 business owners have participated in
the program. Among the ?rst cohorts to graduate, approximately 70 percent of
participants reported increased revenues, while 50 percent reported creating
net new jobs.
In 2012, 10,000 Small Businesses launched in Cleveland, Ohio, with $15 million
in support from Goldman Sachs and the Goldman Sachs Foundation. Participants
study for 11 weeks at Cuyahoga Community College, following a customized
10,000 Small Businesses curriculum designed and delivered nationally by Babson
College, the top-ranked school for two decades for entrepreneurial education,
according to U.S. News & World Report. Courses cover accounting, human
resources, negotiation, marketing and other subjects, while Goldman Sachs
professionals provide workshops and one-on-one business advice.
Also in 2012, 10,000 Small Businesses launched in Salt Lake City, Utah, where
the program is supported by an investment of $15 million. As elsewhere, the
?rm is working closely with key community partners. In this case, Salt Lake
Community College delivers the education portion of the program. Other partners
involved in the program include the Pete Suazo Business Center, the Salt Lake
Chamber, the Salt Lake Small Business Development Center, the Utah Hispanic
Chamber of Commerce and the Utah Small Business Development Centers
Network. These partners help with the recruitment of small business owners
and entrepreneurs in Salt Lake City and assist in providing outreach and
business support services.
10,000 Small Businesses
in the U.S.
Among the graduates of 10,000 Small Businesses
U.K. is Jim Grif?n of Rugby, who credits the course
work and connections with rekindling his company
and his spirits. “A year ago we were struggling to ?nd
the right growth path,” says the CEO of Automotive
Insulations Ltd., a maker of thermal and acoustic
insulation for such automotive clients as Bentley
and Alfa Romeo. “Since then, we’re working
24/7 and we’ve taken on a second factory site,”
he says, adding that the company has doubled its
workforce and rapidly increased top-line growth.
Read more:
goldmansachs.com/annual-report/10ksb-uk
A prime example of the program’s graduates
is Carmen Maldonado, owner of La Criolla, a
Chicago-based purveyor of quality spices and
specialty ingredients. Through 10,000 Small
Businesses, Maldonado has gained key
leadership skills to move her company forward.
The program, she says, “opened my eyes
to where I wanted to take my business —
and enabled me to communicate that to my
employees.” ”Since graduating,”she adds,
“ La Criolla has increased its revenues by
more than 40 percent.”
Read more:
goldmansachs.com/annual-report/10ksb-us
Carmen
Maldonado
30 Goldman Sachs 2012 Annual Report
The Goldman Sachs Group, Inc. is a leading global investment banking, securities and investment
management ?rm that provides a wide range of ?nancial services to a substantial and diversi?ed
client base that includes corporations, ?nancial institutions, governments and high-net-worth
individuals. Founded in 1869, the ?rm is headquartered in New York and maintains of?ces in all
major ?nancial centers around the world.
We report our activities in the following four business segments:
We provide a broad range of investment banking

with respect to mergers and acquisitions, divestitures,
corporate defense activities, risk management,
restructurings and spin-offs, and debt and equity

directly related to these activities.
We facilitate client transactions and make markets

Investment Banking Institutional Client Services
Our Business
Investment Banking
Net Revenues (in millions)
Institutional Client Services
Net Revenues (in millions)
2010 2011 2012
$
1
7
,
2
8
0
$
2
1
,
7
9
6
$
1
8
,
1
2
4
2010 2011 2012
$
4
,
3
5
5
$
4
,
8
1
0
$
4
,
9
2
6
. a di y vi i ec e a es r r t t d l l
ui y t i
, nt
g ing s t W ki
s n I
31 Goldman Sachs 2012 Annual Report
We invest in and originate loans to provide ?nancing
longer-term in nature. We make investments, directly

securities, real estate, consolidated investment
We provide investment management services and
services to high-net-worth individuals and families.
Investing & Lending
Investing & Lending
Net Revenues (in millions)
Investment Management
Net Revenues (in millions)
2010 2011 2012
$
5
,
0
1
4
$
5
,
0
3
4
$
5
,
2
2
2
2010 2011 2012
$
5
,
8
9
1
$
2
,
1
4
2
$
7
,
5
4
1
. s
ent
d n W d
n I
32 Goldman Sachs 2012 Annual Report
Financial Highlights
As of or for the Year Ended December
$ and share amounts in millions, except per share amounts 2012 2011 2010
Operating Results
Net revenues $ 34,163 $ 28,811 $ 39,161
Pre-tax earnings 11,207 6,169 12,892
Net earnings 7,475 4,442 8,354
Net earnings applicable to common shareholders 7,292 2,510 7,713
Return on average common shareholders’ equity 10.7% 3.7% 11.5%
Common Share Data
Diluted earnings per common share $ 14.13 $ 4.51 $ 13.18
Average diluted common shares outstanding 516.1 556.9 585.3
Dividends declared per common share $ 1.77 $ 1.40 $ 1.40
Book value per common share 144.67 130.31 128.72
Tangible book value per common share
1
134.06 119.72 118.63
Ending stock price 127.56 90.43 168.16
Financial Condition and Selected Ratios
Total assets $ 938,555 $ 923,225 $ 911,332
Unsecured long-term borrowings 167,305 173,545 174,399
Total shareholders’ equity 75,716 70,379 77,356
Leverage ratio
2
12.4x 13.1x 11.8x
Adjusted leverage ratio
2
9.1x 8.6x 7.6x
Tier 1 capital ratio
3
16.7% 13.8% 16.0%
Tier 1 common ratio
3
14.5% 12.1% 13.3%
Selected Data
Total staff 32,400 33,300 35,700
Assets under supervision (in billions) $ 965 $ 895 $ 917
1. Tangible book value per common share is computed by dividing tangible common shareholders’ equity (total shareholders’ equity less preferred stock, goodwill
and identi?able intangible assets) by the number of common shares outstanding, including restricted stock units granted to employees with no future service
requirements. See “Financial Information — Management’s Discussion and Analysis — Equity Capital — Other Capital Metrics” for further information about our
tangible common shareholders’ equity and tangible book value per common share, which are both non-GAAP measures.
2. The leverage ratio equals total assets divided by total shareholders’ equity. The adjusted leverage ratio equals adjusted assets divided by total shareholders’ equity.
See “Financial Information — Management’s Discussion and Analysis — Balance Sheet and Funding Sources — Balance Sheet Analysis and Metrics” for further
information about our adjusted assets and adjusted leverage ratio, which are both non-GAAP measures.
3. The Tier 1 capital ratio and the Tier 1 common ratio are computed using risk-weighted assets (RWAs) calculated in accordance with the Federal Reserve Board’s
risk-based capital requirements (which are based on Basel 1). The Tier 1 common ratio equals Tier 1 common capital divided by RWAs. See “Financial Information —
Management’s Discussion and Analysis — Equity Capital” for further information about our Tier 1 common ratio, which is a non-GAAP measure, and our Tier 1
capital ratio.
Financial Information — Table of Contents
Management’s Discussion and Analysis
Introduction 34
Executive Overview 35
Business Environment 37
Critical Accounting Policies 39
Use of Estimates 43
Results of Operations 44
Regulatory Developments 58
Balance Sheet and Funding Sources 61
Equity Capital 68
Off-Balance-Sheet Arrangements and
Contractual Obligations 74
Overview and Structure of Risk Management 76
Liquidity Risk Management 81
Market Risk Management 88
Credit Risk Management 94
Operational Risk Management 101
Recent Accounting Developments 103
Certain Risk Factors That May Affect Our
Businesses 104
Management’s Report on Internal Control
over Financial Reporting 105
Report of Independent Registered
Public Accounting Firm 106
Consolidated Financial Statements
Consolidated Statements of Earnings 107
Consolidated Statements of Comprehensive Income 108
Consolidated Statements of Financial Condition 109
Consolidated Statements of Changes
in Shareholders’ Equity 110
Consolidated Statements of Cash Flows 111
Notes to Consolidated Financial Statements
Note 1 — Description of Business 112
Note 2 — Basis of Presentation 112
Note 3 — Significant Accounting Policies 113
Note 4 — Financial Instruments Owned, at Fair
Value and Financial Instruments Sold, But Not Yet
Purchased, at Fair Value 117
Note 5 — Fair Value Measurements 118
Note 6 — Cash Instruments 120
Note 7 — Derivatives and Hedging Activities 128
Note 8 — Fair Value Option 143
Note 9 — Collateralized Agreements and Financings 152
Note 10 — Securitization Activities 155
Note 11 — Variable Interest Entities 158
Note 12 — Other Assets 163
Note 13 — Goodwill and Identifiable Intangible
Assets 165
Note 14 — Deposits 167
Note 15 — Short-Term Borrowings 168
Note 16 — Long-Term Borrowings 169
Note 17 — Other Liabilities and Accrued Expenses 173
Note 18 — Commitments, Contingencies and
Guarantees 174
Note 19 — Shareholders’ Equity 181
Note 20 — Regulation and Capital Adequacy 184
Note 21 — Earnings Per Common Share 189
Note 22 — Transactions with Affiliated Funds 190
Note 23 — Interest Income and Interest Expense 191
Note 24 — Income Taxes 192
Note 25 — Business Segments 195
Note 26 — Credit Concentrations 199
Note 27 — Legal Proceedings 200
Note 28 — Employee Benefit Plans 213
Note 29 — Employee Incentive Plans 214
Note 30 — Parent Company 217
Supplemental Financial Information
Quarterly Results 218
Common Stock Price Range 219
Common Stock Performance 219
Selected Financial Data 220
Statistical Disclosures 221
Goldman Sachs 2012 Annual Report 33
Management’s Discussion and Analysis
Introduction
The Goldman Sachs Group, Inc. (Group Inc.) is a leading
global investment banking, securities and investment
management firm that provides a wide range of financial
services to a substantial and diversified client base that
includes corporations, financial institutions, governments
and high-net-worth individuals. Founded in 1869, the firm
is headquartered in New York and maintains offices in all
major financial centers around the world.
We report our activities in four business segments:
Investment Banking, Institutional Client Services,
Investing & Lending and Investment Management. See
“Results of Operations” below for further information
about our business segments.
When we use the terms “Goldman Sachs,” “the firm,”
“we,” “us” and “our,” we mean Group Inc., a Delaware
corporation, and its consolidated subsidiaries.
References herein to our Annual Report on Form 10-K are
to our Annual Report on Form 10-K for the year ended
December 31, 2012. All references to 2012, 2011 and 2010
refer to our years ended, or the dates, as the context
requires, December 31, 2012, December 31, 2011 and
December 31, 2010, respectively. Any reference to a future
year refers to a year ending on December 31 of that year.
Certain reclassifications have been made to previously
reported amounts to conformto the current presentation.
In this discussion and analysis of our financial condition
and results of operations, we have included information
that may constitute “forward-looking statements” within
the meaning of the safe harbor provisions of the U.S. Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are not historical facts, but instead represent
only our beliefs regarding future events, many of which, by
their nature, are inherently uncertain and outside our
control. This information includes statements other than
historical information or statements of current condition
and may relate to our future plans and objectives and
results, among other things, and may also include
statements about the objectives and effectiveness of our risk
management and liquidity policies, statements about trends
in or growth opportunities for our businesses, statements
about our future status, activities or reporting under U.S. or
non-U.S. banking and financial regulation, and statements
about our investment banking transaction backlog. By
identifying these statements for you in this manner, we are
alerting you to the possibility that our actual results and
financial condition may differ, possibly materially, fromthe
anticipated results and financial condition indicated in
these forward-looking statements. Important factors that
could cause our actual results and financial condition to
differ from those indicated in these forward-looking
statements include, among others, those discussed below
under “Certain Risk Factors That May Affect Our
Businesses” as well as “Risk Factors” in Part I, Item 1A of
our Annual Report on Form 10-K and “Cautionary
Statement Pursuant to the U.S. Private Securities Litigation
ReformAct of 1995” in Part I, Item 1 of our Annual Report
on Form10-K.
34 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Executive Overview
The firm generated net earnings of $7.48 billion for 2012,
compared with $4.44 billion and $8.35 billion for 2011
and 2010, respectively. Our diluted earnings per common
share were $14.13 for 2012, compared with $4.51
1
for
2011 and $13.18
2
for 2010. Return on average common
shareholders’ equity (ROE)
3
was 10.7% for 2012,
compared with 3.7%
1
for 2011 and 11.5%
2
for 2010.
Book value per common share increased approximately
11% to $144.67 and tangible book value per common
share
4
increased approximately 12%to $134.06 compared
with the end of 2011. During the year, the firmrepurchased
42.0 million shares of its common stock for a total cost of
$4.64 billion. Our Tier 1 capital ratio under Basel 1 was
16.7% and our Tier 1 common ratio under Basel 1
5
was
14.5%as of December 2012.
The firm generated net revenues of $34.16 billion for 2012.
These results reflected significantly higher net revenues in
Investing & Lending, as well as higher net revenues in
Institutional Client Services, Investment Banking and
Investment Management compared with 2011.
An overview of net revenues for each of our business
segments is provided below.
Investment Banking
Net revenues in Investment Banking increased compared
with 2011, reflecting significantly higher net revenues in
our Underwriting business, due to strong net revenues in
debt underwriting. Net revenues in debt underwriting were
significantly higher compared with 2011, primarily
reflecting higher net revenues from investment-grade and
leveraged finance activity. Net revenues in equity
underwriting were lower compared with 2011, primarily
reflecting a decline in industry-wide initial public offerings.
Net revenues in Financial Advisory were essentially
unchanged compared with 2011.
Institutional Client Services
Net revenues in Institutional Client Services increased
compared with 2011, reflecting higher net revenues in Fixed
Income, Currency and Commodities Client Execution.
The increase in Fixed Income, Currency and Commodities
Client Execution compared with 2011 reflected strong net
revenues in mortgages, which were significantly higher
compared with 2011. In addition, net revenues in credit
products and interest rate products were solid and higher
compared with 2011. These increases were partially offset
by significantly lower net revenues in commodities and
slightly lower net revenues in currencies. Although broad
market concerns persisted during 2012, Fixed Income,
Currency and Commodities Client Execution operated in a
generally improved environment characterized by tighter
credit spreads and less challenging market-making
conditions compared with 2011.
1. Excluding the impact of the preferred dividend of $1.64 billion in the first quarter of 2011 (calculated as the difference between the carrying value and the
redemption value of the preferred stock), related to the redemption of our 10% Cumulative Perpetual Preferred Stock, Series G (Series G Preferred Stock) held by
Berkshire Hathaway Inc. and certain of its subsidiaries (collectively, Berkshire Hathaway), diluted earnings per common share were $7.46 and ROE was 5.9% for
2011. We believe that presenting our results for 2011 excluding this dividend is meaningful, as it increases the comparability of period-to-period results. Diluted
earnings per common share and ROE excluding this dividend are non-GAAP measures and may not be comparable to similar non-GAAP measures used by other
companies. See “Results of Operations — Financial Overview” below for further information about our calculation of diluted earnings per common share and ROE
excluding the impact of this dividend.
2. Excluding the impact of the $465 million related to the U.K. bank payroll tax, the $550 million related to the SEC settlement and the $305 million impairment of our
New York Stock Exchange (NYSE) Designated Market Maker (DMM) rights, diluted earnings per common share were $15.22 and ROE was 13.1% for 2010. We
believe that presenting our results for 2010 excluding the impact of these items is meaningful, as it increases the comparability of period-to-period results. Diluted
earnings per common share and ROE excluding these items are non-GAAP measures and may not be comparable to similar non-GAAP measures used by other
companies. See “Results of Operations — Financial Overview” below for further information about our calculation of diluted earnings per common share and ROE
excluding the impact of these items.
3. See “Results of Operations — Financial Overview” below for further information about our calculation of ROE.
4. Tangible book value per common share is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. See “Equity
Capital — Other Capital Metrics” below for further information about our calculation of tangible book value per common share.
5. Tier 1 common ratio is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. See “Equity Capital —
Consolidated Regulatory Capital Ratios” below for further information about our Tier 1 common ratio.
Goldman Sachs 2012 Annual Report 35
Management’s Discussion and Analysis
Net revenues in Equities were essentially unchanged
compared with 2011. Net revenues in securities services
were significantly higher compared with 2011, reflecting a
gain of approximately $500 million on the sale of our hedge
fund administration business. In addition, equities client
execution net revenues were higher than 2011, primarily
reflecting significantly higher results in cash products,
principally due to increased levels of client activity. These
increases were offset by lower commissions and fees,
reflecting lower market volumes. During 2012, Equities
operated in an environment generally characterized by an
increase in global equity prices and lower volatility levels.
The net loss attributable to the impact of changes in our own
credit spreads on borrowings for which the fair value option
was elected was $714 million ($433 million and $281 million
related to Fixed Income, Currency and Commodities Client
Execution and equities client execution, respectively) for
2012, compared with a net gain of $596 million
($399 million and $197 million related to Fixed Income,
Currency and Commodities Client Execution and equities
client execution, respectively) for 2011.
Investing & Lending
Net revenues in Investing &Lending were $5.89 billion and
$2.14 billion for 2012 and 2011, respectively. During
2012, Investing & Lending net revenues were positively
impacted by tighter credit spreads and an increase in global
equity prices. Results for 2012 included a gain of
$408 million from our investment in the ordinary shares of
Industrial and Commercial Bank of China Limited (ICBC),
net gains of $2.39 billion from other investments in
equities, primarily in private equities, net gains and net
interest income of $1.85 billion from debt securities and
loans, and other net revenues of $1.24 billion, principally
related to our consolidated investment entities.
Results for 2011 included a loss of $517 million from our
investment in the ordinary shares of ICBC and net gains of
$1.12 billion from other investments in equities, primarily
in private equities, partially offset by losses from public
equities. In addition, Investing & Lending included net
revenues of $96 million fromdebt securities and loans. This
amount includes approximately $1 billion of unrealized
losses related to relationship lending activities, including the
effect of hedges, offset by net interest income and net gains
from other debt securities and loans. Results for 2011 also
included other net revenues of $1.44 billion, principally
related to our consolidated investment entities.
Investment Management
Net revenues in Investment Management increased
compared with 2011, due to significantly higher incentive
fees, partially offset by lower transaction revenues and
slightly lower management and other fees. During the year,
assets under supervision
1
increased $70 billion to
$965 billion. Assets under management increased
$26 billion to $854 billion, reflecting net market
appreciation of $44 billion, primarily in fixed income and
equity assets, partially offset by net outflows of $18 billion.
Net outflows in assets under management included
outflows in equity, alternative investment and money
market assets, partially offset by inflows in fixed income
assets
2
. Other client assets increased $44 billion to
$111 billion, primarily due to net inflows
2
, principally in
client assets invested with third-party managers and assets
related to advisory relationships.
Our businesses, by their nature, do not produce predictable
earnings. Our results in any given period can be materially
affected by conditions in global financial markets,
economic conditions generally and other factors. For a
further discussion of the factors that may affect our future
operating results, see “Certain Risk Factors That
May Affect Our Businesses” below, as well as “Risk
Factors” in Part I, Item 1A of our Annual Report on
Form10-K.
1. Assets under supervision include assets under management and other client assets. Assets under management include client assets where we earn a fee for
managing assets on a discretionary basis. Other client assets include client assets invested with third-party managers, private bank deposits and assets related to
advisory relationships where we earn a fee for advisory and other services, but do not have discretion over the assets.
2. Includes $34 billion of fixed income asset inflows in connection with our acquisition of Dwight Asset Management Company LLC (Dwight Asset Management),
including $17 billion in assets under management and $17 billion in other client assets, and $5 billion of fixed income and equity asset outflows in connection with
our liquidation of Goldman Sachs Asset Management Korea Co., Ltd. (Goldman Sachs Asset Management Korea, formerly known as Macquarie — IMM Investment
Management), all related to assets under management, for the year ended December 2012.
36 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Business Environment
Global economic conditions generally weakened in 2012,
as real gross domestic product (GDP) growth slowed in
most major economies. Market sentiment was affected by
continued broad market concerns and uncertainties,
although positive developments helped to improve market
conditions. These developments included certain central
bank actions to ease monetary policy and address funding
risks for European financial institutions. In addition, the
U.S. economy posted stable to improving economic data,
including favorable developments in unemployment and
housing. These improvements resulted in tighter credit
spreads, higher global equity prices and lower levels of
volatility. However, concerns about the outlook for the
global economy and continued political uncertainty,
particularly the political debate in the United States
surrounding the fiscal cliff, generally resulted in client risk
aversion and lower activity levels. Also, uncertainty over
financial regulatory reform persisted. These concerns
weighed on investment banking activity, as completed
mergers and acquisitions activity declined compared with
2011, and equity and equity-related underwriting activity
remained low, particularly in initial public offerings.
However, industry-wide debt underwriting activity
improved compared with 2011. For a further discussion of
how market conditions may affect our businesses, see
“Certain Risk Factors That May Affect Our Businesses”
below as well as “Risk Factors” in Part I, Item 1A of our
Annual Report on Form10-K.
Global
During 2012, real GDP growth declined in most advanced
economies and emerging markets. In advanced economies,
the slowdown primarily reflected a decline in consumer
expenditure and fixed investment growth, particularly in
Europe, as well as a deceleration in international trade
compared with 2011. In emerging markets, growth in
domestic demand weakened, although the contribution
from government spending was generally positive.
Unemployment levels declined slightly in some economies
compared with 2011, but increased in others, particularly
in the Euro area. The rate of unemployment continued to
remain elevated in many advanced economies. During
2012, the U.S. Federal Reserve, the Bank of England and
the Bank of Japan left interest rates unchanged, while the
European Central Bank reduced its interest rate. In
addition, the People’s Bank of China lowered its one-year
benchmark lending rate during the year. The price of crude
oil generally declined during 2012. The U.S. dollar
weakened against both the Euro and the British pound,
while it strengthened against the Japanese yen.
United States
In the United States, real GDP increased by 2.2% in 2012,
compared with an increase of 1.8% in 2011. Growth was
supported by an acceleration in residential investment and a
smaller decrease in state and local government spending,
which were partially offset by a slowdown in consumer
spending and business investment. Both house prices and
housing starts increased. Industrial production expanded in
2012, despite the negative impact of Hurricane Sandy
during the fourth quarter. Business and consumer
confidence declined during parts of the year, primarily
reflecting increased global economic concerns and
heightened uncertainties, but ended the year higher
compared with the end of 2011. Measures of core inflation
on average were higher compared with 2011. The
unemployment rate declined during 2012, but remained
elevated. The U.S. Federal Reserve maintained its federal
funds rate at a target range of zero to 0.25%during the year
and extended its program to lengthen the maturity of the
U.S. Treasury debt it holds. In addition, the U.S. Federal
Reserve announced an open-ended program to purchase
U.S. Treasury securities and mortgage-backed securities, as
well as a commitment to keep short-term interest rates
exceptionally low until the unemployment rate falls to
6.5% or inflation rises materially. The yield on the 10-year
U.S. Treasury note fell by 11 basis points during 2012 to
1.78%. In equity markets, the NASDAQ Composite Index,
the S&P 500 Index and the Dow Jones Industrial Average
increased by 16%, 13% and 7%, respectively, compared
with the end of 2011.
Goldman Sachs 2012 Annual Report 37
Management’s Discussion and Analysis
Europe
In the Euro area, real GDP declined by 0.5% in 2012,
compared with an increase of 1.5% in 2011. The
contraction was principally due to a sharp fall in domestic
demand, primarily reflecting downturns in consumer
spending and fixed investment. Business and consumer
confidence declined and measures of core inflation
increased slightly during the year. The unemployment rate
increased substantially, particularly in Spain and Italy.
These negative developments reflected the impact that the
sovereign debt crisis had on the region’s economic growth,
particularly during the first half of the year, as concerns
about Greece’s debt situation and the fiscal outlook in
Spain and Italy intensified. To address these issues, the
European Central Bank injected liquidity in the Eurosystem
through its longer-term refinancing operations (LTROs),
decreased its main refinancing operations rate by 25 basis
points to 0.75%, and announced a program to make
outright purchases of sovereign bonds in the secondary
markets. The Euro appreciated by 2% against the U.S.
dollar. In the United Kingdom, real GDP increased by 0.2%
in 2012 compared with an increase of 0.9% in 2011. The
Bank of England maintained its official bank rate at 0.50%
and increased the size of its asset purchase program. The
British pound appreciated by 4% against the U.S. dollar.
Long-term government bond yields generally declined
during the year. In equity markets, the DAX Index, the
CAC 40 Index, the Euro Stoxx 50 Index, and the FTSE 100
Index increased by 29%, 15%, 14% and 6%, respectively,
compared with the end of 2011.
Asia
In Japan, real GDP increased by 1.9% in 2012, compared
with a decline of 0.6% in 2011. Fixed investment growth
increased, particularly from the public sector, helped by
reconstruction efforts following the earthquake and
tsunami in 2011. However, the trade balance continued to
deteriorate during 2012. Measures of inflation remained
negative or close to zero during the year. The Bank of Japan
maintained its target overnight call rate at a range of zero to
0.10% during the year, increased the size of its asset
purchase program, and announced measures to facilitate
outright purchases of government and corporate bonds.
The yield on 10-year Japanese government bonds fell by 20
basis points during the year to 0.79%. The Japanese yen
depreciated by 13% against the U.S. dollar and, in equity
markets, the Nikkei 225 Index increased by 23%. In China,
real GDP increased by 7.8% in 2012, compared with an
increase of 9.3% in 2011. Growth slowed as household
consumption and fixed investment growth moderated. In
addition, growth in industrial production declined.
Measures of inflation declined during the year. The People’s
Bank of China lowered its one-year benchmark lending rate
by 56 basis points to 6.00% and reduced the reserve
requirement ratio by 100 basis points during the year. The
Chinese yuan appreciated slightly against the U.S. dollar
and, in equity markets, the Shanghai Composite Index
increased by 3%. In India, real GDP increased by an
estimated 5.4% in 2012, compared with an increase of
7.5% in 2011. Growth decelerated, primarily reflecting a
slowdown in domestic demand growth and a deterioration
in the trade balance. The rate of wholesale inflation
declined compared with 2011, but remained elevated. The
Indian rupee depreciated by 4%against the U.S. dollar and,
in equity markets, the BSE Sensex Index increased 26%.
Equity markets in Hong Kong and South Korea were
higher, as the Hang Seng Index increased 23% and the
KOSPI Composite Index increased 9%, respectively,
compared with the end of 2011.
Other Markets
In Brazil, real GDP increased by an estimated 1.0% in
2012, compared with an increase of 2.7% in 2011. Growth
decelerated, primarily reflecting a decline in private
consumption growth and a downturn in fixed investment.
The Brazilian real depreciated by 9%against the U.S. dollar
and, in equity markets, the Bovespa Index increased by 7%
compared with the end of 2011. In Russia, real GDP
increased by 3.4% in 2012, compared with 4.3% in 2011.
Growth slowed, primarily reflecting a decline in domestic
demand growth, particularly during the second half of the
year. The Russian ruble appreciated by 5% against the U.S.
dollar and, in equity markets, the MICEX Index increased
by 5%compared with the end of 2011.
38 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Critical Accounting Policies
Fair Value
Fair Value Hierarchy. Financial instruments owned, at fair
value and Financial instruments sold, but not yet
purchased, at fair value (i.e., inventory), as well as certain
other financial assets and financial liabilities, are reflected
in our consolidated statements of financial condition at fair
value (i.e., marked-to-market), with related gains or losses
generally recognized in our consolidated statements of
earnings. The use of fair value to measure financial
instruments is fundamental to our risk management
practices and is our most critical accounting policy.
The fair value of a financial instrument is the amount that
would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market
participants at the measurement date. In determining fair
value, the hierarchy under U.S. generally accepted
accounting principles (U.S. GAAP) gives (i) the highest
priority to unadjusted quoted prices in active markets for
identical, unrestricted assets or liabilities (level 1 inputs),
(ii) the next priority to inputs other than level 1 inputs that
are observable, either directly or indirectly (level 2 inputs),
and (iii) the lowest priority to inputs that cannot be
observed in market activity (level 3 inputs). Assets and
liabilities are classified in their entirety based on the lowest
level of input that is significant to their fair value
measurement.
The fair values for substantially all of our financial assets
and financial liabilities are based on observable prices and
inputs and are classified in levels 1 and 2 of the fair value
hierarchy. Certain level 2 and level 3 financial assets and
financial liabilities may require appropriate valuation
adjustments that a market participant would require to
arrive at fair value for factors such as counterparty and the
firm’s credit quality, funding risk, transfer restrictions,
liquidity and bid/offer spreads. Valuation adjustments are
generally based on market evidence.
Instruments categorized within level 3 of the fair value
hierarchy are those which require one or more significant
inputs that are not observable. As of December 2012 and
December 2011, level 3 assets represented 5.0% and 5.2%,
respectively, of the firm’s total assets. Absent evidence to
the contrary, instruments classified within level 3 of the fair
value hierarchy are initially valued at transaction price,
which is considered to be the best initial estimate of fair
value. Subsequent to the transaction date, we use other
methodologies to determine fair value, which vary based on
the type of instrument. Estimating the fair value of level 3
financial instruments requires judgments to be made. These
judgments include:
‰ determining the appropriate valuation methodology and/
or model for each type of level 3 financial instrument;
‰ determining model inputs based on an evaluation of all
relevant empirical market data, including prices
evidenced by market transactions, interest rates, credit
spreads, volatilities and correlations; and
‰ determining appropriate valuation adjustments related to
illiquidity or counterparty credit quality.
Regardless of the methodology, valuation inputs and
assumptions are only changed when corroborated by
substantive evidence.
Controls Over Valuation of Financial Instruments.
Market makers and investment professionals in our
revenue-producing units are responsible for pricing our
financial instruments. Our control infrastructure is
independent of the revenue-producing units and is
fundamental to ensuring that all of our financial
instruments are appropriately valued at market-clearing
levels. In the event that there is a difference of opinion in
situations where estimating the fair value of financial
instruments requires judgment (e.g., calibration to market
comparables or trade comparison, as described below), the
final valuation decision is made by senior managers in
control and support functions that are independent of the
revenue-producing units (independent control and support
functions). This independent price verification is critical to
ensuring that our financial instruments are properly valued.
Goldman Sachs 2012 Annual Report 39
Management’s Discussion and Analysis
Price Verification. All financial instruments at fair value in
levels 1, 2 and 3 of the fair value hierarchy are subject to
our independent price verification process. The objective of
price verification is to have an informed and independent
opinion with regard to the valuation of financial
instruments under review. Instruments that have one or
more significant inputs which cannot be corroborated by
external market data are classified within level 3 of the fair
value hierarchy. Price verification strategies utilized by our
independent control and support functions include:
‰ Trade Comparison. Analysis of trade data (both internal
and external where available) is used to determine the
most relevant pricing inputs and valuations.
‰ External Price Comparison. Valuations and prices are
compared to pricing data obtained from third parties (e.g.,
broker or dealers, MarkIt, Bloomberg, IDC, TRACE).
Data obtained from various sources is compared to ensure
consistency and validity. When broker or dealer quotations
or third-party pricing vendors are used for valuation or
price verification, greater priority is generally given to
executable quotations.
‰ Calibration to Market Comparables. Market-based
transactions are used to corroborate the valuation of
positions withsimilar characteristics, risks andcomponents.
‰ Relative Value Analyses. Market-based transactions
are analyzed to determine the similarity, measured in
terms of risk, liquidity and return, of one instrument
relative to another or, for a given instrument, of one
maturity relative to another.
‰ Collateral Analyses. Margin disputes on derivatives are
examined and investigated to determine the impact, if
any, on our valuations.
‰ Execution of Trades. Where appropriate, trading desks
are instructed to execute trades in order to provide
evidence of market-clearing levels.
‰ Backtesting. Valuations are corroborated by
comparison to values realized upon sales.
See Notes 5 through 8 to the consolidated financial
statements for further information about fair value
measurements.
Review of Net Revenues. Independent control and
support functions ensure adherence to our pricing policy
through a combination of daily procedures, including the
explanation and attribution of net revenues based on the
underlying factors. Through this process we independently
validate net revenues, identify and resolve potential fair value
or trade booking issues on a timely basis and seek to ensure
that risks are being properly categorized and quantified.
Review of Valuation Models. The firm’s independent
model validation group, consisting of quantitative
professionals who are separate from model developers,
performs an independent model approval process. This
process incorporates a review of a diverse set of model and
trade parameters across a broad range of values (including
extreme and/or improbable conditions) in order to
critically evaluate:
‰ the model’s suitability for valuation and risk management
of a particular instrument type;
‰ the model’s accuracy in reflecting the characteristics of
the related product and its significant risks;
‰ the suitability of the calculation techniques incorporated
in the model;
‰ the model’s consistency with models for similar
products; and
‰ the model’s sensitivity to input parameters and
assumptions.
New or changed models are reviewed and approved prior
to being put into use. Models are evaluated and re-
approved annually to assess the impact of any changes in
the product or market and any market developments in
pricing theories.
40 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Level 3 Financial Assets at Fair Value. The table below
presents financial assets measured at fair value and the
amount of such assets that are classified within level 3 of the
fair value hierarchy.
Total level 3 financial assets were $47.10 billion and
$47.94 billion as of December 2012 and December 2011,
respectively.
See Notes 5 through 8 to the consolidated financial
statements for further information about changes in level 3
financial assets and fair value measurements.
As of December 2012 As of December 2011
in millions
Total at
Fair Value
Level 3
Total
Total at
Fair Value
Level 3
Total
Commercial paper, certificates of deposit, time deposits
and other money market instruments $ 6,057 $ — $ 13,440 $ —
U.S. government and federal agency obligations 93,241 — 87,040 —
Non-U.S. government and agency obligations 62,250 26 49,205 148
Mortgage and other asset-backed loans and securities:
Loans and securities backed by commercial real estate 9,805 3,389 6,699 3,346
Loans and securities backed by residential real estate 8,216 1,619 7,592 1,709
Bank loans and bridge loans 22,407 11,235 19,745 11,285
Corporate debt securities 20,981 2,821 22,131 2,480
State and municipal obligations 2,477 619 3,089 599
Other debt obligations 2,251 1,185 4,362 1,451
Equities and convertible debentures 96,454 14,855 65,113 13,667
Commodities 11,696 — 5,762 —
Total cash instruments 335,835 35,749 284,178 34,685
Derivatives 71,176 9,920 80,028 11,900
Financial instruments owned, at fair value 407,011 45,669 364,206 46,585
Securities segregated for regulatory and other purposes 30,484 — 42,014 —
Securities purchased under agreements to resell 141,331 278 187,789 557
Securities borrowed 38,395 — 47,621 —
Receivables from customers and counterparties 7,866 641 9,682 795
Other assets
1
13,426 507 — —
Total $638,513 $47,095 $651,312 $47,937
1. Consists of assets classified as held for sale related to our reinsurance business, primarily consisting of securities accounted for as available-for-sale and insurance
separate account assets, which were previously included in “Financial instruments owned, at fair value” and “Securities segregated for regulatory and other
purposes,” respectively. See Note 12 to the consolidated financial statements for further information about assets held for sale.
Goldman Sachs 2012 Annual Report 41
Management’s Discussion and Analysis
Goodwill and Identifiable Intangible Assets
Goodwill. Goodwill is the cost of acquired companies in
excess of the fair value of net assets, including identifiable
intangible assets, at the acquisition date. Goodwill is
assessed annually for impairment, or more frequently if
events occur or circumstances change that indicate an
impairment may exist, by first assessing qualitative factors
to determine whether it is more likely than not that the fair
value of a reporting unit is less than its carrying amount. If
the results of the qualitative assessment are not conclusive,
a quantitative goodwill impairment test is performed by
comparing the estimated fair value of each reporting unit
with its estimated net book value.
Estimating the fair value of our reporting units requires
management to make judgments. Critical inputs to the fair
value estimates include (i) projected earnings, (ii) estimated
long-term growth rates and (iii) cost of equity. The net
book value of each reporting unit reflects an allocation of
total shareholders’ equity and represents the estimated
amount of shareholders’ equity required to support the
activities of the reporting unit under guidelines issued by the
Basel Committee on Banking Supervision (Basel
Committee) in December 2010.
Our market capitalization was below book value during
2012. Accordingly, we performed a quantitative
impairment test during the fourth quarter of 2012 and
determined that goodwill was not impaired. The estimated
fair value of our reporting units in which we hold
substantially all of our goodwill significantly exceeded the
estimated carrying values. We believe that it is appropriate
to consider market capitalization, among other factors, as
an indicator of fair value over a reasonable period of time.
If the more recent improvement in market conditions does
not continue, and we return to a prolonged period of
weakness in the business environment or financial markets,
our goodwill could be impaired in the future. In addition,
significant changes to critical inputs of the goodwill
impairment test (e.g., cost of equity) could cause the
estimated fair value of our reporting units to decline, which
could result in an impairment of goodwill in the future.
See Note 13 to the consolidated financial statements for
further information about our goodwill.
Identifiable Intangible Assets. We amortize our
identifiable intangible assets (i) over their estimated lives,
(ii) based on economic usage or (iii) in proportion to
estimated gross profits or premium revenues. Identifiable
intangible assets are tested for impairment whenever events
or changes in circumstances suggest that an asset’s or asset
group’s carrying value may not be fully recoverable.
An impairment loss, generally calculated as the difference
between the estimated fair value and the carrying value of
an asset or asset group, is recognized if the sum of the
estimated undiscounted cash flows relating to the asset or
asset group is less than the corresponding carrying value.
See Note 13 to the consolidated financial statements for the
carrying value and estimated remaining lives of our
identifiable intangible assets by major asset class and
impairments of our identifiable intangible assets.
A prolonged period of market weakness could adversely
impact our businesses and impair the value of our
identifiable intangible assets. In addition, certain events
could indicate a potential impairment of our identifiable
intangible assets, including (i) decreases in revenues from
commodity-related customer contracts and relationships,
(ii) decreases in cash receipts from television broadcast
royalties, (iii) an adverse action or assessment by a regulator
or (iv) adverse actual experience on the contracts in our
variable annuity and life insurance business. Management
judgment is required to evaluate whether indications of
potential impairment have occurred, and to test intangibles
for impairment if required.
42 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Use of Estimates
The use of generally accepted accounting principles requires
management to make certain estimates and assumptions. In
addition to the estimates we make in connection with fair
value measurements, and the accounting for goodwill and
identifiable intangible assets, the use of estimates and
assumptions is also important in determining provisions for
losses that may arise fromlitigation, regulatory proceedings
and tax audits.
We estimate and provide for potential losses that may arise
out of litigation and regulatory proceedings to the extent
that such losses are probable and can be reasonably
estimated. In accounting for income taxes, we estimate and
provide for potential liabilities that may arise out of tax
audits to the extent that uncertain tax positions fail to meet
the recognition standard under FASB Accounting Standards
Codification 740. See Note 24 to the consolidated financial
statements for further information about accounting for
income taxes.
Significant judgment is required in making these estimates
and our final liabilities may ultimately be materially
different. Our total estimated liability in respect of
litigation and regulatory proceedings is determined on a
case-by-case basis and represents an estimate of probable
losses after considering, among other factors, the progress
of each case or proceeding, our experience and the
experience of others in similar cases or proceedings, and
the opinions and views of legal counsel. See Notes 18 and
27 to the consolidated financial statements for
information on certain judicial, regulatory and
legal proceedings.
Goldman Sachs 2012 Annual Report 43
Management’s Discussion and Analysis
Results of Operations
The composition of our net revenues has varied over time as
financial markets and the scope of our operations have
changed. The composition of net revenues can also vary
over the shorter term due to fluctuations in U.S. and global
economic and market conditions. See “Certain Risk Factors
That May Affect Our Businesses” below and “Risk
Factors” in Part I, Item 1A of our Annual Report on
Form 10-K for a further discussion of the impact of
economic and market conditions on our results of
operations.
Financial Overview
The table belowpresents an overviewof our financial results.
Year Ended December
$ in millions, except per share amounts 2012 2011 2010
Net revenues $34,163 $28,811 $39,161
Pre-tax earnings 11,207 6,169 12,892
Net earnings 7,475 4,442 8,354
Net earnings applicable to common shareholders 7,292 2,510 7,713
Diluted earnings per common share 14.13 4.51
2
13.18
3
Return on average common shareholders’ equity
1
10.7% 3.7%
2
11.5%
3
1. ROE is computed by dividing net earnings applicable to common shareholders by average monthly common shareholders’ equity. The table below presents our
average common shareholders’ equity.
Average for the
Year Ended December
in millions 2012 2011 2010
Total shareholders’ equity $72,530 $72,708 $74,257
Preferred stock (4,392) (3,990) (6,957)
Common shareholders’ equity $68,138 $68,718 $67,300
2. Excluding the impact of the preferred dividend of $1.64 billion in the first quarter of 2011 (calculated as the difference between the carrying value and the
redemption value of the preferred stock), related to the redemption of our Series G Preferred Stock, diluted earnings per common share were $7.46 and ROE was
5.9% for 2011. We believe that presenting our results for 2011 excluding this dividend is meaningful, as it increases the comparability of period-to-period results.
Diluted earnings per common share and ROE excluding this dividend are non-GAAP measures and may not be comparable to similar non-GAAP measures used by
other companies. The tables below present the calculation of net earnings applicable to common shareholders, diluted earnings per common share and average
common shareholders’ equity excluding the impact of this dividend.
in millions, except per share amount
Year Ended
December 2011
Net earnings applicable to common shareholders $ 2,510
Impact of the Series G Preferred Stock dividend 1,643
Net earnings applicable to common shareholders, excluding the impact of the Series G Preferred Stock dividend 4,153
Divided by: average diluted common shares outstanding 556.9
Diluted earnings per common share, excluding the impact of the Series G Preferred Stock dividend $ 7.46
in millions
Average for the
Year Ended
December 2011
Total shareholders’ equity $72,708
Preferred stock (3,990)
Common shareholders’ equity 68,718
Impact of the Series G Preferred Stock dividend 1,264
Common shareholders’ equity, excluding the impact of the Series G Preferred Stock dividend $69,982
44 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
3. Excluding the impact of the $465 million related to the U.K. bank payroll tax, the $550 million related to the SEC settlement and the $305 million impairment of our
NYSE DMM rights, diluted earnings per common share were $15.22 and ROE was 13.1% for 2010. We believe that presenting our results for 2010 excluding the
impact of these items is meaningful, as it increases the comparability of period-to-period results. Diluted earnings per common share and ROE excluding these
items are non-GAAP measures and may not be comparable to similar non-GAAP measures used by other companies. The tables below present the calculation of
net earnings applicable to common shareholders, diluted earnings per common share and average common shareholders’ equity excluding the impact of
these items.
in millions, except per share amount
Year Ended
December 2010
Net earnings applicable to common shareholders $ 7,713
Impact of the U.K. bank payroll tax 465
Pre-tax impact of the SEC settlement 550
Tax impact of the SEC settlement (6)
Pre-tax impact of the NYSE DMM rights impairment 305
Tax impact of the NYSE DMM rights impairment (118)
Net earnings applicable to common shareholders, excluding the impact of the U.K. bank payroll tax,
the SEC settlement and the NYSE DMM rights impairment 8,909
Divided by: average diluted common shares outstanding 585.3
Diluted earnings per common share, excluding the impact of the U.K. bank payroll tax, the SEC settlement
and the NYSE DMM rights impairment $ 15.22
in millions
Average for the
Year Ended
December 2010
Total shareholders’ equity $74,257
Preferred stock (6,957)
Common shareholders’ equity 67,300
Impact of the U.K. bank payroll tax 359
Impact of the SEC settlement 293
Impact of the NYSE DMM rights impairment 14
Common shareholders’ equity, excluding the impact of the U.K. bank payroll tax, the SEC settlement
and the NYSE DMM rights impairment $67,966
Goldman Sachs 2012 Annual Report 45
Management’s Discussion and Analysis
Net Revenues
2012 versus 2011. Net revenues on the consolidated
statements of earnings were $34.16 billion for 2012, 19%
higher than 2011, reflecting significantly higher other
principal transactions revenues, as well as higher
market-making revenues, investment banking revenues and
investment management revenues compared with 2011.
These increases were partially offset by significantly lower
net interest income and lower commissions and fees
compared with 2011.
2011 versus 2010. Net revenues on the consolidated
statements of earnings were $28.81 billion for 2011, 26%
lower than 2010, reflecting significantly lower other
principal transactions revenues and market-making
revenues, as well as lower investment banking revenues and
net interest income. These decreases were partially offset by
higher commissions and fees compared with 2010.
Investment management revenues were essentially
unchanged compared with 2010.
Non-interest Revenues
Investment banking
During 2012, investment banking revenues reflected an
operating environment generally characterized by
continued concerns about the outlook for the global
economy and political uncertainty. These concerns weighed
on investment banking activity, as completed mergers and
acquisitions activity declined compared with 2011, and
equity and equity-related underwriting activity remained
low, particularly in initial public offerings. However,
industry-wide debt underwriting activity improved
compared with 2011, as credit spreads tightened and
interest rates remained low. If macroeconomic concerns
continue and result in lower levels of client activity,
investment banking revenues would likely be
negatively impacted.
2012 versus 2011. Investment banking revenues on the
consolidated statements of earnings were $4.94 billion for
2012, 13% higher than 2011, reflecting significantly higher
revenues in our underwriting business, due to strong
revenues in debt underwriting. Revenues in debt
underwriting were significantly higher compared with
2011, primarily reflecting higher revenues from
investment-grade and leveraged finance activity. Revenues
in equity underwriting were lower compared with 2011,
primarily reflecting a decline in industry-wide initial public
offerings. Revenues in financial advisory were essentially
unchanged compared with 2011.
2011 versus 2010. Investment banking revenues on the
consolidated statements of earnings were $4.36 billion for
2011, 9% lower than 2010, primarily reflecting lower
revenues in our underwriting business. Revenues in equity
underwriting were significantly lower than 2010,
principally due to a decline in industry-wide activity.
Revenues in debt underwriting were essentially unchanged
compared with 2010. Revenues in financial advisory
decreased slightly compared with 2010.
Investment management
During 2012, investment management revenues reflected
an operating environment generally characterized by
improved asset prices, resulting in appreciation in the value
of client assets. However, the mix of assets under
supervision has shifted slightly from asset classes that
typically generate higher fees to asset classes that typically
generate lower fees compared with 2011. In the future, if
asset prices were to decline, or investors continue to favor
asset classes that typically generate lower fees or investors
continue to withdraw their assets, investment management
revenues would likely be negatively impacted. In addition,
continued concerns about the global economic outlook
could result in downward pressure on assets
under supervision.
2012 versus 2011. Investment management revenues on
the consolidated statements of earnings were $4.97 billion
for 2012, 6% higher compared with 2011, due to
significantly higher incentive fees, partially offset by slightly
lower management and other fees.
2011 versus 2010. Investment management revenues on
the consolidated statements of earnings were $4.69 billion
for 2011, essentially unchanged compared with 2010,
primarily due to higher management and other fees,
reflecting favorable changes in the mix of assets under
management, offset by lower incentive fees.
46 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Commissions and fees
Although global equity prices increased during 2012,
commissions and fees reflected an operating environment
characterized by lower market volumes primarily due to
lower volatility levels, concerns about the outlook for the
global economy and continued political uncertainty. If
macroeconomic concerns continue and result in lower
market volumes, commissions and fees would likely
continue to be negatively impacted.
2012 versus 2011. Commissions and fees on the
consolidated statements of earnings were $3.16 billion for
2012, 16% lower than 2011, reflecting lower
market volumes.
2011 versus 2010. Commissions and fees on the
consolidated statements of earnings were $3.77 billion for
2011, 6% higher than 2010, primarily reflecting higher
market volumes, particularly during the third quarter
of 2011.
Market making
During 2012, market-making revenues reflected an
operating environment generally characterized by
continued broad market concerns and uncertainties,
although positive developments helped to improve market
conditions. These developments included certain central
bank actions to ease monetary policy and address funding
risks for European financial institutions. In addition, the
U.S. economy posted stable to improving economic data,
including favorable developments in unemployment and
housing. These improvements resulted in tighter credit
spreads, higher global equity prices and lower levels of
volatility. However, concerns about the outlook for the
global economy and continued political uncertainty,
particularly the political debate in the United States
surrounding the fiscal cliff, generally resulted in client risk
aversion and lower activity levels. Also, uncertainty over
financial regulatory reform persisted. If these concerns and
uncertainties continue over the long term, market-making
revenues would likely be negatively impacted.
2012 versus 2011. Market-making revenues on the
consolidated statements of earnings were $11.35 billion for
2012, 22% higher than 2011, primarily reflecting
significantly higher revenues in mortgages and higher
revenues in interest rate products, credit products and
equity cash products, partially offset by significantly lower
revenues in commodities. In addition, market-making
revenues included significantly higher revenues in securities
services compared with 2011, reflecting a gain of
approximately $500 million on the sale of our hedge fund
administration business.
2011 versus 2010. Market-making revenues on the
consolidated statements of earnings were $9.29 billion for
2011, 32% lower than 2010. Although activity levels
during 2011 were generally consistent with 2010 levels, and
results were solid during the first quarter of 2011, the
environment during the remainder of 2011 was
characterized by broad market concerns and uncertainty,
resulting in volatile markets and significantly wider credit
spreads, which contributed to difficult market-making
conditions and led to reductions in risk by us and our
clients. As a result of these conditions, revenues across most
of our major market-making activities were lower during
2011 compared with 2010.
Other principal transactions
During 2012, other principal transactions revenues
reflected an operating environment characterized by tighter
credit spreads and an increase in global equity prices.
However, concerns about the outlook for the global
economy and uncertainty over financial regulatory reform
persisted. If equity markets decline or credit spreads widen,
other principal transactions revenues would likely be
negatively impacted.
2012 versus 2011. Other principal transactions revenues
on the consolidated statements of earnings were
$5.87 billion and $1.51 billion for 2012 and 2011,
respectively. Results for 2012 included a gain from our
investment in the ordinary shares of ICBC, net gains from
other investments in equities, primarily in private equities,
net gains from debt securities and loans, and revenues
related to our consolidated investment entities.
2011 versus 2010. Other principal transactions revenues
on the consolidated statements of earnings were
$1.51 billion and $6.93 billion for 2011 and 2010,
respectively. Results for 2011 included a loss from our
investment in the ordinary shares of ICBC and net gains
from other investments in equities, primarily in private
equities, partially offset by losses from public equities. In
addition, revenues in other principal transactions included
net losses from debt securities and loans, primarily
reflecting approximately $1 billion of unrealized losses
related to relationship lending activities, including the effect
of hedges, partially offset by net gains from other debt
securities and loans. Results for 2011 also included
revenues related to our consolidated investment entities.
Results for 2010 included a gain fromour investment in the
ordinary shares of ICBC, net gains from other investments
in equities, net gains from debt securities and loans, and
revenues related to consolidated investment entities.
Goldman Sachs 2012 Annual Report 47
Management’s Discussion and Analysis
Net Interest Income
2012 versus 2011. Net interest income on the
consolidated statements of earnings was $3.88 billion for
2012, 25% lower than 2011. The decrease compared
with 2011 was primarily due to lower average yields on
financial instruments owned, at fair value, and
collateralized agreements.
2011 versus 2010. Net interest income on the consolidated
statements of earnings was $5.19 billion for 2011, 6%
lower than 2010. The decrease compared with 2010 was
primarily due to higher interest expense related to our
long-term borrowings and higher dividend expense related
to financial instruments sold, but not yet purchased,
partially offset by an increase in interest income fromhigher
yielding collateralized agreements.
Operating Expenses
Our operating expenses are primarily influenced by
compensation, headcount and levels of business activity.
Compensation and benefits includes salaries, discretionary
compensation, amortization of equity awards and other
items such as benefits. Discretionary compensation is
significantly impacted by, among other factors, the level of
net revenues, overall financial performance, prevailing labor
markets, business mix, the structure of our share-based
compensation programs and the external environment.
In the context of more difficult economic and financial
conditions, the firm launched an initiative during the
second quarter of 2011 to identify areas where we can
operate more efficiently and reduce our operating expenses.
During 2012 and 2011, we announced targeted annual run
rate compensation and non-compensation reductions of
approximately $1.9 billion in aggregate.
The table below presents our operating expenses and
total staff.
Year Ended December
$ in millions 2012 2011 2010
Compensation and benefits $12,944 $12,223 $15,376
U.K. bank payroll tax — — 465
Brokerage, clearing, exchange and distribution fees 2,208 2,463 2,281
Market development 509 640 530
Communications and technology 782 828 758
Depreciation and amortization 1,738 1,865 1,889
Occupancy 875 1,030 1,086
Professional fees 867 992 927
Insurance reserves
1
598 529 398
Other expenses 2,435 2,072 2,559
Total non-compensation expenses 10,012 10,419 10,428
Total operating expenses $22,956 $22,642 $26,269
Total staff at period-end
2
32,400 33,300 35,700
1. Related revenues are included in “Market making” on the consolidated statements of earnings.
2. Includes employees, consultants and temporary staff.
48 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
2012 versus 2011. Operating expenses on the consolidated
statements of earnings were $22.96 billion for 2012,
essentially unchanged compared with 2011. Compensation
and benefits expenses on the consolidated statements of
earnings were $12.94 billion for 2012, 6% higher
compared with $12.22 billion for 2011. The ratio of
compensation and benefits to net revenues for 2012 was
37.9%, compared with 42.4% for 2011. Total staff
decreased 3%during 2012.
Non-compensation expenses on the consolidated
statements of earnings were $10.01 billion for 2012, 4%
lower compared with 2011. The decrease compared with
2011 primarily reflected the impact of expense reduction
initiatives, lower brokerage, clearing, exchange and
distribution fees, lower occupancy expenses and lower
impairment charges. These decreases were partially offset
by higher other expenses and increased reserves related to
our reinsurance business. The increase in other expenses
compared with 2011 primarily reflected higher net
provisions for litigation and regulatory proceedings and
higher charitable contributions. Net provisions for
litigation and regulatory proceedings were $448 million
during 2012 (including a settlement with the Board of
Governors of the Federal Reserve System (Federal Reserve
Board) regarding the independent foreclosure review).
Charitable contributions were $225 million during 2012,
including $159 million to Goldman Sachs Gives, our
donor-advised fund, and $10 million to The Goldman
Sachs Foundation. Compensation was reduced to fund the
charitable contribution to Goldman Sachs Gives. The firm
asks its participating managing directors to make
recommendations regarding potential charitable recipients
for this contribution.
2011 versus 2010. Operating expenses on the consolidated
statements of earnings were $22.64 billion for 2011, 14%
lower than 2010. Compensation and benefits expenses on
the consolidated statements of earnings were $12.22 billion
for 2011, a 21% decline compared with $15.38 billion for
2010. The ratio of compensation and benefits to net
revenues for 2011 was 42.4%, compared with 39.3%
1
(which excludes the impact of the U.K. bank payroll tax)
for 2010. Operating expenses for 2010 included
$465 million related to the U.K. bank payroll tax. Total
staff decreased 7%during 2011.
Non-compensation expenses on the consolidated
statements of earnings were $10.42 billion for 2011,
essentially unchanged compared with 2010. Non-
compensation expenses for 2011 included higher
brokerage, clearing, exchange and distribution fees,
increased reserves related to our reinsurance business and
higher market development expenses compared with 2010.
These increases were offset by lower other expenses during
2011. The decrease in other expenses primarily reflected
lower net provisions for litigation and regulatory
proceedings (2010 included $550 million related to a
settlement with the SEC). In addition, non-compensation
expenses during 2011 included impairment charges of
approximately $440 million, primarily related to
consolidated investments and Litton Loan Servicing LP.
Charitable contributions were $163 million during 2011,
including $78 million to Goldman Sachs Gives and
$25 million to The Goldman Sachs Foundation.
Compensation was reduced to fund the charitable
contribution to Goldman Sachs Gives. The firm asks its
participating managing directors to make
recommendations regarding potential charitable recipients
for this contribution.
1. We believe that presenting our ratio of compensation and benefits to net revenues excluding the impact of the $465 million U.K. bank payroll tax is meaningful, as
excluding it increases the comparability of period-to-period results. The ratio of compensation and benefits to net revenues excluding the impact of this item is a
non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. The table below presents the calculation of the ratio of
compensation and benefits to net revenues including and excluding the impact of this item.
$ in millions
Year Ended
December 2010
Compensation and benefits (which excludes the impact of the $465 million U.K. bank payroll tax) $15,376
Ratio of compensation and benefits to net revenues 39.3%
Compensation and benefits, including the impact of the $465 million U.K. bank payroll tax $15,841
Ratio of compensation and benefits to net revenues, including the impact of the $465 million U.K. bank payroll tax 40.5%
Goldman Sachs 2012 Annual Report 49
Management’s Discussion and Analysis
Provision for Taxes
The effective income tax rate for 2012 was 33.3%, up from
28.0% for 2011. The increase from 28.0% to 33.3% was
primarily due to the earnings mix and a decrease in the
impact of permanent benefits.
The effective income tax rate for 2011 was 28.0%, down
from 35.2% for 2010. Excluding the impact of the
$465 million U.K. bank payroll tax and the $550 million
SEC settlement, substantially all of which was
non-deductible, the effective income tax rate for 2010 was
32.7%
1
. The decrease from32.7%to 28.0%was primarily
due to an increase in permanent benefits as a percentage of
earnings and the earnings mix.
1. We believe that presenting our effective income tax rate for 2010 excluding the impact of the U.K. bank payroll tax and the SEC settlement, substantially all of
which was non-deductible, is meaningful as excluding these items increases the comparability of period-to-period results. The effective income tax rate excluding
the impact of these items is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. The table below presents
the calculation of the effective income tax rate excluding the impact of these amounts.
Year Ended December 2010
$ in millions
Pre-tax
earnings
Provision
for taxes
Effective income
tax rate
As reported $12,892 $4,538 35.2%
Add back:
Impact of the U.K. bank payroll tax 465 —
Impact of the SEC settlement 550 6
As adjusted $13,907 $4,544 32.7%
50 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Segment Operating Results
The table belowpresents the net revenues, operating expenses and pre-tax earnings of our segments.
Year Ended December
in millions 2012 2011 2010
Investment Banking Net revenues $ 4,926 $ 4,355 $ 4,810
Operating expenses 3,330 2,995 3,459
Pre-tax earnings $ 1,596 $ 1,360 $ 1,351
Institutional Client Services Net revenues $18,124 $17,280 $21,796
Operating expenses 12,480 12,837 14,994
Pre-tax earnings $ 5,644 $ 4,443 $ 6,802
Investing & Lending Net revenues $ 5,891 $ 2,142 $ 7,541
Operating expenses 2,666 2,673 3,361
Pre-tax earnings/(loss) $ 3,225 $ (531) $ 4,180
Investment Management Net revenues $ 5,222 $ 5,034 $ 5,014
Operating expenses 4,294 4,020 4,082
Pre-tax earnings $ 928 $ 1,014 $ 932
Total Net revenues $34,163 $28,811 $39,161
Operating expenses 22,956 22,642 26,269
Pre-tax earnings $11,207 $ 6,169 $12,892
Total operating expenses in the table above include the
following expenses that have not been allocated to
our segments:
‰ charitable contributions of $169 million, $103 million
and $345 million for the years ended December 2012,
December 2011 and December 2010, respectively; and
‰ real estate-related exit costs of $17 million, $14 million
and $28 million for the years ended December 2012,
December 2011 and December 2010, respectively. Real
estate-related exit costs are included in “Depreciation and
amortization” and “Occupancy” in the consolidated
statements of earnings.
Operating expenses related to net provisions for litigation
and regulatory proceedings, previously not allocated to our
segments, have now been allocated. This allocation is
consistent with the manner in which management currently
views the performance of our segments. Reclassifications
have been made to previously reported segment amounts to
conformto the current presentation.
Net revenues in our segments include allocations of interest
income and interest expense to specific securities,
commodities and other positions in relation to the cash
generated by, or funding requirements of, such underlying
positions. See Note 25 to the consolidated financial
statements for further information about our
business segments.
The cost drivers of Goldman Sachs taken as a whole —
compensation, headcount and levels of business activity —
are broadly similar in each of our business segments.
Compensation and benefits expenses within our segments
reflect, among other factors, the overall performance of
Goldman Sachs as well as the performance of individual
businesses. Consequently, pre-tax margins in one segment
of our business may be significantly affected by the
performance of our other business segments. A discussion
of segment operating results follows.
Goldman Sachs 2012 Annual Report 51
Management’s Discussion and Analysis
Investment Banking
Our Investment Banking segment is comprised of:
Financial Advisory. Includes strategic advisory
assignments with respect to mergers and acquisitions,
divestitures, corporate defense activities, risk management,
restructurings and spin-offs, and derivative transactions
directly related to these client advisory assignments.
Underwriting. Includes public offerings and private
placements, including domestic and cross-border
transactions, of a wide range of securities, loans and other
financial instruments, and derivative transactions directly
related to these client underwriting activities.
The table below presents the operating results of our
Investment Banking segment.
Year Ended December
in millions 2012 2011 2010
Financial Advisory $1,975 $1,987 $2,062
Equity underwriting 987 1,085 1,462
Debt underwriting 1,964 1,283 1,286
Total Underwriting 2,951 2,368 2,748
Total net revenues 4,926 4,355 4,810
Operating expenses 3,330 2,995 3,459
Pre-tax earnings $1,596 $1,360 $1,351
The table below presents our financial advisory and
underwriting transaction volumes.
1
Year Ended December
in billions 2012 2011 2010
Announced mergers and acquisitions $707 $634 $500
Completed mergers and acquisitions 574 652 441
Equity and equity-related offerings
2
57 55 67
Debt offerings
3
236 206 234
1. Source: Thomson Reuters. Announced and completed mergers and
acquisitions volumes are based on full credit to each of the advisors in a
transaction. Equity and equity-related offerings and debt offerings are based
on full credit for single book managers and equal credit for joint book
managers. Transaction volumes may not be indicative of net revenues in a
given period. In addition, transaction volumes for prior periods may vary from
amounts previously reported due to the subsequent withdrawal or a change
in the value of a transaction.
2. Includes Rule 144A and public common stock offerings, convertible offerings
and rights offerings.
3. Includes non-convertible preferred stock, mortgage-backed securities,
asset-backed securities and taxable municipal debt. Includes publicly
registered and Rule 144A issues. Excludes leveraged loans.
2012 versus 2011. Net revenues in Investment Banking
were $4.93 billion for 2012, 13%higher than 2011.
Net revenues in Financial Advisory were $1.98 billion,
essentially unchanged compared with 2011. Net revenues
in our Underwriting business were $2.95 billion, 25%
higher than 2011, due to strong net revenues in debt
underwriting. Net revenues in debt underwriting were
significantly higher compared with 2011, primarily
reflecting higher net revenues from investment-grade and
leveraged finance activity. Net revenues in equity
underwriting were lower compared with 2011, primarily
reflecting a decline in industry-wide initial public offerings.
During 2012, Investment Banking operated in an
environment generally characterized by continued concerns
about the outlook for the global economy and political
uncertainty. These concerns weighed on investment banking
activity, as completed mergers and acquisitions activity
declined compared with 2011, and equity and equity-related
underwriting activity remained low, particularly in initial
public offerings. However, industry-wide debt underwriting
activity improved compared with 2011, as credit spreads
tightened and interest rates remained low. If macroeconomic
concerns continue and result in lower levels of client activity,
net revenues in Investment Banking would likely be
negatively impacted.
Our investment banking transaction backlog increased
compared with the end of 2011. The increase compared
with the end of 2011 was due to an increase in potential
debt underwriting transactions, primarily reflecting an
increase in leveraged finance transactions, and an increase
in potential advisory transactions. These increases were
partially offset by a decrease in potential equity
underwriting transactions compared with the end of 2011,
reflecting uncertainty in market conditions.
Our investment banking transaction backlog represents an
estimate of our future net revenues from investment
banking transactions where we believe that future revenue
realization is more likely than not. We believe changes in
our investment banking transaction backlog may be a
useful indicator of client activity levels which, over the long
term, impact our net revenues. However, the time frame for
completion and corresponding revenue recognition of
transactions in our backlog varies based on the nature of
the assignment, as certain transactions may remain in our
backlog for longer periods of time and others may enter and
leave within the same reporting period. In addition, our
transaction backlog is subject to certain limitations, such as
assumptions about the likelihood that individual client
transactions will occur in the future. Transactions may be
cancelled or modified, and transactions not included in the
estimate may also occur.
52 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Operating expenses were $3.33 billion for 2012, 11%
higher than 2011, due to increased compensation and
benefits expenses, primarily resulting from higher net
revenues. Pre-tax earnings were $1.60 billion in 2012, 17%
higher than 2011.
2011 versus 2010. Net revenues in Investment Banking
were $4.36 billion for 2011, 9%lower than 2010.
Net revenues in Financial Advisory were $1.99 billion, 4%
lower than 2010. Net revenues in our Underwriting
business were $2.37 billion, 14% lower than 2010,
reflecting significantly lower net revenues in equity
underwriting, principally due to a decline in industry-wide
activity. Net revenues in debt underwriting were essentially
unchanged compared with 2010.
Investment Banking operated in an environment generally
characterized by significant declines in industry-wide
underwriting and mergers and acquisitions activity levels
during the second half of 2011. These declines reflected
increased concerns regarding the weakened state of global
economies, including heightened European sovereign debt
risk, which contributed to a significant widening in credit
spreads, a sharp increase in volatility levels and a significant
decline in global equity markets during the second half
of 2011.
Our investment banking transaction backlog increased
compared with the end of 2010. The increase compared
with the end of 2010 was due to an increase in potential
equity underwriting transactions, primarily reflecting an
increase in client mandates to underwrite initial public
offerings. Estimated net revenues from potential debt
underwriting transactions decreased slightly compared with
the end of 2010. Estimated net revenues from potential
advisory transactions were essentially unchanged compared
with the end of 2010.
Operating expenses were $3.00 billion for 2011, 13%
lower than 2010, due to decreased compensation and
benefits expenses, primarily resulting from lower net
revenues. Pre-tax earnings were $1.36 billion in 2011,
essentially unchanged compared with 2010.
Institutional Client Services
Our Institutional Client Services segment is comprised of:
Fixed Income, Currency and Commodities Client
Execution. Includes client execution activities related to
making markets in interest rate products, credit products,
mortgages, currencies and commodities.
We generate market-making revenues in these activities, in
three ways:
‰ In large, highly liquid markets (such as markets for U.S.
Treasury bills or certain mortgage pass-through
certificates), we execute a high volume of transactions for
our clients for modest spreads and fees.
‰ In less liquid markets (such as mid-cap corporate bonds,
growth market currencies or certain non-agency
mortgage-backed securities), we execute transactions for
our clients for spreads and fees that are generally
somewhat larger.
‰ We also structure and execute transactions involving
customized or tailor-made products that address our
clients’ risk exposures, investment objectives or other
complex needs (such as a jet fuel hedge for an airline).
Given the focus on the mortgage market, our mortgage
activities are further described below.
Our activities in mortgages include commercial
mortgage-related securities, loans and derivatives,
residential mortgage-related securities, loans and
derivatives (including U.S. government agency-issued
collateralized mortgage obligations, other prime, subprime
and Alt-A securities and loans), and other asset-backed
securities, loans and derivatives.
We buy, hold and sell long and short mortgage positions,
primarily for market making for our clients. Our inventory
therefore changes based on client demands and is generally
held for short-termperiods.
See Notes 18 and 27 to the consolidated financial statements
for information about exposure to mortgage repurchase
requests, mortgage rescissions and mortgage-related
litigation.
Equities. Includes client execution activities related to
making markets in equity products, as well as commissions
and fees from executing and clearing institutional client
transactions on major stock, options and futures exchanges
worldwide. Equities also includes our securities services
business, which provides financing, securities lending and
other prime brokerage services to institutional clients,
including hedge funds, mutual funds, pension funds and
foundations, and generates revenues primarily in the form
of interest rate spreads or fees, and revenues related to our
reinsurance activities.
Goldman Sachs 2012 Annual Report 53
Management’s Discussion and Analysis
The table below presents the operating results of our
Institutional Client Services segment.
Year Ended December
in millions 2012 2011 2010
Fixed Income, Currency and
Commodities Client Execution $ 9,914 $ 9,018 $13,707
Equities client execution
1
3,171 3,031 3,231
Commissions and fees 3,053 3,633 3,426
Securities services 1,986 1,598 1,432
Total Equities 8,210 8,262 8,089
Total net revenues 18,124 17,280 21,796
Operating expenses 12,480 12,837 14,994
Pre-tax earnings $ 5,644 $ 4,443 $ 6,802
1. Includes net revenues related to reinsurance of $1.08 billion, $880 million
and $827 million for the years ended December 2012, December 2011 and
December 2010, respectively.
2012 versus 2011. Net revenues in Institutional Client
Services were $18.12 billion for 2012, 5% higher
than2011.
Net revenues in Fixed Income, Currency and Commodities
Client Execution were $9.91 billion for 2012, 10% higher
than 2011. These results reflected strong net revenues in
mortgages, which were significantly higher compared with
2011. In addition, net revenues in credit products and
interest rate products were solid and higher compared with
2011. These increases were partially offset by significantly
lower net revenues in commodities and slightly lower net
revenues in currencies. Although broad market concerns
persisted during 2012, Fixed Income, Currency and
Commodities Client Execution operated in a generally
improved environment characterized by tighter credit
spreads and less challenging market-making conditions
compared with 2011.
Net revenues in Equities were $8.21 billion for 2012,
essentially unchanged compared with 2011. Net revenues
in securities services were significantly higher compared
with 2011, reflecting a gain of approximately $500 million
on the sale of our hedge fund administration business. In
addition, equities client execution net revenues were higher
than 2011, primarily reflecting significantly higher results
in cash products, principally due to increased levels of client
activity. These increases were offset by lower commissions
and fees, reflecting lower market volumes. During 2012,
Equities operated in an environment generally
characterized by an increase in global equity prices and
lower volatility levels.
The net loss attributable to the impact of changes in our own
credit spreads on borrowings for which the fair value option
was elected was $714 million ($433 million and $281 million
related to Fixed Income, Currency and Commodities Client
Execution and equities client execution, respectively) for
2012, compared with a net gain of $596 million
($399 million and $197 million related to Fixed Income,
Currency and Commodities Client Execution and equities
client execution, respectively) for 2011.
During 2012, Institutional Client Services operated in an
environment generally characterized by continued broad
market concerns and uncertainties, although positive
developments helped to improve market conditions. These
developments included certain central bank actions to ease
monetary policy and address funding risks for European
financial institutions. In addition, the U.S. economy posted
stable to improving economic data, including favorable
developments in unemployment and housing. These
improvements resulted in tighter credit spreads, higher
global equity prices and lower levels of volatility. However,
concerns about the outlook for the global economy and
continued political uncertainty, particularly the political
debate in the United States surrounding the fiscal cliff,
generally resulted in client risk aversion and lower activity
levels. Also, uncertainty over financial regulatory reform
persisted. If these concerns and uncertainties continue over
the long term, net revenues in Fixed Income, Currency and
Commodities Client Execution and Equities would likely be
negatively impacted.
Operating expenses were $12.48 billion for 2012, 3%
lower than 2011, primarily due to lower brokerage,
clearing, exchange and distribution fees, and lower
impairment charges, partially offset by higher net
provisions for litigation and regulatory proceedings.
Pre-tax earnings were $5.64 billion in 2012, 27% higher
than 2011.
2011 versus 2010. Net revenues in Institutional Client
Services were $17.28 billion for 2011, 21% lower
than2010.
Net revenues in Fixed Income, Currency and Commodities
Client Execution were $9.02 billion for 2011, 34% lower
than 2010. Although activity levels during 2011 were
generally consistent with 2010 levels, and results were solid
during the first quarter of 2011, the environment during the
remainder of 2011 was characterized by broad market
concerns and uncertainty, resulting in volatile markets and
significantly wider credit spreads, which contributed to
difficult market-making conditions and led to reductions in
risk by us and our clients. As a result of these conditions,
net revenues across the franchise were lower, including
significant declines in mortgages and credit products,
compared with 2010.
54 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Net revenues in Equities were $8.26 billion for 2011, 2%
higher than 2010. During 2011, average volatility levels
increased and equity prices in Europe and Asia declined
significantly, particularly during the third quarter. The
increase in net revenues reflected higher commissions and
fees, primarily due to higher market volumes, particularly
during the third quarter of 2011. In addition, net revenues
in securities services increased compared with 2010,
reflecting the impact of higher average customer balances.
Equities client execution net revenues were lower than
2010, primarily reflecting significantly lower net revenues
in shares.
The net gain attributable to the impact of changes in our
own credit spreads on borrowings for which the fair value
option was elected was $596 million ($399 million and
$197 million related to Fixed Income, Currency and
Commodities Client Execution and equities client
execution, respectively) for 2011, compared with a net gain
of $198 million ($188 million and $10 million related to
Fixed Income, Currency and Commodities Client
Execution and equities client execution, respectively)
for 2010.
Institutional Client Services operated in an environment
generally characterized by increased concerns regarding the
weakened state of global economies, including heightened
European sovereign debt risk, and its impact on the
European banking system and global financial institutions.
These conditions also impacted expectations for economic
prospects in the United States and were reflected in equity
and debt markets more broadly. In addition, the
downgrade in credit ratings of the U.S. government and
federal agencies and many financial institutions during the
second half of 2011 contributed to further uncertainty in
the markets. These concerns, as well as other broad market
concerns, such as uncertainty over financial regulatory
reform, continued to have a negative impact on our net
revenues during 2011.
Operating expenses were $12.84 billion for 2011, 14%
lower than 2010, due to decreased compensation and
benefits expenses, primarily resulting from lower net
revenues, lower net provisions for litigation and regulatory
proceedings (2010 included $550 million related to a
settlement with the SEC), the impact of the U.K. bank
payroll tax during 2010, as well as an impairment of our
NYSE DMM rights of $305 million during 2010. These
decreases were partially offset by higher brokerage,
clearing, exchange and distribution fees, principally
reflecting higher transaction volumes in Equities. Pre-tax
earnings were $4.44 billion in 2011, 35%lower than 2010.
Investing & Lending
Investing & Lending includes our investing activities and
the origination of loans to provide financing to clients.
These investments and loans are typically longer-term in
nature. We make investments, directly and indirectly
through funds that we manage, in debt securities and loans,
public and private equity securities, real estate,
consolidated investment entities and power
generationfacilities.
The table below presents the operating results of our
Investing &Lending segment.
Year Ended December
in millions 2012 2011 2010
ICBC $ 408 $ (517) $ 747
Equity securities (excluding ICBC) 2,392 1,120 2,692
Debt securities and loans 1,850 96 2,597
Other 1,241 1,443 1,505
Total net revenues 5,891 2,142 7,541
Operating expenses 2,666 2,673 3,361
Pre-tax earnings/(loss) $3,225 $ (531) $4,180
2012 versus 2011. Net revenues in Investing & Lending
were $5.89 billion and $2.14 billion for 2012 and 2011,
respectively. During 2012, Investing & Lending net
revenues were positively impacted by tighter credit spreads
and an increase in global equity prices. Results for 2012
included a gain of $408 million from our investment in the
ordinary shares of ICBC, net gains of $2.39 billion from
other investments in equities, primarily in private equities,
net gains and net interest income of $1.85 billion from debt
securities and loans, and other net revenues of $1.24 billion,
principally related to our consolidated investment entities.
If equity markets decline or credit spreads widen, net
revenues in Investing & Lending would likely be
negatively impacted.
Operating expenses were $2.67 billion for 2012, essentially
unchanged compared with 2011. Pre-tax earnings were
$3.23 billion in 2012, compared with a pre-tax loss of
$531 million in 2011.
Goldman Sachs 2012 Annual Report 55
Management’s Discussion and Analysis
2011 versus 2010. Net revenues in Investing & Lending
were $2.14 billion and $7.54 billion for 2011 and 2010,
respectively. During 2011, Investing & Lending results
reflected an operating environment characterized by a
significant decline in equity markets in Europe and Asia,
and unfavorable credit markets that were negatively
impacted by increased concerns regarding the weakened
state of global economies, including heightened European
sovereign debt risk. Results for 2011 included a loss of
$517 million from our investment in the ordinary shares of
ICBC and net gains of $1.12 billion from other investments
in equities, primarily in private equities, partially offset by
losses from public equities. In addition, Investing &
Lending included net revenues of $96 million from debt
securities and loans. This amount includes approximately
$1 billion of unrealized losses related to relationship
lending activities, including the effect of hedges, offset by
net interest income and net gains from other debt securities
and loans. Results for 2011 also included other net
revenues of $1.44 billion, principally related to our
consolidated investment entities.
Results for 2010 included a gain of $747 million from our
investment in the ordinary shares of ICBC, a net gain of
$2.69 billion from other investments in equities, a net gain
of $2.60 billion fromdebt securities and loans and other net
revenues of $1.51 billion, principally related to our
consolidated investment entities. The net gain from other
investments in equities was primarily driven by an increase
in global equity markets, which resulted in appreciation of
both our public and private equity positions and provided
favorable conditions for initial public offerings. The net
gains and net interest from debt securities and loans
primarily reflected the impact of tighter credit spreads and
favorable credit markets during the year, which provided
favorable conditions for borrowers to refinance.
Operating expenses were $2.67 billion for 2011, 20%
lower than 2010, due to decreased compensation and
benefits expenses, primarily resulting from lower net
revenues. This decrease was partially offset by the impact of
impairment charges related to consolidated investments
during 2011. Pre-tax loss was $531 million in 2011,
compared with pre-tax earnings of $4.18 billion in 2010.
Investment Management
Investment Management provides investment management
services and offers investment products (primarily through
separately managed accounts and commingled vehicles,
such as mutual funds and private investment funds) across
all major asset classes to a diverse set of institutional and
individual clients. Investment Management also offers
wealth advisory services, including portfolio management
and financial counseling, and brokerage and other
transaction services to high-net-worth individuals
andfamilies.
Assets under supervision include assets under management
and other client assets. Assets under management include
client assets where we earn a fee for managing assets on a
discretionary basis. This includes net assets in our mutual
funds, hedge funds, credit funds and private equity funds
(including real estate funds), and separately managed
accounts for institutional and individual investors. Other
client assets include client assets invested with third-party
managers, private bank deposits and assets related to
advisory relationships where we earn a fee for advisory and
other services, but do not have discretion over the assets.
Assets under supervision do not include the self-directed
brokerage accounts of our clients.
Assets under management and other client assets typically
generate fees as a percentage of net asset value, which vary
by asset class and are affected by investment performance
as well as asset inflows and redemptions.
In certain circumstances, we are also entitled to receive
incentive fees based on a percentage of a fund’s return or
when the return exceeds a specified benchmark or other
performance targets. Incentive fees are recognized only
when all material contingencies are resolved.
The table below presents the operating results of our
Investment Management segment.
Year Ended December
in millions 2012 2011 2010
Management and other fees $4,105 $4,188 $3,956
Incentive fees 701 323 527
Transaction revenues 416 523 531
Total net revenues 5,222 5,034 5,014
Operating expenses 4,294 4,020 4,082
Pre-tax earnings $ 928 $1,014 $ 932
56 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
The tables below present our assets under supervision,
including assets under management by asset class and other
client assets, as well as a summary of the changes in our
assets under supervision.
As of December 31,
in billions 2012 2011 2010
Alternative investments
1
$133 $142 $148
Equity 133 126 144
Fixed income 370 340 340
Total non-money market assets 636 608 632
Money markets 218 220 208
Total assets under management (AUM) 854 828 840
Other client assets 111 67 77
Total assets under supervision (AUS) $965 $895 $917
1. Primarily includes hedge funds, credit funds, private equity, real estate,
currencies, commodities and asset allocation strategies.
Year Ended December 31,
in billions 2012 2011 2010
Balance, beginning of year $895 $917 $955
Net inflows/(outflows)
Alternative investments (11) (5) (1)
Equity (13) (9) (21)
Fixed income 8 (15) 7
Total non-money market net
inflows/(outflows) (16) (29) (15)
Money markets (2) 12 (56)
Total AUM net inflows/(outflows) (18) (17)
2
(71)
Other client assets net inflows/(outflows) 39 (10) (7)
Total AUS net inflows/(outflows) 21
1
(27) (78)
Net market appreciation/(depreciation)
AUM 44 5 40
Other client assets 5 — —
Total AUS net market
appreciation/(depreciation) 49 5 40
Balance, end of year $965 $895 $917
1. Includes $34 billion of fixed income asset inflows in connection with our
acquisition of Dwight Asset Management, including $17 billion in assets
under management and $17 billion in other client assets, and $5 billion of
fixed income and equity asset outflows in connection with our liquidation of
Goldman Sachs Asset Management Korea, all related to assets
under management.
2. Includes $6 billion of asset inflows across all asset classes in connection with
our acquisitions of Goldman Sachs Australia Pty Ltd and Benchmark Asset
Management Company Private Limited.
2012 versus 2011. Net revenues in Investment
Management were $5.22 billion for 2012, 4% higher than
2011, due to significantly higher incentive fees, partially
offset by lower transaction revenues and slightly lower
management and other fees. During the year, assets under
supervision increased $70 billion to $965 billion. Assets
under management increased $26 billion to $854 billion,
reflecting net market appreciation of $44 billion, primarily
in fixed income and equity assets, partially offset by net
outflows of $18 billion. Net outflows in assets under
management included outflows in equity, alternative
investment and money market assets, partially offset by
inflows in fixed income assets. Other client assets increased
$44 billion to $111 billion, primarily due to net inflows,
principally in client assets invested with third-party
managers and assets related to advisory relationships.
During 2012, Investment Management operated in an
environment generally characterized by improved asset
prices, resulting in appreciation in the value of client assets.
However, the mix of assets under supervision has shifted
slightly from asset classes that typically generate higher fees
to asset classes that typically generate lower fees compared
with 2011. In the future, if asset prices were to decline, or
investors continue to favor asset classes that typically
generate lower fees or investors continue to withdraw their
assets, net revenues in Investment Management would
likely be negatively impacted. In addition, continued
concerns about the global economic outlook could result in
downward pressure on assets under supervision.
Operating expenses were $4.29 billion for 2012, 7%higher
than 2011, due to increased compensation and benefits
expenses. Pre-tax earnings were $928 million in 2012, 8%
lower than 2011.
2011 versus 2010. Net revenues in Investment
Management were $5.03 billion for 2011, essentially
unchanged compared with 2010, primarily due to higher
management and other fees, reflecting favorable changes in
the mix of assets under management, offset by lower
incentive fees. During 2011, assets under supervision
decreased $22 billion to $895 billion. Assets under
management decreased $12 billion to $828 billion,
reflecting net outflows of $17 billion, partially offset by net
market appreciation of $5 billion. Net outflows in assets
under management primarily reflected outflows in fixed
income and equity assets, partially offset by inflows in
money market assets. Other client assets decreased
$10 billion to $67 billion, primarily due to net outflows,
principally in client assets invested with third-party
managers in money market funds.
Goldman Sachs 2012 Annual Report 57
Management’s Discussion and Analysis
During the first half of 2011, Investment Management
operated in an environment generally characterized by
improved asset prices and a shift in investor assets away
from money markets in favor of asset classes with
potentially higher risk and returns. However, during the
second half of 2011, asset prices declined, particularly in
equities, in part driven by increased uncertainty regarding
the global economic outlook. Declining asset prices and
economic uncertainty contributed to investors shifting
assets away from asset classes with potentially higher risk
and returns to asset classes with lower risk and returns.
Operating expenses were $4.02 billion for 2011, 2% lower
than 2010. Pre-tax earnings were $1.01 billion in 2011, 9%
higher than 2010.
Geographic Data
See Note 25 to the consolidated financial statements for a
summary of our total net revenues, pre-tax earnings and net
earnings by geographic region.
Regulatory Developments
The U.S. Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act), enacted in July 2010,
significantly altered the financial regulatory regime within
which we operate. The implications of the Dodd-Frank Act
for our businesses will depend to a large extent on the rules
that will be adopted by the Federal Reserve Board, the
Federal Deposit Insurance Corporation (FDIC), the SEC,
the U.S. Commodity Futures Trading Commission (CFTC)
and other agencies to implement the legislation, as well as
the development of market practices and structures under
the regime established by the legislation and the
implementing rules. Other reforms have been adopted or
are being considered by other regulators and policy makers
worldwide and these reforms may affect our businesses. We
expect that the principal areas of impact from regulatory
reformfor us will be:
‰ the Dodd-Frank prohibition on “proprietary trading”
and the limitation on the sponsorship of, and investment
in, hedge funds and private equity funds by banking
entities, including bank holding companies, referred to as
the “Volcker Rule”;
‰ increased regulation of and restrictions on
over-the-counter (OTC) derivatives markets and
transactions; and
‰ increased regulatory capital requirements.
In October 2011, the proposed rules to implement the
Volcker Rule were issued and included an extensive request
for comments on the proposal. The proposed rules are
highly complex, and many aspects of the Volcker Rule
remain unclear. The full impact of the rule on us will
depend upon the detailed scope of the prohibitions,
permitted activities, exceptions and exclusions, and will not
be known with certainty until the rules are finalized and
market practices and structures develop under the final
rules. Currently, companies are expected to be required to
be in compliance by July 2014 (subject to
possible extensions).
58 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
While many aspects of the Volcker Rule remain unclear,
we evaluated the prohibition on “proprietary trading”
and determined that businesses that engage in “bright
line” proprietary trading are most likely to be
prohibited. In 2011 and 2010, we liquidated
substantially all of our Principal Strategies and Global
Macro Proprietary trading positions.
In addition, we have evaluated the limitations on
sponsorship of, and investments in, hedge funds and private
equity funds. The firmearns management fees and incentive
fees for investment management services from hedge funds
and private equity funds, which are included in our
Investment Management segment. The firm also makes
investments in funds, and the gains and losses from these
investments are included in our Investing & Lending
segment; these gains and losses will be impacted by the
Volcker Rule. The Volcker Rule limitation on investments
in hedge funds and private equity funds requires the firm to
reduce its investment in each hedge fund and private equity
fund to 3% or less of the fund’s net asset value, and to
reduce the firm’s aggregate investment in all such funds to
3% or less of the firm’s Tier 1 capital. The firm’s aggregate
net revenues from its investments in hedge funds and
private equity funds were not material to the firm’s
aggregate total net revenues over the period from 1999
through 2012. We continue to manage our existing private
equity funds, taking into account the transition periods
under the Volcker Rule. With respect to our hedge funds,
we currently plan to comply with the Volcker Rule by
redeeming certain of our interests in the funds. Since
March 2012, we have been redeeming up to approximately
10% of certain hedge funds’ total redeemable units per
quarter, and expect to continue to do so through
June 2014. We redeemed approximately $1.06 billion of
these interests in hedge funds during the year ended
December 2012. In addition, we have limited the firm’s
initial investment to 3% for certain new investments in
hedge funds and private equity funds.
As required by the Dodd-Frank Act, the Federal Reserve
Board and FDIC have jointly issued a rule requiring each
bank holding company with over $50 billion in assets and
each designated systemically important financial institution
to provide to regulators an annual plan for its rapid and
orderly resolution in the event of material financial distress
or failure (resolution plan). Our resolution plan must,
among other things, demonstrate that Goldman Sachs Bank
USA (GS Bank USA) is adequately protected from risks
arising from our other entities. The regulators’ joint rule
sets specific standards for the resolution plans, including
requiring a detailed resolution strategy and analyses of the
company’s material entities, organizational structure,
interconnections and interdependencies, and management
information systems, among other elements. We submitted
our resolution plan to the regulators on June 29, 2012.
GS Bank USA also submitted its resolution plan on
June 29, 2012, as required by the FDIC.
In September 2011, the SEC proposed rules to implement
the Dodd-Frank Act’s prohibition against securitization
participants’ engaging in any transaction that would
involve or result in any material conflict of interest with an
investor in a securitization transaction. The proposed rules
would except bona fide market-making activities and
risk-mitigating hedging activities in connection with
securitization activities from the general prohibition. We
will also be affected by rules to be adopted by federal
agencies pursuant to the Dodd-Frank Act that require any
person who organizes or initiates an asset-backed security
transaction to retain a portion (generally, at least five
percent) of any credit risk that the person conveys to a
thirdparty.
In December 2011, the Federal Reserve Board proposed
regulations designed to strengthen the regulation and
supervision of large bank holding companies and
systemically important nonbank financial institutions.
These proposals address, among other things, risk-based
capital and leverage requirements, liquidity requirements,
overall risk management requirements, single counterparty
limits and early remediation requirements that are designed
to address financial weakness at an early stage. Although
many of the proposals mirror initiatives to which bank
holding companies are already subject, their full impact on
the firm will not be known with certainty until the rules are
finalized and market practices and structures develop under
the final rules. In addition, in October 2012, the Federal
Reserve Board issued final rules for stress testing
requirements for certain bank holding companies, including
the firm. See “Equity Capital” below for further
information about our Comprehensive Capital Analysis
and Review(CCAR).
Goldman Sachs 2012 Annual Report 59
Management’s Discussion and Analysis
The Dodd-Frank Act also contains provisions that include
(i) requiring the registration of all swap dealers and major
swap participants with the CFTC and of security-based
swap dealers and major security-based swap participants
with the SEC, the clearing and execution of certain swaps
and security-based swaps through central counterparties,
regulated exchanges or electronic facilities and real-time
public and regulatory reporting of trade information,
(ii) placing new business conduct standards and other
requirements on swap dealers, major swap participants,
security-based swap dealers and major security-based swap
participants, covering their relationships with
counterparties, their internal oversight and compliance
structures, conflict of interest rules, internal information
barriers, general and trade-specific record-keeping and risk
management, (iii) establishing mandatory margin
requirements for trades that are not cleared through a
central counterparty, (iv) position limits that cap exposure
to derivatives on certain physical commodities and
(v) entity-level capital requirements for swap dealers, major
swap participants, security-based swap dealers and major
security-based swap participants.
The CFTC is responsible for issuing rules relating to swaps,
swap dealers and major swap participants, and the SEC is
responsible for issuing rules relating to security-based
swaps, security-based swap dealers and major
security-based swap participants. Although the CFTC has
not yet finalized its capital regulations, certain of the
requirements, including registration of swap dealers and
real-time public trade reporting, have taken effect already
under CFTC rules, and the SEC and the CFTC have
finalized the definitions of a number of key terms. The
CFTC has finalized a number of other implementing rules
and laid out a series of implementation deadlines in 2013,
covering rules for business conduct standards for swap
dealers and clearing requirements.
The SEC has proposed rules to impose margin, capital and
segregation requirements for security-based swap dealers
and major security-based swap participants. The SEC has
also proposed rules relating to registration of security-based
swap dealers and major security-based swap participants,
trade reporting and real-time reporting, and business
conduct requirements for security-based swap dealers and
major security-based swap participants.
We have registered certain subsidiaries as “swap dealers”
under the CFTC rules, including Goldman, Sachs & Co.
(GS&Co.), GS Bank USA, Goldman Sachs International
(GSI) and J. Aron & Company. We expect that these
entities, and our businesses more broadly, will be subject to
significant and developing regulation and regulatory
oversight in connection with swap-related activities. Similar
regulations have been proposed or adopted in jurisdictions
outside the United States and, in July 2012 and February
2013, the Basel Committee and the International
Organization of Securities Commissions released
consultative documents proposing margin requirements for
non-centrally-cleared derivatives. The full impact of the
various U.S. and non-U.S. regulatory developments in this
area will not be known with certainty until the rules are
implemented and market practices and structures develop
under the final rules.
The Dodd-Frank Act also establishes the Consumer
Financial Protection Bureau, which has broad authority to
regulate providers of credit, payment and other consumer
financial products and services, and has oversight over
certain of our products and services.
See Note 20 to the consolidated financial statements for
additional information about regulatory developments as
they relate to our regulatory capital ratios.
See “Business — Regulation” in Part I, Item 1 of our
Annual Report on Form 10-K for more information on the
laws, rules and regulations and proposed laws, rules and
regulations that apply to us and our operations.
60 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Balance Sheet and Funding Sources
Balance Sheet Management
One of our most important risk management disciplines is
our ability to manage the size and composition of our
balance sheet. While our asset base changes due to client
activity, market fluctuations and business opportunities,
the size and composition of our balance sheet reflect (i) our
overall risk tolerance, (ii) our ability to access stable
funding sources and (iii) the amount of equity capital
we hold.
Although our balance sheet fluctuates on a day-to-day
basis, our total assets and adjusted assets at quarterly and
year-end dates are generally not materially different from
those occurring within our reporting periods.
In order to ensure appropriate risk management, we seek to
maintain a liquid balance sheet and have processes in place
to dynamically manage our assets and liabilities
whichinclude:
‰ quarterly planning;
‰ business-specific limits;
‰ monitoring of key metrics; and
‰ scenario analyses.
Quarterly Planning. We prepare a quarterly balance sheet
plan that combines our projected total assets and
composition of assets with our expected funding sources
and capital levels for the upcoming quarter. The objectives
of this quarterly planning process are:
‰ to develop our near-term balance sheet projections,
taking into account the general state of the financial
markets and expected business activity levels;
‰ to ensure that our projected assets are supported by an
adequate amount and tenor of funding and that our
projected capital and liquidity metrics are within
management guidelines and regulatory requirements; and
‰ to allow business risk managers and managers from our
independent control and support functions to objectively
evaluate balance sheet limit requests from business
managers in the context of the firm’s overall balance sheet
constraints. These constraints include the firm’s liability
profile and equity capital levels, maturities and plans for
new debt and equity issuances, share repurchases, deposit
trends and secured funding transactions.
To prepare our quarterly balance sheet plan, business risk
managers and managers from our independent control and
support functions meet with business managers to review
current and prior period metrics and discuss expectations
for the upcoming quarter. The specific metrics reviewed
include asset and liability size and composition, aged
inventory, limit utilization, risk and performance measures,
and capital usage.
Our consolidated quarterly plan, including our balance
sheet plans by business, funding and capital projections,
and projected capital and liquidity metrics, is reviewed by
the Firmwide Finance Committee. See “Overview and
Structure of Risk Management” for an overview of our risk
management structure.
Goldman Sachs 2012 Annual Report 61
Management’s Discussion and Analysis
Business-Specific Limits. The Firmwide Finance
Committee sets asset and liability limits for each business
and aged inventory limits for certain financial instruments
as a disincentive to hold inventory over longer periods of
time. These limits are set at levels which are close to actual
operating levels in order to ensure prompt escalation and
discussion among business managers and managers in our
independent control and support functions on a routine
basis. The Firmwide Finance Committee reviews and
approves balance sheet limits on a quarterly basis and may
also approve changes in limits on an ad hoc basis in
response to changing business needs or market conditions.
Monitoring of Key Metrics. We monitor key balance
sheet metrics daily both by business and on a consolidated
basis, including asset and liability size and composition,
aged inventory, limit utilization, risk measures and capital
usage. We allocate assets to businesses and review and
analyze movements resulting from new business activity as
well as market fluctuations.
Scenario Analyses. We conduct scenario analyses to
determine how we would manage the size and composition
of our balance sheet and maintain appropriate funding,
liquidity and capital positions in a variety of situations:
‰ These scenarios cover short-term and long-term time
horizons using various macro-economic and firm-specific
assumptions. We use these analyses to assist us in
developing longer-term funding plans, including the level
of unsecured debt issuances, the size of our secured
funding program and the amount and composition of our
equity capital. We also consider any potential future
constraints, such as limits on our ability to growour asset
base in the absence of appropriate funding.
‰ Through our Internal Capital Adequacy Assessment
Process (ICAAP), CCAR, the stress tests we are required
to conduct under the Dodd-Frank Act, and our resolution
and recovery planning, we further analyze how we would
manage our balance sheet and risks through the duration
of a severe crisis and we develop plans to access funding,
generate liquidity, and/or redeploy or issue equity capital,
as appropriate.
Balance Sheet Allocation
In addition to preparing our consolidated statements of
financial condition in accordance with U.S. GAAP, we
prepare a balance sheet that generally allocates assets to our
businesses, which is a non-GAAP presentation and may not
be comparable to similar non-GAAP presentations used by
other companies. We believe that presenting our assets on
this basis is meaningful because it is consistent with the way
management views and manages risks associated with the
firm’s assets and better enables investors to assess the
liquidity of the firm’s assets. The table below presents a
summary of this balance sheet allocation.
As of December
in millions 2012 2011
Excess liquidity (Global Core Excess) $174,622 $171,581
Other cash 6,839 7,888
Excess liquidity and cash 181,461 179,469
Secured client financing 229,442 283,707
Inventory 318,323 273,640
Secured financing agreements 76,277 71,103
Receivables 36,273 35,769
Institutional Client Services 430,873 380,512
ICBC
1
2,082 4,713
Equity (excluding ICBC) 21,267 23,041
Debt 25,386 23,311
Receivables and other 8,421 5,320
Investing & Lending 57,156 56,385
Total inventory and related assets 488,029 436,897
Other assets
2
39,623 23,152
Total assets $938,555 $923,225
1. In January 2013, we sold approximately 45% of our ordinary shares of ICBC.
2. Includes assets related to our reinsurance business classified as held for sale
as of December 2012. See Note 12 to the consolidated financial statements
for further information.
62 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
The following is a description of the captions in the
table above.
Excess Liquidity and Cash. We maintain substantial
excess liquidity to meet a broad range of potential cash
outflows and collateral needs in the event of a stressed
environment. See “Liquidity Risk Management” below for
details on the composition and sizing of our excess liquidity
pool or “Global Core Excess” (GCE). In addition to our
excess liquidity, we maintain other operating cash balances,
primarily for use in specific currencies, entities, or
jurisdictions where we do not have immediate access to
parent company liquidity.
Secured Client Financing. We provide collateralized
financing for client positions, including margin loans
secured by client collateral, securities borrowed, and resale
agreements primarily collateralized by government
obligations. As a result of client activities, we are required
to segregate cash and securities to satisfy regulatory
requirements. Our secured client financing arrangements,
which are generally short-term, are accounted for at fair
value or at amounts that approximate fair value, and
include daily margin requirements to mitigate counterparty
credit risk.
Institutional Client Services. In Institutional Client
Services, we maintain inventory positions to facilitate
market-making in fixed income, equity, currency and
commodity products. Additionally, as part of client
market-making activities, we enter into resale or securities
borrowing arrangements to obtain securities which we can
use to cover transactions in which we or our clients have
sold securities that have not yet been purchased. The
receivables in Institutional Client Services primarily relate
to securities transactions.
Investing & Lending. In Investing & Lending, we make
investments and originate loans to provide financing to
clients. These investments and loans are typically
longer-term in nature. We make investments, directly and
indirectly through funds that we manage, in debt securities,
loans, public and private equity securities, real estate and
other investments.
Other Assets. Other assets are generally less liquid,
non-financial assets, including property, leasehold
improvements and equipment, goodwill and identifiable
intangible assets, income tax-related receivables,
equity-method investments, assets classified as held for sale
and miscellaneous receivables.
Goldman Sachs 2012 Annual Report 63
Management’s Discussion and Analysis
The tables below present the reconciliation of this balance
sheet allocation to our U.S. GAAP balance sheet. In the
tables below, total assets for Institutional Client Services
and Investing & Lending represent the inventory and
related assets. These amounts differ from total assets by
business segment disclosed in Note 25 to the consolidated
financial statements because total assets disclosed in
Note 25 include allocations of our excess liquidity and cash,
secured client financing and other assets.
As of December 2012
in millions
Excess
Liquidity
and Cash
1
Secured
Client
Financing
Institutional
Client
Services
Investing &
Lending
Other
Assets
Total
Assets
Cash and cash equivalents $ 72,669 $ — $ — $ — $ — $ 72,669
Cash and securities segregated for regulatory and other
purposes — 49,671 — — — 49,671
Securities purchased under agreements to resell and federal
funds sold 28,018 84,064 28,960 292 — 141,334
Securities borrowed 41,699 47,877 47,317 — — 136,893
Receivables from brokers, dealers and clearing organizations — 4,400 14,044 36 — 18,480
Receivables from customers and counterparties — 43,430 22,229 7,215 — 72,874
Financial instruments owned, at fair value 39,075 — 318,323 49,613 — 407,011
Other assets — — — — 39,623 39,623
Total assets $181,461 $229,442 $430,873 $57,156 $39,623 $938,555
As of December 2011
in millions
Excess
Liquidity
and Cash
1
Secured
Client
Financing
Institutional
Client
Services
Investing &
Lending
Other
Assets
Total
Assets
Cash and cash equivalents $ 56,008 $ — $ — $ — $ — $ 56,008
Cash and securities segregated for regulatory and other
purposes — 64,264 — — — 64,264
Securities purchased under agreements to resell and federal
funds sold 70,220 98,445 18,671 453 — 187,789
Securities borrowed 14,919 85,990 52,432 — — 153,341
Receivables from brokers, dealers and clearing organizations — 3,252 10,612 340 — 14,204
Receivables from customers and counterparties — 31,756 25,157 3,348 — 60,261
Financial instruments owned, at fair value 38,322 — 273,640 52,244 — 364,206
Other assets — — — — 23,152 23,152
Total assets $179,469 $283,707 $380,512 $56,385 $23,152 $923,225
1. Includes unencumbered cash, U.S. government and federal agency obligations (including highly liquid U.S. federal agency mortgage-backed obligations), and
German, French, Japanese and United Kingdom government obligations.
64 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Balance Sheet Analysis and Metrics
As of December 2012, total assets on our consolidated
statements of financial condition were $938.56 billion, an
increase of $15.33 billion from December 2011. This
increase was primarily due to (i) an increase in financial
instruments owned, at fair value of $42.81 billion, due to
increases in equities and convertible debentures and
non-U.S. government and agency obligations and (ii) an
increase in cash and cash equivalents of $16.66 billion,
primarily due to increases in interest-bearing deposits with
banks. These increases were partially offset by decreases in
securities purchased under agreements to resell and federal
funds sold of $46.46 billion, primarily due to firm and
client activities.
As of December 2012, total liabilities on our consolidated
statements of financial condition were $862.84 billion, an
increase of $9.99 billion from December 2011. This
increase was primarily due to an increase in deposits of
$24.02 billion, primarily due to increases in client activity.
This increase was partially offset by a decrease in financial
instruments sold, but not yet purchased, at fair value of
$18.37 billion, primarily due to decreases in derivatives and
U.S. government and federal agency obligations.
As of December 2012, our total securities sold under
agreements to repurchase, accounted for as collateralized
financings, were $171.81 billion, which was essentially
unchanged and 3%higher than the daily average amount of
repurchase agreements during the quarter ended and year
ended December 2012, respectively. As of December 2012,
the increase in our repurchase agreements relative to the
daily average during the year was primarily due to an
increase in firm financing activities. As of December 2011,
our total securities sold under agreements to repurchase,
accounted for as collateralized financings, were
$164.50 billion, which was 7% higher and 3% higher than
the daily average amount of repurchase agreements during
the quarter ended and year ended December 2011,
respectively. As of December 2011, the increase in our
repurchase agreements relative to the daily average during
the quarter and year was primarily due to increases in client
activity at the end of the year. The level of our repurchase
agreements fluctuates between and within periods,
primarily due to providing clients with access to highly
liquid collateral, such as U.S. government and federal
agency, and investment-grade sovereign obligations
through collateralized financing activities.
The table below presents information on our assets,
unsecured long-term borrowings, shareholders’ equity and
leverage ratios.
As of December
$ in millions 2012 2011
Total assets $938,555 $923,225
Adjusted assets $686,874 $604,391
Unsecured long-term borrowings $167,305 $173,545
Total shareholders’ equity $ 75,716 $ 70,379
Leverage ratio 12.4x 13.1x
Adjusted leverage ratio 9.1x 8.6x
Debt to equity ratio 2.2x 2.5x
Adjusted assets. Adjusted assets equals total assets less
(i) low-risk collateralized assets generally associated with
our secured client financing transactions, federal funds sold
and excess liquidity (which includes financial instruments
sold, but not yet purchased, at fair value, less derivative
liabilities) and (ii) cash and securities we segregate for
regulatory and other purposes. Adjusted assets is a
non-GAAP measure and may not be comparable to similar
non-GAAP measures used by other companies.
The table belowpresents the reconciliation of total assets to
adjusted assets.
As of December
in millions 2012 2011
Total assets $ 938,555 $ 923,225
Deduct: Securities borrowed (136,893) (153,341)
Securities purchased under
agreements to resell and
federal funds sold (141,334) (187,789)
Add: Financial instruments sold, but
not yet purchased, at fair value 126,644 145,013
Less derivative liabilities (50,427) (58,453)
Subtotal (202,010) (254,570)
Deduct: Cash and securities segregated
for regulatory and other
purposes (49,671) (64,264)
Adjusted assets $ 686,874 $ 604,391
Leverage ratio. The leverage ratio equals total assets
divided by total shareholders’ equity and measures the
proportion of equity and debt the firm is using to finance
assets. This ratio is different from the Tier 1 leverage ratio
included in “Equity Capital — Consolidated Regulatory
Capital Ratios” below, and further described in Note 20 to
the consolidated financial statements.
Goldman Sachs 2012 Annual Report 65
Management’s Discussion and Analysis
Adjusted leverage ratio. The adjusted leverage ratio
equals adjusted assets divided by total shareholders’ equity.
We believe that the adjusted leverage ratio is a more
meaningful measure of our capital adequacy than the
leverage ratio because it excludes certain low-risk
collateralized assets that are generally supported with little
or no capital. The adjusted leverage ratio is a non-GAAP
measure and may not be comparable to similar non-GAAP
measures used by other companies.
Our adjusted leverage ratio increased to 9.1x as of
December 2012 from 8.6x as of December 2011 as our
adjusted assets increased.
Debt to equity ratio. The debt to equity ratio equals
unsecured long-term borrowings divided by total
shareholders’ equity.
Funding Sources
Our primary sources of funding are secured financings,
unsecured long-term and short-term borrowings, and
deposits. We seek to maintain broad and diversified
funding sources globally.
We raise funding through a number of different
products, including:
‰ collateralized financings, such as repurchase agreements,
securities loaned and other secured financings;
‰ long-term unsecured debt (including structured notes)
through syndicated U.S. registered offerings, U.S.
registered and 144A medium-term note programs,
offshore medium-term note offerings and other
debt offerings;
‰ savings and demand deposits through deposit sweep
programs and time deposits through internal and third-
party broker-dealers; and
‰ short-term unsecured debt through U.S. and non-U.S.
commercial paper and promissory note issuances and
other methods.
We generally distribute our funding products through our
own sales force and third-party distributors, to a large,
diverse creditor base in a variety of markets in the
Americas, Europe and Asia. We believe that our
relationships with our creditors are critical to our liquidity.
Our creditors include banks, governments, securities
lenders, pension funds, insurance companies, mutual funds
and individuals. We have imposed various internal
guidelines to monitor creditor concentration across our
funding programs.
Secured Funding. We fund a significant amount of
inventory on a secured basis. Secured funding is less
sensitive to changes in our credit quality than unsecured
funding, due to our posting of collateral to our lenders.
Nonetheless, we continually analyze the refinancing risk of
our secured funding activities, taking into account trade
tenors, maturity profiles, counterparty concentrations,
collateral eligibility and counterparty rollover probabilities.
We seek to mitigate our refinancing risk by executing term
trades with staggered maturities, diversifying
counterparties, raising excess secured funding, and
pre-funding residual risk through our GCE.
We seek to raise secured funding with a term appropriate
for the liquidity of the assets that are being financed, and we
seek longer maturities for secured funding collateralized by
asset classes that may be harder to fund on a secured basis
especially during times of market stress. Substantially all of
our secured funding is executed for tenors of one month or
greater. Assets that may be harder to fund on a secured
basis during times of market stress include certain financial
instruments in the following categories: mortgage and other
asset-backed loans and securities, non-investment grade
corporate debt securities, equities and convertible
debentures and emerging market securities. Assets that are
classified as level 3 in the fair value hierarchy are generally
funded on an unsecured basis. See Note 6 to the
consolidated financial statements for further information
about the classification of financial instruments in the fair
value hierarchy and see “—Unsecured Long-Term
Borrowings” below for further information about the use
of unsecured long-termborrowings as a source of funding.
The weighted average maturity of our secured funding,
excluding funding collateralized by highly liquid securities
eligible for inclusion in our GCE, exceeded 100 days as of
December 2012.
A majority of our secured funding for securities not eligible
for inclusion in the GCE is executed through term
repurchase agreements and securities lending contracts. We
also raise financing through other types of collateralized
financings, such as secured loans and notes.
GS Bank USA has access to funding through the Federal
Reserve Bank discount window. While we do not rely on
this funding in our liquidity planning and stress testing, we
maintain policies and procedures necessary to access this
funding and test discount windowborrowing procedures.
66 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Unsecured Long-Term Borrowings. We issue unsecured
long-term borrowings as a source of funding for inventory
and other assets and to finance a portion of our GCE. We
issue in different tenors, currencies, and products to
maximize the diversification of our investor base. The table
below presents our quarterly unsecured long-term
borrowings maturity profile through 2018 as of
December 2012.
0
1,000
M
a
r

2
0
1
4
J
u
n

2
0
1
4
S
e
p

2
0
1
4
D
e
c

2
0
1
4
M
a
r

2
0
1
5
J
u
n

2
0
1
5
S
e
p

2
0
1
5
D
e
c

2
0
1
5
M
a
r

2
0
1
6
J
u
n

2
0
1
6
S
e
p

2
0
1
6
D
e
c

2
0
1
6
M
a
r

2
0
1
7
J
u
n

2
0
1
7
S
e
p

2
0
1
7
D
e
c

2
0
1
7
M
a
r

2
0
1
8
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
Quarters Ended
Unsecured Long-Term Borrowings Maturity Profile
$ in millions
J
u
n

2
0
1
8
S
e
p

2
0
1
8
D
e
c

2
0
1
8
The weighted average maturity of our unsecured long-term
borrowings as of December 2012 was approximately eight
years. To mitigate refinancing risk, we seek to limit the
principal amount of debt maturing on any one day or
during any week or year. We enter into interest rate swaps
to convert a substantial portion of our long-term
borrowings into floating-rate obligations in order to
manage our exposure to interest rates. See Note 16 to the
consolidated financial statements for further information
about our unsecured long-termborrowings.
Temporary Liquidity Guarantee Program (TLGP). The
remaining portion of our senior unsecured short-term debt
guaranteed by the FDIC under the TLGP matured during
the second quarter of 2012. As of December 2012, no
borrowings guaranteed by the FDIC under the TLGP were
outstanding and the program had expired for
newissuances.
Goldman Sachs 2012 Annual Report 67
Management’s Discussion and Analysis
Deposits. As part of our efforts to diversify our funding
base, deposits have become a more meaningful share of our
funding activities. GS Bank USA has been actively growing
its deposit base with an emphasis on issuance of long-term
certificates of deposit and on expanding our deposit sweep
program, which involves long-term contractual agreements
with several U.S. broker-dealers who sweep client cash to
FDIC-insured deposits. We utilize deposits to finance
activities in our bank subsidiaries. The table below presents
the sourcing of our deposits.
As of December 2012
Type of Deposit
in millions Savings and Demand
1
Time
2
Private bank deposits
3
$30,460 $ —
Certificates of deposit — 21,507
Deposit sweep programs 15,998 —
Institutional 51 2,108
Total
4
$46,509 $23,615
1. Represents deposits with no stated maturity.
2. Weighted average maturity in excess of three years.
3. Substantially all were from overnight deposit sweep programs related to
private wealth management clients.
4. Deposits insured by the FDIC as of December 2012 were approximately
$42.77 billion.
Unsecured Short-Term Borrowings. A significant
portion of our short-term borrowings was originally
long-term debt that is scheduled to mature within one year
of the reporting date. We use short-term borrowings to
finance liquid assets and for other cash management
purposes. We primarily issue commercial paper,
promissory notes, and other hybrid instruments.
As of December 2012, our unsecured short-term
borrowings, including the current portion of unsecured
long-term borrowings, were $44.30 billion. See Note 15 to
the consolidated financial statements for further
information about our unsecured short-termborrowings.
Equity Capital
Capital adequacy is of critical importance to us. Our
objective is to be conservatively capitalized in terms of the
amount and composition of our equity base. Accordingly,
we have in place a comprehensive capital management
policy that serves as a guide to determine the amount and
composition of equity capital we maintain.
The level and composition of our equity capital are
determined by multiple factors including our current and
future consolidated regulatory capital requirements, our
ICAAP, CCAR and results of stress tests, and may also be
influenced by other factors such as rating agency guidelines,
subsidiary capital requirements, the business environment,
conditions in the financial markets and assessments of
potential future losses due to adverse changes in our
business and market environments. In addition, we
maintain a capital plan which projects sources and uses of
capital given a range of business environments, and a
contingency capital plan which provides a framework for
analyzing and responding to an actual or perceived
capital shortfall.
As part of the Federal Reserve Board’s annual CCAR, U.S.
bank holding companies with total consolidated assets of
$50 billion or greater are required to submit annual capital
plans for review by the Federal Reserve Board. The purpose
of the Federal Reserve Board’s review is to ensure that these
institutions have robust, forward-looking capital planning
processes that account for their unique risks and that
permit continued operations during times of economic and
financial stress. The Federal Reserve Board will evaluate a
bank holding company based on whether it has the capital
necessary to continue operating under the baseline and
stressed scenarios provided by the Federal Reserve. As part
of the capital plan review, the Federal Reserve Board
evaluates an institution’s plan to make capital distributions,
such as increasing dividend payments or repurchasing or
redeeming stock, across a range of macro-economic and
firm-specific assumptions. In addition, the rules adopted by
the Federal Reserve Board under the Dodd-Frank Act,
require us to conduct stress tests on a semi-annual basis and
publish a summary of certain results, beginning in
March 2013. The Federal Reserve Board will conduct its
own annual stress tests and is expected to publish a
summary of certain results in March 2013.
68 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
As part of our 2012 CCAR submission, the Federal Reserve
informed us that it did not object to our proposed capital
actions through the first quarter of 2013, including the
repurchase of outstanding common stock and increases in
the quarterly common stock dividend. We submitted our
2013 CCAR to the Federal Reserve on January 7, 2013 and
expect to publish a summary of our results in March 2013.
Our consolidated regulatory capital requirements are
determined by the Federal Reserve Board, as described
below. Our ICAAP incorporates an internal risk-based
capital assessment designed to identify and measure
material risks associated with our business activities,
including market risk, credit risk and operational risk, in a
manner that is closely aligned with our risk management
practices. Our internal risk-based capital assessment is
supplemented with the results of stress tests.
As of December 2012, our total shareholders’ equity was
$75.72 billion (consisting of common shareholders’ equity of
$69.52 billion and preferred stock of $6.20 billion). As of
December 2011, our total shareholders’ equity was
$70.38 billion (consisting of common shareholders’ equity of
$67.28 billion and preferred stock of $3.10 billion). In
addition, as of December 2012 and December 2011,
$2.73 billion and $5.00 billion, respectively, of our junior
subordinated debt issued to trusts qualified as equity capital
for regulatory and certain rating agency purposes.
See “— Consolidated Regulatory Capital Ratios” below for
information regarding the impact of regulatory
developments.
Consolidated Regulatory Capital
The Federal Reserve Board is the primary regulator of
Group Inc., a bank holding company under the Bank
Holding Company Act of 1956 (BHC Act) and a financial
holding company under amendments to the BHC Act
effected by the U.S. Gramm-Leach-Bliley Act of 1999. As a
bank holding company, we are subject to consolidated
regulatory capital requirements that are computed in
accordance with the Federal Reserve Board’s risk-based
capital requirements (which are based on the ‘Basel 1’
Capital Accord of the Basel Committee). These capital
requirements are expressed as capital ratios that compare
measures of capital to risk-weighted assets (RWAs). See
Note 20 to the consolidated financial statements for
additional information regarding the firm’s RWAs. The
firm’s capital levels are also subject to qualitative judgments
by its regulators about components, risk weightings and
other factors.
Federal Reserve Board regulations require bank holding
companies to maintain a minimumTier 1 capital ratio of 4%
and a minimum total capital ratio of 8%. The required
minimum Tier 1 capital ratio and total capital ratio in order
to be considered a “well-capitalized” bank holding company
under the Federal Reserve Board guidelines are 6% and
10%, respectively. Bank holding companies may be expected
to maintain ratios well above the minimumlevels, depending
on their particular condition, risk profile and growth plans.
The minimum Tier 1 leverage ratio is 3% for bank holding
companies that have received the highest supervisory rating
under Federal Reserve Board guidelines or that have
implemented the Federal Reserve Board’s risk-based capital
measure for market risk. Other bank holding companies
must have a minimumTier 1 leverage ratio of 4%.
Goldman Sachs 2012 Annual Report 69
Management’s Discussion and Analysis
Consolidated Regulatory Capital Ratios
The table below presents information about our regulatory
capital ratios, which are based on Basel 1, as implemented
by the Federal Reserve Board.
As of December
$ in millions 2012 2011
Common shareholders’ equity $ 69,516 $ 67,279
Less: Goodwill (3,702) (3,802)
Less: Intangible assets (1,397) (1,666)
Less: Equity investments in
certain entities
1
(4,805) (4,556)
Less: Disallowed deferred tax assets (1,261) (1,073)
Less: Debt valuation adjustment
2
(180) (664)
Less: Other adjustments
3
(124) (356)
Tier 1 Common Capital 58,047 55,162
Non-cumulative preferred stock 6,200 3,100
Junior subordinated debt issued
to trusts
4
2,730 5,000
Tier 1 Capital 66,977 63,262
Qualifying subordinated debt
5
13,342 13,828
Other adjustments 87 53
Tier 2 Capital 13,429 13,881
Total Capital $ 80,406 $ 77,143
Risk-Weighted Assets $399,928 $457,027
Tier 1 Capital Ratio 16.7% 13.8%
Total Capital Ratio 20.1% 16.9%
Tier 1 Leverage Ratio
6
7.3% 7.0%
Tier 1 Common Ratio
7
14.5% 12.1%
1. Primarily represents a portion of our equity investments in non-
financial companies.
2. Represents the cumulative change in the fair value of our unsecured
borrowings attributable to the impact of changes in our own credit spreads
(net of tax at the applicable tax rate).
3. Includes net unrealized gains/(losses) on available-for-sale securities (net of
tax at the applicable tax rate), the cumulative change in our pension and
postretirement liabilities (net of tax at the applicable tax rate) and
investments in certain nonconsolidated entities.
4. See Note 16 to the consolidated financial statements for additional
information about the junior subordinated debt issued to trusts.
5. Substantially all of our subordinated debt qualifies as Tier 2 capital for
Basel 1 purposes.
6. See Note 20 to the consolidated financial statements for additional
information about the firm’s Tier 1 leverage ratio.
7. The Tier 1 common ratio equals Tier 1 common capital divided by RWAs. We
believe that the Tier 1 common ratio is meaningful because it is one of the
measures that we and investors use to assess capital adequacy and, while
not currently a formal regulatory capital ratio, this measure is of increasing
importance to regulators. The Tier 1 common ratio is a non-GAAP measure
and may not be comparable to similar non-GAAP measures used by
other companies.
Our Tier 1 capital ratio increased to 16.7% as of
December 2012 from 13.8% as of December 2011
primarily reflecting an increase in common shareholders’
equity and a reduction in market RWAs. The reduction in
market RWAs was primarily driven by lower volatilities, a
decrease in derivative exposure and capital efficiency
initiatives that, while driven by future Basel 3 rules, also
reduced market RWAs as measured under the current rules.
Changes to the market risk capital rules of the U.S. federal
bank regulatory agencies became effective on
January 1, 2013. These changes require the addition of
several newmodel-based capital requirements, as well as an
increase in capital requirements for securitization positions,
and are designed to implement the new market risk
framework of the Basel Committee, as well as the
prohibition on the use of external credit ratings, as required
by the Dodd-Frank Act. This revised market risk
framework is a significant part of the regulatory capital
changes that will ultimately be included in our Basel 3
capital ratios. The firm’s estimated Tier 1 common ratio
under Basel 1 reflecting these revised market risk regulatory
capital requirements would have been approximately
350 basis points lower than the firm’s reported Basel 1
Tier 1 common ratio as of December 2012.
See “Business — Regulation” in Part I, Item 1 of our
Annual Report on Form 10-K and Note 20 to the
consolidated financial statements for additional
information about our regulatory capital ratios and the
related regulatory requirements, including pending and
proposed regulatory changes.
Risk-Weighted Assets
RWAs under the Federal Reserve Board’s risk-based capital
requirements are calculated based on the amount of credit
risk and market risk.
RWAs for credit risk reflect amounts for on-balance sheet
and off–balance sheet exposures. Credit risk requirements
for on-balance sheet assets, such as receivables and cash, are
generally based on the balance sheet value. Credit risk
requirements for securities financing transactions are
determined based upon the positive net exposure for each
trade, and include the effect of counterparty netting and
collateral, as applicable. For off-balance sheet exposures,
including commitments and guarantees, a credit equivalent
amount is calculated based on the notional amount of each
trade. Requirements for OTC derivatives are based on a
combination of positive net exposure and a percentage of
the notional amount of each trade, and include the effect of
counterparty netting and collateral, as applicable. All such
assets and exposures are then assigned a risk weight
depending on, among other things, whether the
counterparty is a sovereign, bank or a qualifying securities
firmor other entity (or if collateral is held, depending on the
nature of the collateral).
70 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
RWAs for market risk are comprised of modeled and
non-modeled risk requirements. Modeled risk requirements
are determined by reference to the firm’s Value-at-Risk
(VaR) model. VaR is the potential loss in value of inventory
positions due to adverse market movements over a defined
time horizon with a specified confidence level. We use a
single VaR model which captures risks including interest
rates, equity prices, currency rates and commodity prices.
For certain portfolios of debt and equity positions, the
modeled RWAs also reflect requirements for specific risk,
which is the risk of loss on a position that could result from
changes in risk factors unique to that position. Regulatory
VaR used for capital requirements will differ from risk
management VaR, due to different time horizons (10-day
vs. 1-day), confidence levels (99% vs. 95%), as well as
other factors. Non-modeled risk requirements reflect
specific risk for other debt and equity positions. The
standardized measurement method is used to determine
non-modeled risk by applying supervisory defined
risk-weighting factors to positions after applicable netting
is performed.
The table belowpresents information on the components of
RWAs within our consolidated regulatory capital ratios.
As of December
in millions 2012 2011
Credit RWAs
OTC derivatives $107,269 $119,848
Commitments and guarantees
1
46,007 37,648
Securities financing transactions
2
47,069 53,236
Other
3
87,181 84,039
Total Credit RWAs $287,526 $294,771
Market RWAs
Modeled requirements $ 23,302 $ 57,784
Non-modeled requirements 89,100 104,472
Total Market RWAs 112,402 162,256
Total RWAs
4
$399,928 $457,027
1. Principally includes certain commitments to extend credit and letters
of credit.
2. Represents resale and repurchase agreements and securities borrowed and
loaned transactions.
3. Principally includes receivables from customers, other assets, cash and cash
equivalents and available-for-sale securities.
4. Under the current regulatory capital framework, there is no explicit
requirement for Operational Risk.
As outlined above, changes to the market risk capital rules
that became effective on January 1, 2013, require the
addition of several new model-based capital requirements,
as well as an increase in capital requirements for
securitization positions.
Internal Capital Adequacy Assessment Process
We perform an ICAAP with the objective of ensuring that
the firm is appropriately capitalized relative to the risks in
our business.
As part of our ICAAP, we perform an internal risk-based
capital assessment. This assessment incorporates market
risk, credit risk and operational risk. Market risk is
calculated by using VaR calculations supplemented by
risk-based add-ons which include risks related to rare
events (tail risks). Credit risk utilizes assumptions about our
counterparties’ probability of default, the size of our losses
in the event of a default and the maturity of our
counterparties’ contractual obligations to us. Operational
risk is calculated based on scenarios incorporating multiple
types of operational failures. Backtesting is used to gauge
the effectiveness of models at capturing and measuring
relevant risks.
We evaluate capital adequacy based on the result of our
internal risk-based capital assessment, supplemented with
the results of stress tests which measure the firm’s estimated
performance under various market conditions. Our goal is
to hold sufficient capital, under our internal risk-based
capital framework, to ensure we remain adequately
capitalized after experiencing a severe stress event. Our
assessment of capital adequacy is viewed in tandem with
our assessment of liquidity adequacy and is integrated into
the overall risk management structure, governance and
policy framework of the firm.
We attribute capital usage to each of our businesses based
upon our internal risk-based capital and regulatory
frameworks and manage the levels of usage based upon the
balance sheet and risk limits established.
Rating Agency Guidelines
The credit rating agencies assign credit ratings to the
obligations of Group Inc., which directly issues or
guarantees substantially all of the firm’s senior unsecured
obligations. GS&Co. and GSI have been assigned long- and
short-term issuer ratings by certain credit rating agencies.
GS Bank USA has also been assigned long-term issuer
ratings as well as ratings on its long-term and short-term
bank deposits. In addition, credit rating agencies have
assigned ratings to debt obligations of certain other
subsidiaries of Group Inc.
Goldman Sachs 2012 Annual Report 71
Management’s Discussion and Analysis
The level and composition of our equity capital are among
the many factors considered in determining our credit
ratings. Each agency has its own definition of eligible
capital and methodology for evaluating capital adequacy,
and assessments are generally based on a combination of
factors rather than a single calculation. See “Liquidity Risk
Management — Credit Ratings” for further information
about credit ratings of Group Inc., GS&Co., GSI and
GS Bank USA.
Subsidiary Capital Requirements
Many of our subsidiaries, including GS Bank USA and our
broker-dealer subsidiaries, are subject to separate
regulation and capital requirements of the jurisdictions in
which they operate.
GS Bank USA is subject to minimum capital requirements
that are calculated in a manner similar to those applicable to
bank holding companies and computes its capital ratios in
accordance with the regulatory capital requirements
currently applicable to state member banks, which are based
on Basel 1, as implemented by the Federal Reserve Board. As
of December 2012, GS Bank USA’s Tier 1 Capital ratio
under Basel 1 as implemented by the Federal Reserve Board
was 18.9%. See Note 20 to the consolidated financial
statements for further information about GS Bank USA’s
regulatory capital ratios under Basel 1, as implemented by
the Federal Reserve Board. Effective January 1, 2013, GS
Bank USA also implemented the revised market risk
framework outlined above. This revised market risk
framework is a significant part of the regulatory capital
changes that will ultimately be included in GS Bank USA’s
Basel 3 capital ratios.
For purposes of assessing the adequacy of its capital, GS
Bank USA has established an ICAAP which is similar to
that used by Group Inc. In addition, the rules adopted by
the Federal Reserve Board under the Dodd-Frank Act
require GS Bank USA to conduct stress tests on an annual
basis and publish a summary of certain results, beginning in
March 2013. GS Bank USA submitted its annual stress
results to the Federal Reserve on January 7, 2013 and
expects to publish a summary of its results in March 2013.
GS Bank USA’s capital levels and prompt corrective action
classification are subject to qualitative judgments by its
regulators about components, risk weightings and
other factors.
We expect that the capital requirements of several of our
subsidiaries are likely to increase in the future due to the
various developments arising from the Basel Committee,
the Dodd-Frank Act, and other governmental entities and
regulators. See Note 20 to the consolidated financial
statements for information about the capital requirements
of our other regulated subsidiaries and the potential impact
of regulatory reform.
Subsidiaries not subject to separate regulatory capital
requirements may hold capital to satisfy local tax and legal
guidelines, rating agency requirements (for entities with
assigned credit ratings) or internal policies, including
policies concerning the minimum amount of capital a
subsidiary should hold based on its underlying level of risk.
In certain instances, Group Inc. may be limited in its ability
to access capital held at certain subsidiaries as a result of
regulatory, tax or other constraints. As of December 2012
and December 2011, Group Inc.’s equity investment in
subsidiaries was $73.32 billion and $67.70 billion,
respectively, compared with its total shareholders’ equity of
$75.72 billion and $70.38 billion, respectively.
Group Inc. has guaranteed the payment obligations of
GS&Co., GS Bank USA, and Goldman Sachs Execution &
Clearing, L.P. (GSEC) subject to certain exceptions. In
November 2008, Group Inc. contributed subsidiaries into
GS Bank USA, and Group Inc. agreed to guarantee certain
losses, including credit-related losses, relating to assets held
by the contributed entities. In connection with this
guarantee, Group Inc. also agreed to pledge to GS Bank
USA certain collateral, including interests in subsidiaries
and other illiquid assets.
Our capital invested in non-U.S. subsidiaries is generally
exposed to foreign exchange risk, substantially all of which
is managed through a combination of derivatives and
non-U.S. denominated debt.
Contingency Capital Plan
Our contingency capital plan provides a framework for
analyzing and responding to a perceived or actual capital
deficiency, including, but not limited to, identification of
drivers of a capital deficiency, as well as mitigants and
potential actions. It outlines the appropriate
communication procedures to follow during a crisis period,
including internal dissemination of information as well as
ensuring timely communication with external stakeholders.
72 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Equity Capital Management
Our objective is to maintain a sufficient level and optimal
composition of equity capital. We principally manage our
capital through issuances and repurchases of our common
stock. We may also, from time to time, issue or repurchase
our preferred stock, junior subordinated debt issued to
trusts and other subordinated debt or other forms of capital
as business conditions warrant and subject to approval of
the Federal Reserve Board. We manage our capital
requirements principally by setting limits on balance sheet
assets and/or limits on risk, in each case both at the
consolidated and business levels. We attribute capital usage
to each of our businesses based upon our internal
risk-based capital and regulatory frameworks and manage
the levels of usage based upon the balance sheet and risk
limits established.
See Notes 16 and 19 to the consolidated financial
statements for further information about our preferred
stock, junior subordinated debt issued to trusts and other
subordinated debt.
Berkshire Hathaway Warrant. In October 2008, we
issued Berkshire Hathaway a warrant, which grants
Berkshire Hathaway the option to purchase up to
43.5 million shares of common stock at an exercise price of
$115.00 per share on or before October 1, 2013. See
Note 19 to the consolidated financial statements for
information about the Series GPreferred Stock.
Share Repurchase Program. We seek to use our share
repurchase program to help maintain the appropriate level
of common equity. The repurchase program is effected
primarily through regular open-market purchases, the
amounts and timing of which are determined primarily by
our current and projected capital positions (i.e.,
comparisons of our desired level and composition of capital
to our actual level and composition of capital), but which
may also be influenced by general market conditions and
the prevailing price and trading volumes of our
commonstock.
As of December 2012, under the share repurchase program
approved by the Board of Directors of Group Inc. (Board),
we can repurchase up to 21.5 million additional shares of
common stock; however, any such repurchases are subject
to the approval of the Federal Reserve Board. See “Market
for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities” in
Part II, Item 5 of our Annual Report on Form 10-K and
Note 19 to the consolidated financial statements for
additional information on our repurchase program and see
above for information about the annual CCAR.
Other Capital Metrics
The table below presents information on our shareholders’
equity and book value per common share.
As of December
in millions, except per share amounts 2012 2011
Total shareholders’ equity $75,716 $70,379
Common shareholders’ equity 69,516 67,279
Tangible common shareholders’ equity 64,417 61,811
Book value per common share 144.67 130.31
Tangible book value per common share 134.06 119.72
Tangible common shareholders’ equity. Tangible
common shareholders’ equity equals total shareholders’
equity less preferred stock, goodwill and identifiable
intangible assets. We believe that tangible common
shareholders’ equity is meaningful because it is a measure
that we and investors use to assess capital adequacy.
Tangible common shareholders’ equity is a non-GAAP
measure and may not be comparable to similar non-GAAP
measures used by other companies.
The table below presents the reconciliation of total
shareholders’ equity to tangible common
shareholders’ equity.
As of December
in millions 2012 2011
Total shareholders’ equity $75,716 $70,379
Deduct: Preferred stock (6,200) (3,100)
Common shareholders’ equity 69,516 67,279
Deduct: Goodwill and identifiable
intangible assets (5,099) (5,468)
Tangible common shareholders’ equity $64,417 $61,811
Book value and tangible book value per common
share. Book value and tangible book value per common
share are based on common shares outstanding, including
restricted stock units granted to employees with no future
service requirements, of 480.5 million and 516.3 million as
of December 2012 and December 2011, respectively. We
believe that tangible book value per common share
(tangible common shareholders’ equity divided by common
shares outstanding) is meaningful because it is a measure
that we and investors use to assess capital adequacy.
Tangible book value per common share is a non-GAAP
measure and may not be comparable to similar non-GAAP
measures used by other companies.
Goldman Sachs 2012 Annual Report 73
Management’s Discussion and Analysis
Off-Balance-Sheet Arrangements and
Contractual Obligations
Off-Balance-Sheet Arrangements
We have various types of off-balance-sheet arrangements
that we enter into in the ordinary course of business. Our
involvement in these arrangements can take many different
forms, including:
‰ purchasing or retaining residual and other interests in
special purpose entities such as mortgage-backed and
other asset-backed securitization vehicles;
‰ holding senior and subordinated debt, interests in limited
and general partnerships, and preferred and common
stock in other nonconsolidated vehicles;
‰ entering into interest rate, foreign currency, equity,
commodity and credit derivatives, including total
returnswaps;
‰ entering into operating leases; and
‰ providing guarantees, indemnifications, loan
commitments, letters of credit and representations
andwarranties.
We enter into these arrangements for a variety of business
purposes, including securitizations. The securitization
vehicles that purchase mortgages, corporate bonds, and
other types of financial assets are critical to the functioning
of several significant investor markets, including the
mortgage-backed and other asset-backed securities
markets, since they offer investors access to specific cash
flows and risks created through the securitization process.
We also enter into these arrangements to underwrite client
securitization transactions; provide secondary market
liquidity; make investments in performing and
nonperforming debt, equity, real estate and other assets;
provide investors with credit-linked and asset-repackaged
notes; and receive or provide letters of credit to satisfy
margin requirements and to facilitate the clearance and
settlement process.
Our financial interests in, and derivative transactions with,
such nonconsolidated entities are generally accounted for at
fair value, in the same manner as our other financial
instruments, except in cases where we apply the equity
method of accounting.
The table below presents where a discussion of our various
off-balance-sheet arrangements may be found in this
Annual Report. In addition, see Note 3 to the consolidated
financial statements for a discussion of our
consolidationpolicies.
Type of Off-Balance-Sheet Arrangement Disclosure in Annual Report
Variable interests and other obligations, including
contingent obligations, arising from variable interests in
nonconsolidated VIEs
See Note 11 to the consolidated financial statements.
Leases, letters of credit, and lending and other commitments See “Contractual Obligations” below and Note 18 to the
consolidated financial statements.
Guarantees See “Contractual Obligations” below and Note 18 to the
consolidated financial statements.
Derivatives See Notes 4, 5, 7 and 18 to the consolidated financial
statements.
74 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Contractual Obligations
We have certain contractual obligations which require us to
make future cash payments. These contractual obligations
include our unsecured long-term borrowings, secured
long-term financings, time deposits, contractual interest
payments and insurance agreements, all of which are
included in our consolidated statements of financial
condition. Our obligations to make future cash payments
also include certain off-balance-sheet contractual
obligations such as purchase obligations, minimum rental
payments under noncancelable leases and commitments
and guarantees.
The table below presents our contractual obligations,
commitments and guarantees as of December 2012.
in millions 2013 2014-2015 2016-2017
2018-
Thereafter Total
Amounts related to on-balance-sheet obligations
Time deposits
1
$ — $ 7,151 $ 4,064 $ 5,069 $ 16,284
Secured long-term financings
2
— 6,403 1,140 1,422 8,965
Unsecured long-term borrowings
3
— 43,920 42,601 80,784 167,305
Contractual interest payments
4
7,489 13,518 10,182 33,332 64,521
Insurance liabilities
5
477 959 934 13,740 16,110
Subordinated liabilities issued by consolidated VIEs 59 62 84 1,155 1,360
Amounts related to off-balance-sheet arrangements
Commitments to extend credit 10,435 16,322 43,453 5,412 75,622
Contingent and forward starting resale and securities borrowing agreements 47,599 — — — 47,599
Forward starting repurchase and secured lending agreements 6,144 — — — 6,144
Letters of credit 614 160 — 15 789
Investment commitments 1,378 2,174 258 3,529 7,339
Other commitments 4,471 53 31 69 4,624
Minimum rental payments 439 752 623 1,375 3,189
Derivative guarantees 339,460 213,012 49,413 61,264 663,149
Securities lending indemnifications 27,123 — — — 27,123
Other financial guarantees 904 442 1,195 938 3,479
1. Excludes $7.33 billion of time deposits maturing within one year.
2. The aggregate contractual principal amount of secured long-term financings for which the fair value option was elected, primarily consisting of transfers of financial
assets accounted for as financings rather than sales and certain other nonrecourse financings, exceeded their related fair value by $115 million.
3. Includes $10.51 billion related to interest rate hedges on certain unsecured long-term borrowings. In addition, the fair value of unsecured long-term borrowings
(principal and non-principal-protected) for which the fair value option was elected exceeded the related aggregate contractual principal amount by $379 million.
Excludes $77 million of unsecured long-term borrowings related to our reinsurance business classified as held for sale as of December 2012. See Note 17 to the
consolidated financial statements for further information.
4. Represents estimated future interest payments related to unsecured long-term borrowings, secured long-term financings and time deposits based on applicable
interest rates as of December 2012. Includes stated coupons, if any, on structured notes.
5. Represents estimated undiscounted payments related to future benefits and unpaid claims arising from policies associated with our insurance activities, excluding
separate accounts and estimated recoveries under reinsurance contracts. Excludes $13.08 billion of insurance liabilities related to our reinsurance business classified
as held for sale as of December 2012. See Note 17 to the consolidated financial statements for further information.
Goldman Sachs 2012 Annual Report 75
Management’s Discussion and Analysis
In the table above:
‰ Obligations maturing within one year of our financial
statement date or redeemable within one year of our
financial statement date at the option of the holder are
excluded and are treated as short-termobligations.
‰ Obligations that are repayable prior to maturity at our
option are reflected at their contractual maturity dates
and obligations that are redeemable prior to maturity at
the option of the holders are reflected at the dates such
options become exercisable.
‰ Amounts included in the table do not necessarily reflect
the actual future cash flow requirements for these
arrangements because commitments and guarantees
represent notional amounts and may expire unused or be
reduced or cancelled at the counterparty’s request.
‰ Due to the uncertainty of the timing and amounts that
will ultimately be paid, our liability for unrecognized tax
benefits has been excluded. See Note 24 to the
consolidated financial statements for further information
about our unrecognized tax benefits.
See Notes 15 and 18 to the consolidated financial
statements for further information about our short-term
borrowings, and commitments and guarantees.
As of December 2012, our unsecured long-termborrowings
were $167.31 billion, with maturities extending to 2061,
and consisted principally of senior borrowings. See Note 16
to the consolidated financial statements for further
information about our unsecured long-termborrowings.
As of December 2012, our future minimum rental
payments net of minimum sublease rentals under
noncancelable leases were $3.19 billion. These lease
commitments, principally for office space, expire on
various dates through 2069. Certain agreements are subject
to periodic escalation provisions for increases in real estate
taxes and other charges. See Note 18 to the consolidated
financial statements for further information about
our leases.
Our occupancy expenses include costs associated with
office space held in excess of our current requirements. This
excess space, the cost of which is charged to earnings as
incurred, is being held for potential growth or to replace
currently occupied space that we may exit in the future. We
regularly evaluate our current and future space capacity in
relation to current and projected staffing levels. For the year
ended December 2012, total occupancy expenses for space
held in excess of our current requirements were not
material. In addition, for the year ended December 2012,
we incurred exit costs of $17 million related to our office
space. We may incur exit costs (included in “Depreciation
and amortization” and “Occupancy”) in the future to the
extent we (i) reduce our space capacity or (ii) commit to, or
occupy, newproperties in the locations in which we operate
and, consequently, dispose of existing space that had been
held for potential growth. These exit costs may be material
to our results of operations in a given period.
Overview and Structure of Risk
Management
Overview
We believe that effective risk management is of primary
importance to the success of the firm. Accordingly, we have
comprehensive risk management processes through which
we monitor, evaluate and manage the risks we assume in
conducting our activities. These include market, credit,
liquidity, operational, legal, regulatory and reputational
risk exposures. Our risk management framework is built
around three core components: governance, processes
andpeople.
Governance. Risk management governance starts with
our Board, which plays an important role in reviewing and
approving risk management policies and practices, both
directly and through its Risk Committee, which consists of
all of our independent directors. The Board also receives
regular briefings on firmwide risks, including market risk,
liquidity risk, credit risk and operational risk from our
independent control and support functions, including the
chief risk officer. The chief risk officer, as part of the review
of the firmwide risk package, regularly advises the Risk
Committee of the Board of relevant risk metrics and
material exposures. Next, at the most senior levels of the
firm, our leaders are experienced risk managers, with a
sophisticated and detailed understanding of the risks we
take. Our senior managers lead and participate in risk-
oriented committees, as do the leaders of our independent
control and support functions — including those in internal
audit, compliance, controllers, credit risk management,
human capital management, legal, market risk
management, operations, operational risk management,
tax, technology and treasury.
76 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
The firm’s governance structure provides the protocol and
responsibility for decision-making on risk management
issues and ensures implementation of those decisions. We
make extensive use of risk-related committees that meet
regularly and serve as an important means to facilitate and
foster ongoing discussions to identify, manage and
mitigate risks.
We maintain strong communication about risk and we have
a culture of collaboration in decision-making among the
revenue-producing units, independent control and support
functions, committees and senior management. While we
believe that the first line of defense in managing risk rests
with the managers in our revenue-producing units, we
dedicate extensive resources to independent control and
support functions in order to ensure a strong oversight
structure and an appropriate segregation of duties. We
regularly reinforce the firm’s strong culture of escalation
and accountability across all divisions and functions.
Processes. We maintain various processes and procedures
that are critical components of our risk management. First
and foremost is our daily discipline of marking
substantially all of the firm’s inventory to current market
levels. Goldman Sachs carries its inventory at fair value,
with changes in valuation reflected immediately in our risk
management systems and in net revenues. We do so because
we believe this discipline is one of the most effective tools
for assessing and managing risk and that it provides
transparent and realistic insight into our
financial exposures.
We also apply a rigorous framework of limits to control
risk across multiple transactions, products, businesses and
markets. This includes setting credit and market risk limits
at a variety of levels and monitoring these limits on a daily
basis. Limits are typically set at levels that will be
periodically exceeded, rather than at levels which reflect
our maximum risk appetite. This fosters an ongoing
dialogue on risk among revenue-producing units,
independent control and support functions, committees and
senior management, as well as rapid escalation of
risk-related matters. See “Market Risk Management” and
“Credit Risk Management” for further information on our
risk limits.
Active management of our positions is another important
process. Proactive mitigation of our market and credit
exposures minimizes the risk that we will be required to
take outsized actions during periods of stress.
We also focus on the rigor and effectiveness of the firm’s
risk systems. The goal of our risk management technology
is to get the right information to the right people at the right
time, which requires systems that are comprehensive,
reliable and timely. We devote significant time and
resources to our risk management technology to ensure that
it consistently provides us with complete, accurate and
timely information.
People. Even the best technology serves only as a tool for
helping to make informed decisions in real time about the
risks we are taking. Ultimately, effective risk management
requires our people to interpret our risk data on an ongoing
and timely basis and adjust risk positions accordingly. In
both our revenue-producing units and our independent
control and support functions, the experience of our
professionals, and their understanding of the nuances and
limitations of each risk measure, guide the firm in assessing
exposures and maintaining themwithin prudent levels.
Structure
Ultimate oversight of risk is the responsibility of the firm’s
Board. The Board oversees risk both directly and through
its Risk Committee. Within the firm, a series of committees
with specific risk management mandates have oversight or
decision-making responsibilities for risk management
activities. Committee membership generally consists of
senior managers from both our revenue-producing units
and our independent control and support functions. We
have established procedures for these committees to ensure
that appropriate information barriers are in place. Our
primary risk committees, most of which also have
additional sub-committees or working groups, are
described below. In addition to these committees, we have
other risk-oriented committees which provide oversight for
different businesses, activities, products, regions and
legal entities.
Membership of the firm’s risk committees is reviewed
regularly and updated to reflect changes in the
responsibilities of the committee members. Accordingly, the
length of time that members serve on the respective
committees varies as determined by the committee chairs and
based on the responsibilities of the members within the firm.
In addition, independent control and support functions,
which report to the chief financial officer, the general counsel
and the chief administrative officer, or in the case of Internal
Audit, to the Audit Committee of the Board, are responsible
for day-to-day oversight or monitoring of risk, as discussed
in greater detail in the following sections. Internal Audit,
which includes professionals with a broad range of audit and
industry experience, including risk management expertise, is
responsible for independently assessing and validating key
controls within the risk management framework.
Goldman Sachs 2012 Annual Report 77
Management’s Discussion and Analysis
The chart below presents an overview of our risk
management governance structure, highlighting the
oversight of our Board, our key risk-related committees and
the independence of our control and support functions.
Board of Directors
Chief Executive Officer
President
Chief Financial Officer
Internal Audit
Chief Risk Officer
Risk Committee
Business Managers
Business Risk Managers
Senior Management Oversight
Corporate Oversight
Firmwide New Activity Committee
Firmwide Suitability Committee
•
•
Compliance
Controllers
Credit Risk Management
Human Capital Management
•
•
•
•
Legal
Market Risk Management
Operations
Operational Risk Management
•
•
•
•
Tax
Technology
Treasury
•
•
•
Committee Oversight
Management Committee
Firmwide Client and Business
Standards Committee
• Investment Management Division
Risk Committee
Firmwide
Risk Committee
Independent Control and Support Functions Revenue-Producing Units
Firmwide Commitments Committee
Firmwide Capital Committee
•
•
Securities Division Risk Committee
Credit Policy Committee
Firmwide Operational Risk Committee
Firmwide Finance Committee
•
•
•
•
Management Committee. The Management Committee
oversees the global activities of the firm, including all of the
firm’s independent control and support functions. It
provides this oversight directly and through authority
delegated to committees it has established. This committee
is comprised of the most senior leaders of the firm, and is
chaired by the firm’s chief executive officer. The
Management Committee has established various
committees with delegated authority and the chairperson of
the Management Committee appoints the chairpersons of
these committees. Most members of the Management
Committee are also members of other firmwide, divisional
and regional committees. The following are the committees
that are principally involved in firmwide risk management.
Firmwide Client and Business Standards Committee.
The Firmwide Client and Business Standards Committee
assesses and makes determinations regarding business
standards and practices, reputational risk management,
client relationships and client service, is chaired by the
firm’s president and chief operating officer, and reports to
the Management Committee. This committee also has
responsibility for overseeing the implementation of the
recommendations of the Business Standards Committee.
This committee has established the following two
risk-related committees that report to it:
78 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
‰ Firmwide New Activity Committee. The Firmwide
NewActivity Committee is responsible for reviewing new
activities and for establishing a process to identify and
review previously approved activities that are significant
and that have changed in complexity and/or structure or
present different reputational and suitability concerns
over time to consider whether these activities remain
appropriate. This committee is co-chaired by the firm’s
head of operations/chief operating officer for Europe,
Middle East and Africa and the chief administrative
officer of our Investment Management Division who are
appointed by the Firmwide Client and Business Standards
Committee chairperson.
‰ Firmwide Suitability Committee. The Firmwide
Suitability Committee is responsible for setting standards
and policies for product, transaction and client suitability
and providing a forum for consistency across divisions,
regions and products on suitability assessments. This
committee also reviews suitability matters escalated from
other firm committees. This committee is co-chaired by
the firm’s international general counsel and the co-head
of our Investment Management Division who are
appointed by the Firmwide Client and Business Standards
Committee chairperson.
Firmwide Risk Committee. The Firmwide Risk
Committee is globally responsible for the ongoing
monitoring and control of the firm’s financial risks.
Through both direct and delegated authority, the Firmwide
Risk Committee approves firmwide, product, divisional
and business-level limits for both market and credit risks,
approves sovereign credit risk limits and reviews results of
stress tests and scenario analyses. This committee is co-
chaired by the firm’s chief financial officer and a senior
managing director from the firm’s executive office, and
reports to the Management Committee. The following four
committees report to the Firmwide Risk Committee. The
chairperson of the Securities Division Risk Committee is
appointed by the chairpersons of the Firmwide Risk
Committee; the chairpersons of the Credit Policy and
Firmwide Operational Risk Committees are appointed by
the firm’s chief risk officer; and the chairpersons of the
Firmwide Finance Committee are appointed by the
Firmwide Risk Committee.
‰ Securities Division Risk Committee. The Securities
Division Risk Committee sets market risk limits, subject
to overall firmwide risk limits, for the Securities Division
based on a number of risk measures, including but not
limited to VaR, stress tests, scenario analyses and balance
sheet levels. This committee is chaired by the chief risk
officer of our Securities Division.
‰ Credit Policy Committee. The Credit Policy Committee
establishes and reviews broad firmwide credit policies
and parameters that are implemented by our Credit Risk
Management department (Credit Risk Management).
This committee is chaired by the firm’s chief credit officer.
‰ Firmwide Operational Risk Committee. The
Firmwide Operational Risk Committee provides
oversight of the ongoing development and
implementation of our operational risk policies,
framework and methodologies, and monitors the
effectiveness of operational risk management. This
committee is chaired by a managing director in Credit
Risk Management.
‰ Firmwide Finance Committee. The Firmwide Finance
Committee has oversight of firmwide liquidity, the size
and composition of our balance sheet and capital base,
and our credit ratings. This committee regularly reviews
and discusses our liquidity, balance sheet, funding
position and capitalization in the context of current
events, risks and exposures, and regulatory requirements.
This committee is also responsible for reviewing and
approving balance sheet limits and the size of our GCE.
This committee is co-chaired by the firm’s chief financial
officer and the firm’s global treasurer.
Goldman Sachs 2012 Annual Report 79
Management’s Discussion and Analysis
The following committees report jointly to the Firmwide
Risk Committee and the Firmwide Client and Business
Standards Committee:
‰ Firmwide Commitments Committee. The Firmwide
Commitments Committee reviews the firm’s
underwriting and distribution activities with respect to
equity and equity-related product offerings, and sets and
maintains policies and procedures designed to ensure that
legal, reputational, regulatory and business standards are
maintained on a global basis. In addition to reviewing
specific transactions, this committee periodically
conducts general strategic reviews of sectors and products
and establishes policies in connection with transaction
practices. This committee is co-chaired by the firm’s
senior strategy officer and the co-head of Global
Mergers & Acquisitions who are appointed by the
Firmwide Client and Business Standards
Committee chairperson.
‰ Firmwide Capital Committee. The Firmwide Capital
Committee provides approval and oversight of
debt-related transactions, including principal
commitments of the firm’s capital. This committee aims
to ensure that business and reputational standards for
underwritings and capital commitments are maintained
on a global basis. This committee is co-chaired by the
firm’s global treasurer and the head of credit finance for
Europe, Middle East and Africa who are appointed by the
Firmwide Risk Committee chairpersons.
Investment Management Division Risk Committee.
The Investment Management Division Risk Committee is
responsible for the ongoing monitoring and control of
global market, counterparty credit and liquidity risks
associated with the activities of our investment
management businesses. The head of Investment
Management Division risk management is the chair of this
committee. The Investment Management Division Risk
Committee reports to the firm’s chief risk officer.
Conflicts Management
Conflicts of interest and the firm’s approach to dealing with
them are fundamental to our client relationships, our
reputation and our long-term success. The term “conflict of
interest” does not have a universally accepted meaning, and
conflicts can arise in many forms within a business or
between businesses. The responsibility for identifying
potential conflicts, as well as complying with the firm’s
policies and procedures, is shared by the entire firm.
We have a multilayered approach to resolving conflicts and
addressing reputational risk. The firm’s senior management
oversees policies related to conflicts resolution. The firm’s
senior management, the Business Selection and Conflicts
Resolution Group, the Legal Department and Compliance
Division, the Firmwide Client and Business Standards
Committee and other internal committees all play roles in
the formulation of policies, standards and principles and
assist in making judgments regarding the appropriate
resolution of particular conflicts. Resolving potential
conflicts necessarily depends on the facts and circumstances
of a particular situation and the application of experienced
and informed judgment.
At the transaction level, various people and groups have
roles. As a general matter, the Business Selection and
Conflicts Resolution Group reviews all financing and
advisory assignments in Investment Banking and investing,
lending and other activities of the firm. Various transaction
oversight committees, such as the Firmwide Capital,
Commitments and Suitability Committees and other
committees across the firm, also review new underwritings,
loans, investments and structured products. These
committees work with internal and external lawyers and
the Compliance Division to evaluate and address any actual
or potential conflicts.
We regularly assess our policies and procedures that
address conflicts of interest in an effort to conduct our
business in accordance with the highest ethical standards
and in compliance with all applicable laws, rules,
andregulations.
80 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Liquidity Risk Management
Liquidity is of critical importance to financial institutions.
Most of the recent failures of financial institutions have
occurred in large part due to insufficient liquidity.
Accordingly, the firm has in place a comprehensive and
conservative set of liquidity and funding policies to address
both firm-specific and broader industry or market liquidity
events. Our principal objective is to be able to fund the firm
and to enable our core businesses to continue to serve clients
and generate revenues, even under adverse circumstances.
We manage liquidity risk according to the
following principles:
Excess Liquidity. We maintain substantial excess liquidity
to meet a broad range of potential cash outflows and
collateral needs in a stressed environment.
Asset-Liability Management. We assess anticipated
holding periods for our assets and their expected liquidity in
a stressed environment. We manage the maturities and
diversity of our funding across markets, products and
counterparties, and seek to maintain liabilities of
appropriate tenor relative to our asset base.
Contingency Funding Plan. We maintain a contingency
funding plan to provide a framework for analyzing and
responding to a liquidity crisis situation or periods of
market stress. This framework sets forth the plan of action
to fund normal business activity in emergency and stress
situations. These principles are discussed in more
detail below.
Excess Liquidity
Our most important liquidity policy is to pre-fund our
estimated potential cash and collateral needs during a
liquidity crisis and hold this excess liquidity in the form of
unencumbered, highly liquid securities and cash. We believe
that the securities held in our global core excess would be
readily convertible to cash in a matter of days, through
liquidation, by entering into repurchase agreements or from
maturities of reverse repurchase agreements, and that this
cash would allowus to meet immediate obligations without
needing to sell other assets or depend on additional funding
fromcredit-sensitive markets.
As of December 2012 and December 2011, the fair value of
the securities and certain overnight cash deposits included
in our GCE totaled $174.62 billion and $171.58 billion,
respectively. Based on the results of our internal liquidity
risk model, discussed below, as well as our consideration of
other factors including, but not limited to, a qualitative
assessment of the condition of the financial markets and the
firm, we believe our liquidity position as of December 2012
was appropriate.
The table below presents the fair value of the securities and
certain overnight cash deposits that are included in
our GCE.
Average for the
Year Ended December
in millions 2012 2011
U.S. dollar-denominated $125,111 $125,668
Non-U.S. dollar-denominated 46,984 40,291
Total $172,095 $165,959
The U.S. dollar-denominated excess is composed of
(i) unencumbered U.S. government and federal agency
obligations (including highly liquid U.S. federal agency
mortgage-backed obligations), all of which are eligible as
collateral in Federal Reserve open market operations and
(ii) certain overnight U.S. dollar cash deposits. The
non-U.S. dollar-denominated excess is composed of only
unencumbered German, French, Japanese and United
Kingdom government obligations and certain overnight
cash deposits in highly liquid currencies. We strictly limit
our excess liquidity to this narrowly defined list of securities
and cash because they are highly liquid, even in a difficult
funding environment. We do not include other potential
sources of excess liquidity, such as less liquid
unencumbered securities or committed credit facilities, in
our GCE.
Goldman Sachs 2012 Annual Report 81
Management’s Discussion and Analysis
The table below presents the fair value of our GCE by
asset class.
Average for the
Year Ended December
in millions 2012 2011
Overnight cash deposits $ 52,233 $ 34,622
U.S. government obligations 72,379 88,528
U.S. federal agency obligations, including
highly liquid U.S. federal agency
mortgage-backed obligations 2,313 5,018
German, French, Japanese and United
Kingdom government obligations 45,170 37,791
Total $172,095 $165,959
The GCE is held at Group Inc. and our major broker-dealer
and bank subsidiaries, as presented in the table below.
Average for the
Year Ended December
in millions 2012 2011
Group Inc. $ 37,405 $ 49,548
Major broker-dealer subsidiaries 78,229 75,086
Major bank subsidiaries 56,461 41,325
Total $172,095 $165,959
Our GCE reflects the following principles:
‰ The first days or weeks of a liquidity crisis are the most
critical to a company’s survival.
‰ Focus must be maintained on all potential cash and
collateral outflows, not just disruptions to financing
flows. Our businesses are diverse, and our liquidity needs
are determined by many factors, including market
movements, collateral requirements and client
commitments, all of which can change dramatically in a
difficult funding environment.
‰ During a liquidity crisis, credit-sensitive funding,
including unsecured debt and some types of secured
financing agreements, may be unavailable, and the terms
(e.g., interest rates, collateral provisions and tenor) or
availability of other types of secured financing
may change.
‰ As a result of our policy to pre-fund liquidity that we
estimate may be needed in a crisis, we hold more
unencumbered securities and have larger debt balances
than our businesses would otherwise require. We believe
that our liquidity is stronger with greater balances of
highly liquid unencumbered securities, even though it
increases our total assets and our funding costs.
We believe that our GCE provides us with a resilient
source of funds that would be available in advance of
potential cash and collateral outflows and gives us
significant flexibility in managing through a difficult
funding environment.
In order to determine the appropriate size of our GCE, we
use an internal liquidity model, referred to as the Modeled
Liquidity Outflow, which captures and quantifies the firm’s
liquidity risks. We also consider other factors including, but
not limited to, an assessment of our potential intraday
liquidity needs and a qualitative assessment of the condition
of the financial markets and the firm.
We distribute our GCE across entities, asset types, and
clearing agents to provide us with sufficient operating
liquidity to ensure timely settlement in all major markets,
even in a difficult funding environment.
We maintain our GCE to enable us to meet current and
potential liquidity requirements of our parent company,
Group Inc., and our major broker-dealer and bank
subsidiaries. The Modeled Liquidity Outflow incorporates
a consolidated requirement as well as a standalone
requirement for each of our major broker-dealer and bank
subsidiaries. Liquidity held directly in each of these
subsidiaries is intended for use only by that subsidiary to
meet its liquidity requirements and is assumed not to be
available to Group Inc. unless (i) legally provided for and
(ii) there are no additional regulatory, tax or other
restrictions. We hold a portion of our GCE directly at
Group Inc. to support consolidated requirements not
accounted for in the major subsidiaries. In addition to the
GCE, we maintain operating cash balances in several of our
other operating entities, primarily for use in specific
currencies, entities, or jurisdictions where we do not have
immediate access to parent company liquidity.
In addition to our GCE, we have a significant amount of
other unencumbered cash and financial instruments,
including other government obligations, high-grade money
market securities, corporate obligations, marginable
equities, loans and cash deposits not included in our GCE.
The fair value of these assets averaged $87.09 billion and
$83.32 billion for the years ended December 2012 and
December 2011, respectively. We do not consider these
assets liquid enough to be eligible for our GCE liquidity
pool and therefore conservatively do not assume we will
generate liquidity from these assets in our Modeled
Liquidity Outflow.
82 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Modeled Liquidity Outflow. Our Modeled Liquidity
Outflow is based on a scenario that includes both a
market-wide stress and a firm-specific stress, characterized
by the following qualitative elements:
‰ Severely challenged market environments, including low
consumer and corporate confidence, financial and
political instability, adverse changes in market values,
including potential declines in equity markets and
widening of credit spreads.
‰ A firm-specific crisis potentially triggered by material
losses, reputational damage, litigation, executive
departure, and/or a ratings downgrade.
The following are the critical modeling parameters of the
Modeled Liquidity Outflow:
‰ Liquidity needs over a 30-day scenario.
‰ A two-notch downgrade of the firm’s long-term senior
unsecured credit ratings.
‰ A combination of contractual outflows, such as
upcoming maturities of unsecured debt, and contingent
outflows (e.g., actions though not contractually required,
we may deem necessary in a crisis). We assume that most
contingent outflows will occur within the initial days and
weeks of a crisis.
‰ No issuance of equity or unsecured debt.
‰ No support from government funding facilities. Although
we have access to various central bank funding programs,
we do not assume reliance on them as a source of funding
in a liquidity crisis.
‰ Maintenance of our normal business levels. We do not
assume asset liquidation, other than the GCE.
The Modeled Liquidity Outflow is calculated and reported
to senior management on a daily basis. We regularly refine
our model to reflect changes in market or economic
conditions and the firm’s business mix.
The potential contractual and contingent cash and
collateral outflows covered in our Modeled Liquidity
Outflowinclude:
Unsecured Funding
‰ Contractual: All upcoming maturities of unsecured
long-term debt, commercial paper, promissory notes and
other unsecured funding products. We assume that we
will be unable to issue newunsecured debt or rollover any
maturing debt.
‰ Contingent: Repurchases of our outstanding long-term
debt, commercial paper and hybrid financial instruments
in the ordinary course of business as a market maker.
Deposits
‰ Contractual: All upcoming maturities of term deposits.
We assume that we will be unable to raise new term
deposits or rollover any maturing termdeposits.
‰ Contingent: Withdrawals of bank deposits that have no
contractual maturity. The withdrawal assumptions
reflect, among other factors, the type of deposit, whether
the deposit is insured or uninsured, and the firm’s
relationship with the depositor.
Secured Funding
‰ Contractual: A portion of upcoming contractual
maturities of secured funding due to either the inability to
refinance or the ability to refinance only at wider haircuts
(i.e., on terms which require us to post additional
collateral). Our assumptions reflect, among other factors,
the quality of the underlying collateral, counterparty roll
probabilities (our assessment of the counterparty’s
likelihood of continuing to provide funding on a secured
basis at the maturity of the trade) and
counterparty concentration.
‰ Contingent: A decline in value of financial assets pledged
as collateral for financing transactions, which would
necessitate additional collateral postings under
those transactions.
Goldman Sachs 2012 Annual Report 83
Management’s Discussion and Analysis
OTCDerivatives
‰ Contingent: Collateral postings to counterparties due to
adverse changes in the value of our OTCderivatives.
‰ Contingent: Other outflows of cash or collateral related
to OTC derivatives, including the impact of trade
terminations, collateral substitutions, collateral disputes,
collateral calls or termination payments required by a
two-notch downgrade in our credit ratings, and collateral
that has not been called by counterparties, but is available
to them.
Exchange-Traded Derivatives
‰ Contingent: Variation margin postings required due to
adverse changes in the value of our outstanding
exchange-traded derivatives.
‰ Contingent: An increase in initial margin and guaranty
fund requirements by derivative clearing houses.
Customer Cash and Securities
‰ Contingent: Liquidity outflows associated with our prime
brokerage business, including withdrawals of customer
credit balances, and a reduction in customer short
positions, which serve as a funding source for
long positions.
Unfunded Commitments
‰ Contingent: Draws on our unfunded commitments. Draw
assumptions reflect, among other things, the type of
commitment and counterparty.
Other
‰ Other upcoming large cash outflows, such as
taxpayments.
Asset-Liability Management
Our liquidity risk management policies are designed to
ensure we have a sufficient amount of financing, even when
funding markets experience persistent stress. We seek to
maintain a long-dated and diversified funding profile,
taking into consideration the characteristics and liquidity
profile of our assets.
Our approach to asset-liability management includes:
‰ Conservatively managing the overall characteristics of
our funding book, with a focus on maintaining long-term,
diversified sources of funding in excess of our current
requirements. See “Balance Sheet and Funding Sources —
Funding Sources” for additional details.
‰ Actively managing and monitoring our asset base, with
particular focus on the liquidity, holding period and our
ability to fund assets on a secured basis. This enables us to
determine the most appropriate funding products and
tenors. See “Balance Sheet and Funding Sources —
Balance Sheet Management” for more detail on our
balance sheet management process and “— Funding
Sources — Secured Funding” for more detail on asset
classes that may be harder to fund on a secured basis.
‰ Raising secured and unsecured financing that has a long
tenor relative to the liquidity profile of our assets. This
reduces the risk that our liabilities will come due in
advance of our ability to generate liquidity from the sale
of our assets. Because we maintain a highly liquid balance
sheet, the holding period of certain of our assets may be
materially shorter than their contractual maturity dates.
Our goal is to ensure that the firm maintains sufficient
liquidity to fund its assets and meet its contractual and
contingent obligations in normal times as well as during
periods of market stress. Through our dynamic balance
sheet management process (see “Balance Sheet and Funding
Sources —Balance Sheet Management”), we use actual and
projected asset balances to determine secured and
unsecured funding requirements. Funding plans are
reviewed and approved by the Firmwide Finance
Committee on a quarterly basis. In addition, senior
managers in our independent control and support functions
regularly analyze, and the Firmwide Finance Committee
reviews, our consolidated total capital position (unsecured
long-term borrowings plus total shareholders’ equity) so
that we maintain a level of long-term funding that is
sufficient to meet our long-term financing requirements. In
a liquidity crisis, we would first use our GCE in order to
avoid reliance on asset sales (other than our GCE).
However, we recognize that orderly asset sales may be
prudent or necessary in a severe or persistent liquidity crisis.
84 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Subsidiary Funding Policies. The majority of our
unsecured funding is raised by Group Inc. which lends the
necessary funds to its subsidiaries, some of which are
regulated, to meet their asset financing, liquidity and capital
requirements. In addition, Group Inc. provides its regulated
subsidiaries with the necessary capital to meet their
regulatory requirements. The benefits of this approach to
subsidiary funding are enhanced control and greater
flexibility to meet the funding requirements of our
subsidiaries. Funding is also raised at the subsidiary level
through a variety of products, including secured funding,
unsecured borrowings and deposits.
Our intercompany funding policies assume that, unless
legally provided for, a subsidiary’s funds or securities are
not freely available to its parent company or other
subsidiaries. In particular, many of our subsidiaries are
subject to laws that authorize regulatory bodies to block or
reduce the flow of funds from those subsidiaries to Group
Inc. Regulatory action of that kind could impede access to
funds that Group Inc. needs to make payments on its
obligations. Accordingly, we assume that the capital
provided to our regulated subsidiaries is not available to
Group Inc. or other subsidiaries and any other financing
provided to our regulated subsidiaries is not available until
the maturity of such financing.
Group Inc. has provided substantial amounts of equity and
subordinated indebtedness, directly or indirectly, to its
regulated subsidiaries. For example, as of December 2012,
Group Inc. had $29.52 billion of equity and subordinated
indebtedness invested in GS&Co., its principal U.S.
registered broker-dealer; $29.45 billion invested in GSI, a
regulated U.K. broker-dealer; $2.62 billion invested in
GSEC, a U.S. registered broker-dealer; $3.78 billion
invested in Goldman Sachs Japan Co., Ltd., a regulated
Japanese broker-dealer; and $20.67 billion invested in GS
Bank USA, a regulated New York State-chartered bank.
Group Inc. also provided, directly or indirectly,
$68.44 billion of unsubordinated loans and $11.37 billion
of collateral to these entities, substantially all of which was
to GS&Co., GSI and GS Bank USA, as of December 2012.
In addition, as of December 2012, Group Inc. had
significant amounts of capital invested in and loans to its
other regulated subsidiaries.
Contingency Funding Plan
The Goldman Sachs contingency funding plan sets out the
plan of action we would use to fund business activity in
crisis situations and periods of market stress. The
contingency funding plan outlines a list of potential risk
factors, key reports and metrics that are reviewed on an
ongoing basis to assist in assessing the severity of, and
managing through, a liquidity crisis and/or market
dislocation. The contingency funding plan also describes in
detail the firm’s potential responses if our assessments
indicate that the firm has entered a liquidity crisis, which
include pre-funding for what we estimate will be our
potential cash and collateral needs as well as utilizing
secondary sources of liquidity. Mitigants and action items
to address specific risks which may arise are also described
and assigned to individuals responsible for execution.
The contingency funding plan identifies key groups of
individuals to foster effective coordination, control and
distribution of information, all of which are critical in the
management of a crisis or period of market stress. The
contingency funding plan also details the responsibilities of
these groups and individuals, which include making and
disseminating key decisions, coordinating all contingency
activities throughout the duration of the crisis or period of
market stress, implementing liquidity maintenance activities
and managing internal and external communication.
Proposed Liquidity Framework
The Basel Committee on Banking Supervision’s
international framework for liquidity risk measurement,
standards and monitoring calls for imposition of a liquidity
coverage ratio, designed to ensure that the banking entity
maintains an adequate level of unencumbered high-quality
liquid assets based on expected cash outflows under an
acute liquidity stress scenario, and a net stable funding
ratio, designed to promote more medium- and long-term
funding of the assets and activities of banking entities over a
one-year time horizon. While the principles behind the new
framework are broadly consistent with our current liquidity
management framework, it is possible that the
implementation of these standards could impact our
liquidity and funding requirements and practices. Under the
Basel Committee framework, the liquidity coverage ratio
would be introduced on January 1, 2015; however there
would be a phase-in period whereby firms would have a
60% minimum in 2015 which would be raised 10% per
year until it reaches 100% in 2019. The net stable funding
ratio is not expected to be introduced as a requirement until
January 1, 2018.
Goldman Sachs 2012 Annual Report 85
Management’s Discussion and Analysis
Credit Ratings
The table belowpresents the unsecured credit ratings and outlook of Group Inc.
As of December 2012
Short-Term
Debt
Long-Term
Debt
Subordinated
Debt
Trust
Preferred
1
Preferred
Stock
Ratings
Outlook
DBRS, Inc. R-1 (middle) A (high) A A BBB
3
Stable
Fitch, Inc. F1 A
2
A- BBB- BB+
3
Stable
Moody’s Investors Service (Moody’s) P-2 A3
2
Baa1 Baa3 Ba2
3
Negative
4
Standard & Poor’s Ratings Services (S&P) A-2 A-
2
BBB+ BB+ BB+
3
Negative
Rating and Investment Information, Inc. a-1 A+ A N/A N/A Negative
1. Trust preferred securities issued by Goldman Sachs Capital I.
2. Includes the senior guaranteed trust securities issued by Murray Street Investment Trust I and Vesey Street Investment Trust I.
3. Includes Group Inc.’s non-cumulative preferred stock and the APEX issued by Goldman Sachs Capital II and Goldman Sachs Capital III.
4. The ratings outlook for trust preferred and preferred stock is stable.
The table belowpresents the unsecured credit ratings of GS Bank USA, GS&Co. and GSI.
As of December 2012
Short-Term
Debt
Long-Term
Debt
Short-Term
Bank Deposits
Long-Term
Bank Deposits
Fitch, Inc.
GS Bank USA F1 A F1 A+
GS&Co. F1 A N/A N/A
Moody’s
GS Bank USA P-1 A2 P-1 A2
S&P
GS Bank USA A-1 A N/A N/A
GS&Co. A-1 A N/A N/A
GSI A-1 A N/A N/A
On January 24, 2013, Fitch, Inc. assigned GSI a rating of F1
for short-termdebt and Afor long-termdebt.
We rely on the short-term and long-term debt capital
markets to fund a significant portion of our day-to-day
operations and the cost and availability of debt financing is
influenced by our credit ratings. Credit ratings are also
important when we are competing in certain markets, such
as OTC derivatives, and when we seek to engage in
longer-term transactions. See “Certain Risk Factors That
May Affect Our Businesses” below and “Risk Factors” in
Part I, Item 1A of our Annual Report on Form 10-K for a
discussion of the risks associated with a reduction in our
credit ratings.
86 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
We believe our credit ratings are primarily based on the
credit rating agencies’ assessment of:
‰ our liquidity, market, credit and operational risk
management practices;
‰ the level and variability of our earnings;
‰ our capital base;
‰ our franchise, reputation and management;
‰ our corporate governance; and
‰ the external operating environment, including the
assumed level of government support.
Certain of the firm’s derivatives have been transacted under
bilateral agreements with counterparties who may require us
to post collateral or terminate the transactions based on
changes in our credit ratings. We assess the impact of these
bilateral agreements by determining the collateral or
termination payments that would occur assuming a
downgrade by all rating agencies. A downgrade by any one
rating agency, depending on the agency’s relative ratings of
the firm at the time of the downgrade, may have an impact
which is comparable to the impact of a downgrade by all
rating agencies. We allocate a portion of our GCE to ensure
we would be able to make the additional collateral or
termination payments that may be required in the event of a
two-notch reduction in our long-term credit ratings, as well
as collateral that has not been called by counterparties, but is
available to them. The table below presents the additional
collateral or termination payments that could have been
called at the reporting date by counterparties in the event of a
one-notch and two-notch downgrade in our credit ratings.
As of December
in millions 2012 2011
Additional collateral or termination payments for a
one-notch downgrade $1,534 $1,303
Additional collateral or termination payments for a
two-notch downgrade 2,500 2,183
Cash Flows
As a global financial institution, our cash flows are complex
and bear little relation to our net earnings and net assets.
Consequently, we believe that traditional cash flowanalysis
is less meaningful in evaluating our liquidity position than
the excess liquidity and asset-liability management policies
described above. Cash flow analysis may, however, be
helpful in highlighting certain macro trends and strategic
initiatives in our businesses.
Year Ended December 2012. Our cash and cash
equivalents increased by $16.66 billion to $72.67 billion at
the end of 2012. We generated $9.14 billion in net cash
from operating and investing activities. We generated
$7.52 billion in net cash from financing activities from an
increase in bank deposits, partially offset by net repayments
of unsecured and secured long-termborrowings.
Year Ended December 2011. Our cash and cash
equivalents increased by $16.22 billion to $56.01 billion at
the end of 2011. We generated $23.13 billion in net cash
from operating and investing activities. We used net cash of
$6.91 billion for financing activities, primarily for
repurchases of our Series G Preferred Stock and common
stock, partially offset by an increase in bank deposits.
Year Ended December 2010. Our cash and cash
equivalents increased by $1.50 billion to $39.79 billion at
the end of 2010. We generated $7.84 billion in net cash
from financing activities primarily from net proceeds from
issuances of short-term secured financings. We used net
cash of $6.34 billion for operating and investing activities,
primarily to fund an increase in securities purchased under
agreements to resell and an increase in cash and securities
segregated for regulatory and other purposes, partially
offset by cash generated from a decrease in
securities borrowed.
Goldman Sachs 2012 Annual Report 87
Management’s Discussion and Analysis
Market Risk Management
Overview
Market risk is the risk of loss in the value of our inventory
due to changes in market prices. We hold inventory
primarily for market making for our clients and for our
investing and lending activities. Our inventory therefore
changes based on client demands and our investment
opportunities. Our inventory is accounted for at fair value
and therefore fluctuates on a daily basis, with the related
gains and losses included in “Market making,” and “Other
principal transactions.” Categories of market risk include
the following:
‰ Interest rate risk: results from exposures to changes in the
level, slope and curvature of yield curves, the volatilities
of interest rates, mortgage prepayment speeds and
credit spreads.
‰ Equity price risk: results from exposures to changes in
prices and volatilities of individual equities, baskets of
equities and equity indices.
‰ Currency rate risk: results from exposures to changes in
spot prices, forward prices and volatilities of
currency rates.
‰ Commodity price risk: results from exposures to changes
in spot prices, forward prices and volatilities of
commodities, such as electricity, natural gas, crude oil,
petroleumproducts, and precious and base metals.
Market Risk Management Process
We manage our market risk by diversifying exposures,
controlling position sizes and establishing economic hedges
in related securities or derivatives. This includes:
‰ accurate and timely exposure information incorporating
multiple risk metrics;
‰ a dynamic limit setting framework; and
‰ constant communication among revenue-producing
units, risk managers and senior management.
Market Risk Management, which is independent of the
revenue-producing units and reports to the firm’s chief risk
officer, has primary responsibility for assessing, monitoring
and managing market risk at the firm. We monitor and
control risks through strong firmwide oversight and
independent control and support functions across the firm’s
global businesses.
Managers in revenue-producing units are accountable for
managing risk within prescribed limits. These managers
have in-depth knowledge of their positions, markets and
the instruments available to hedge their exposures.
Managers in revenue-producing units and Market Risk
Management discuss market information, positions and
estimated risk and loss scenarios on an ongoing basis.
Risk Measures
Market Risk Management produces risk measures and
monitors them against market risk limits set by our firm’s
risk committees. These measures reflect an extensive range
of scenarios and the results are aggregated at trading desk,
business and firmwide levels.
We use a variety of risk measures to estimate the size of
potential losses for both moderate and more extreme
market moves over both short-term and long-term time
horizons. Risk measures used for shorter-term periods
include VaR and sensitivity metrics. For longer-term
horizons, our primary risk measures are stress tests. Our
risk reports detail key risks, drivers and changes for each
desk and business, and are distributed daily to senior
management of both our revenue-producing units and our
independent control and support functions.
Systems
We have made a significant investment in technology to
monitor market risk including:
‰ an independent calculation of VaRand stress measures;
‰ risk measures calculated at individual position levels;
‰ attribution of risk measures to individual risk factors of
each position;
‰ the ability to report many different views of the risk
measures (e.g., by desk, business, product type or legal
entity); and
‰ the ability to produce ad hoc analyses in a timely manner.
88 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Value-at-Risk
VaR is the potential loss in value of inventory positions due
to adverse market movements over a defined time horizon
with a specified confidence level. We typically employ a
one-day time horizon with a 95% confidence level. We use
a single VaR model which captures risks including interest
rates, equity prices, currency rates and commodity prices.
As such, VaR facilitates comparison across portfolios of
different risk characteristics. VaR also captures the
diversification of aggregated risk at the firmwide level.
We are aware of the inherent limitations to VaR and
therefore use a variety of risk measures in our market risk
management process. Inherent limitations to VaRinclude:
‰ VaR does not estimate potential losses over longer time
horizons where moves may be extreme.
‰ VaR does not take account of the relative liquidity of
different risk positions.
‰ Previous moves in market risk factors may not produce
accurate predictions of all future market moves.
When calculating VaR, we use historical simulations with
full valuation of approximately 70,000 market factors.
VaR is calculated at a position level based on
simultaneously shocking the relevant market risk factors
for that position. We sample from 5 years of historical data
to generate the scenarios for our VaR calculation. The
historical data is weighted so that the relative importance of
the data reduces over time. This gives greater importance to
more recent observations and reflects current asset
volatilities, which improves the accuracy of our estimates of
potential loss. As a result, even if our inventory positions
were unchanged, our VaR would increase with increasing
market volatility and vice versa.
Given its reliance on historical data, VaRis most effective in
estimating risk exposures in markets in which there are no
sudden fundamental changes or shifts in market conditions.
Our VaRmeasure does not include:
‰ positions that are best measured and monitored using
sensitivity measures; and
‰ the impact of changes in counterparty and our own credit
spreads on derivatives, as well as changes in our own
credit spreads on unsecured borrowings for which the fair
value option was elected.
Model Review and Validation
Our VaR model is subject to review and validation by our
independent model validation group at least annually. This
reviewincludes:
‰ a critical evaluation of the model, its theoretical
soundness and adequacy for intended use;
‰ verification of the testing strategy utilized by the model
developers to ensure that the model functions as
intended; and
‰ verification of the suitability of the calculation techniques
incorporated in the model.
Our VaR model is regularly reviewed and enhanced in
order to incorporate changes in the composition of
inventory positions, as well as variations in market
conditions. Prior to implementing significant changes to
our assumptions and/or model, we perform model
validation and test runs. Significant changes to our VaR
model are reviewed with the firm’s chief risk officer and
chief financial officer, and approved by the Firmwide
RiskCommittee.
We evaluate the accuracy of our VaR model through daily
backtesting (i.e., comparing daily trading net revenues to
the VaR measure calculated as of the prior business day) at
the firmwide level and for each of our businesses and major
regulated subsidiaries.
Stress Testing
We use stress testing to examine risks of specific portfolios
as well as the potential impact of significant risk exposures
across the firm. We use a variety of stress testing techniques
to calculate the potential loss from a wide range of market
moves on the firm’s portfolios, including sensitivity
analysis, scenario analysis and firmwide stress tests. The
results of our various stress tests are analyzed together for
risk management purposes.
Sensitivity analysis is used to quantify the impact of a
market move in a single risk factor across all positions (e.g.,
equity prices or credit spreads) using a variety of defined
market shocks, ranging from those that could be expected
over a one-day time horizon up to those that could take
many months to occur. We also use sensitivity analysis to
quantify the impact of the default of a single corporate
entity, which captures the risk of large or
concentratedexposures.
Goldman Sachs 2012 Annual Report 89
Management’s Discussion and Analysis
Scenario analysis is used to quantify the impact of a
specified event, including how the event impacts multiple
risk factors simultaneously. For example, for sovereign
stress testing we calculate potential direct exposure
associated with our sovereign inventory as well as the
corresponding debt, equity and currency exposures
associated with our non-sovereign inventory that may be
impacted by the sovereign distress. When conducting
scenario analysis, we typically consider a number of
possible outcomes for each scenario, ranging from
moderate to severely adverse market impacts. In addition,
these stress tests are constructed using both historical events
and forward-looking hypothetical scenarios.
Firmwide stress testing combines market, credit,
operational and liquidity risks into a single combined
scenario. Firmwide stress tests are primarily used to assess
capital adequacy as part of the ICAAP process; however,
we also ensure that firmwide stress testing is integrated into
our risk governance framework. This includes selecting
appropriate scenarios to use for the ICAAP process. See
“Equity Capital — Internal Capital Adequacy Assessment
Process” above for further information about our
ICAAPprocess.
Unlike VaR measures, which have an implied probability
because they are calculated at a specified confidence level,
there is generally no implied probability that our stress test
scenarios will occur. Instead, stress tests are used to model
both moderate and more extreme moves in underlying
market factors. When estimating potential loss, we
generally assume that our positions cannot be reduced or
hedged (although experience demonstrates that we are
generally able to do so).
Stress test scenarios are conducted on a regular basis as part
of the firm’s routine risk management process and on an ad
hoc basis in response to market events or concerns. Stress
testing is an important part of the firm’s risk management
process because it allows us to quantify our exposure to tail
risks, highlight potential loss concentrations, undertake
risk/reward analysis, and assess and mitigate our
riskpositions.
Limits
We use risk limits at various levels in the firm (including
firmwide, product and business) to govern risk appetite by
controlling the size of our exposures to market risk. Limits
are set based on VaR and on a range of stress tests relevant
to the firm’s exposures. Limits are reviewed frequently and
amended on a permanent or temporary basis to reflect
changing market conditions, business conditions or
tolerance for risk.
The Firmwide Risk Committee sets market risk limits at
firmwide and product levels and our Securities Division
Risk Committee sets sub-limits for market-making and
investing activities at a business level. The purpose of the
firmwide limits is to assist senior management in
controlling the firm’s overall risk profile. Sub-limits set the
desired maximum amount of exposure that may be
managed by any particular business on a day-to-day basis
without additional levels of senior management approval,
effectively leaving day-to-day trading decisions to
individual desk managers and traders. Accordingly, sub-
limits are a management tool designed to ensure
appropriate escalation rather than to establish maximum
risk tolerance. Sub-limits also distribute risk among various
businesses in a manner that is consistent with their level of
activity and client demand, taking into account the relative
performance of each area.
Our market risk limits are monitored daily by Market Risk
Management, which is responsible for identifying and
escalating, on a timely basis, instances where limits have
been exceeded. The business-level limits that are set by the
Securities Division Risk Committee are subject to the same
scrutiny and limit escalation policy as the firmwide limits.
When a risk limit has been exceeded (e.g., due to changes in
market conditions, such as increased volatilities or changes
in correlations), it is reported to the appropriate risk
committee and a discussion takes place with the relevant
desk managers, after which either the risk position is
reduced or the risk limit is temporarily or
permanently increased.
90 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Metrics
We analyze VaR at the firmwide level and a variety of more
detailed levels, including by risk category, business, and
region. The tables below present, by risk category, average
daily VaR and period-end VaR, as well as the high and low
VaR for the period. Diversification effect in the tables
below represents the difference between total VaR and the
sum of the VaRs for the four risk categories. This effect
arises because the four market risk categories are not
perfectly correlated.
Average Daily VaR
in millions
Risk Categories
Year Ended December
2012 2011 2010
Interest rates $ 78 $ 94 $ 93
Equity prices 26 33 68
Currency rates 14 20 32
Commodity prices 22 32 33
Diversification effect (54) (66) (92)
Total $ 86 $113 $134
Our average daily VaR decreased to $86 million in 2012
from $113 million in 2011, reflecting a decrease in the
interest rates category due to lower levels of volatility,
decreases in the commodity prices and currency rates
categories due to reduced exposures and lower levels of
volatility, and a decrease in the equity prices category due to
reduced exposures. These decreases were partially offset by
a decrease in the diversification benefit across
riskcategories.
Our average daily VaR decreased to $113 million in 2011
from$134 million in 2010, primarily reflecting decreases in
the equity prices and currency rates categories, principally
due to reduced exposures. These decreases were partially
offset by a decrease in the diversification benefit across
riskcategories.
Year-End VaR and High and Low VaR
in millions
Risk Categories
As of December
Year Ended
December 2012
2012 2011 High Low
Interest rates $ 64 $100 $103 $61
Equity prices 22 31 92 14
Currency rates 9 14 22 9
Commodity prices 18 23 32 15
Diversification effect (42) (69)
Total $ 71 $ 99 $122 $67
Our daily VaR decreased to $71 million as of
December 2012 from $99 million as of December 2011,
primarily reflecting decreases in the interest rates and equity
prices categories due to lower levels of volatility. These
decreases were partially offset by a decrease in the
diversification benefit across risk categories.
During the year ended December 2012, the firmwide VaR
risk limit was not exceeded and was reduced on one
occasion due to lower levels of volatility.
During the year ended December 2011, the firmwide VaR
risk limit was exceeded on one occasion. It was resolved by
a temporary increase in the firmwide VaR risk limit, which
was subsequently made permanent due to higher levels of
volatility. The firmwide VaR risk limit had previously been
reduced on one occasion in 2011, reflecting lower risk
utilization and the market environment.
Goldman Sachs 2012 Annual Report 91
Management’s Discussion and Analysis
The chart belowreflects the VaRover the last four quarters.
0
20
40
60
80
100
120
140
160
180
200
D
a
i
l
y

T
r
a
d
i
n
g

V
a
R

(
$
)
Daily VaR
$ in millions
Fourth Quarter
2012
First Quarter
2012
Third Quarter
2012
Second Quarter
2012
The chart below presents the frequency distribution of our
daily trading net revenues for substantially all inventory
positions included in VaR for the year ended
December 2012.
0 0
0
20
60
40
80
100
N
u
m
b
e
r

o
f

D
a
y
s

Daily Trading Net Revenues ($)
Daily Trading Net Revenues
$ in millions
100
2 2
12
27
41
56
75
37
Daily trading net revenues are compared with VaR
calculated as of the end of the prior business day. Trading
losses incurred on a single day did not exceed our 95%one-
day VaR during 2012. Trading losses incurred on a single
day exceeded our 95%one-day VaR (i.e., a VaRexception)
on three occasions during 2011.
During periods in which the firm has significantly more
positive net revenue days than net revenue loss days, we
expect to have fewer VaR exceptions because, under
normal conditions, our business model generally produces
positive net revenues. In periods in which our franchise
revenues are adversely affected, we generally have more loss
days, resulting in more VaR exceptions. In addition, VaR
backtesting is performed against total daily market-making
revenues, including bid/offer net revenues, which are more
likely than not to be positive by their nature.
92 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Sensitivity Measures
Certain portfolios and individual positions are not included
in VaR because VaR is not the most appropriate risk
measure. The market risk of these positions is determined
by estimating the potential reduction in net revenues of a
10%decline in the underlying asset value.
The table below presents market risk for positions that are
not included in VaR. These measures do not reflect
diversification benefits across asset categories and therefore
have not been aggregated.
Asset Categories 10% Sensitivity
Amount as of December
in millions 2012 2011
ICBC $ 208 $ 212
Equity (excluding ICBC)
1
2,263 2,458
Debt
2
1,676 1,521
1. Relates to private and restricted public equity securities, including interests in
firm-sponsored funds that invest in corporate equities and real estate and
interests in firm-sponsored hedge funds.
2. Primarily relates to interests in our firm-sponsored funds that invest in
corporate mezzanine and senior debt instruments. Also includes loans
backed by commercial and residential real estate, corporate bank loans and
other corporate debt, including acquired portfolios of distressed loans.
VaR excludes the impact of changes in counterparty and
our own credit spreads on derivatives as well as changes in
our own credit spreads on unsecured borrowings for which
the fair value option was elected. The estimated sensitivity
to a one basis point increase in credit spreads (counterparty
and our own) on derivatives was a $3 million gain
(including hedges) as of December 2012. In addition, the
estimated sensitivity to a one basis point increase in our
own credit spreads on unsecured borrowings for which the
fair value option was elected was a $7 million gain
(including hedges) as of December 2012. However, the
actual net impact of a change in our own credit spreads is
also affected by the liquidity, duration and convexity (as the
sensitivity is not linear to changes in yields) of those
unsecured borrowings for which the fair value option was
elected, as well as the relative performance of any
hedges undertaken.
The firm engages in insurance activities where we reinsure
and purchase portfolios of insurance risk and pension
liabilities. The risks associated with these activities include,
but are not limited to: equity price, interest rate,
reinvestment and mortality risk. The firm mitigates risks
associated with insurance activities through the use of
reinsurance and hedging. Certain of the assets associated
with the firm’s insurance activities are included in VaR. In
addition to the positions included in VaR, we held
$9.07 billion of securities accounted for as available-for-
sale as of December 2012, which support the firm’s
reinsurance business. As of December 2012, our available-
for-sale securities primarily consisted of $3.63 billion of
corporate debt securities with an average yield of 4%, the
majority of which will mature after five years, $3.38 billion
of mortgage and other asset-backed loans and securities
with an average yield of 6%, the majority of which will
mature after ten years, and $856 million of U.S.
government and federal agency obligations with an average
yield of 3%, the majority of which will mature after five
years. As of December 2012, such assets were classified as
held for sale and were included in “Other assets.” See
Note 12 to the consolidated financial statements for further
information about assets held for sale. As of
December 2011, we held $4.86 billion of securities
accounted for as available-for-sale, primarily consisting of
$1.81 billion of corporate debt securities with an average
yield of 5%, the majority of which will mature after five
years, $1.42 billion of mortgage and other asset-backed
loans and securities with an average yield of 10%, the
majority of which will mature after ten years, and
$662 million of U.S. government and federal agency
obligations with an average yield of 3%, the majority of
which will mature after ten years.
In addition, as of December 2012 and December 2011, we
had commitments and held loans for which we have
obtained credit loss protection from Sumitomo Mitsui
Financial Group, Inc. See Note 18 to the consolidated
financial statements for further information about such
lending commitments. As of December 2012, the firm also
had $6.50 billion of loans held for investment which were
accounted for at amortized cost and included in
“Receivables from customers and counterparties,”
substantially all of which had floating interest rates. The
estimated sensitivity to a 100 basis point increase in interest
rates on such loans was $62 million of additional interest
income over a 12-month period, which does not take into
account the potential impact of an increase in costs to fund
such loans. See Note 8 to the consolidated financial
statements for further information about loans held
for investment.
Additionally, we make investments accounted for under the
equity method and we also make direct investments in real
estate, both of which are included in “Other assets” in the
consolidated statements of financial condition. Direct
investments in real estate are accounted for at cost less
accumulated depreciation. See Note 12 to the consolidated
financial statements for information on “Other assets.”
Goldman Sachs 2012 Annual Report 93
Management’s Discussion and Analysis
Credit Risk Management
Overview
Credit risk represents the potential for loss due to the
default or deterioration in credit quality of a counterparty
(e.g., an OTCderivatives counterparty or a borrower) or an
issuer of securities or other instruments we hold. Our
exposure to credit risk comes mostly from client
transactions in OTC derivatives and loans and lending
commitments. Credit risk also comes fromcash placed with
banks, securities financing transactions (i.e., resale and
repurchase agreements and securities borrowing and
lending activities) and receivables from brokers, dealers,
clearing organizations, customers and counterparties.
Credit Risk Management, which is independent of the
revenue-producing units and reports to the firm’s chief risk
officer, has primary responsibility for assessing, monitoring
and managing credit risk at the firm. The Credit Policy
Committee and the Firmwide Risk Committee establish and
review credit policies and parameters. In addition, we hold
other positions that give rise to credit risk (e.g., bonds held
in our inventory and secondary bank loans). These credit
risks are captured as a component of market risk measures,
which are monitored and managed by Market Risk
Management, consistent with other inventory positions.
Policies authorized by the Firmwide Risk Committee and
the Credit Policy Committee prescribe the level of formal
approval required for the firm to assume credit exposure to
a counterparty across all product areas, taking into account
any applicable netting provisions, collateral or other credit
risk mitigants.
Credit Risk Management Process
Effective management of credit risk requires accurate and
timely information, a high level of communication and
knowledge of customers, countries, industries and
products. Our process for managing credit risk includes:
‰ approving transactions and setting and communicating
credit exposure limits;
‰ monitoring compliance with established credit
exposure limits;
‰ assessing the likelihood that a counterparty will default
on its payment obligations;
‰ measuring the firm’s current and potential credit
exposure and losses resulting fromcounterparty default;
‰ reporting of credit exposures to senior management, the
Board and regulators;
‰ use of credit risk mitigants, including collateral and
hedging; and
‰ communication and collaboration with other
independent control and support functions such as
operations, legal and compliance.
As part of the risk assessment process, Credit Risk
Management performs credit reviews which include initial
and ongoing analyses of our counterparties. A credit review
is an independent judgment about the capacity and
willingness of a counterparty to meet its financial
obligations. For substantially all of our credit exposures,
the core of our process is an annual counterparty review. A
counterparty reviewis a written analysis of a counterparty’s
business profile and financial strength resulting in an
internal credit rating which represents the probability of
default on financial obligations to the firm. The
determination of internal credit ratings incorporates
assumptions with respect to the counterparty’s future
business performance, the nature and outlook for the
counterparty’s industry, and the economic environment.
Senior personnel within Credit Risk Management, with
expertise in specific industries, inspect and approve credit
reviews and internal credit ratings.
Our global credit risk management systems capture credit
exposure to individual counterparties and on an aggregate
basis to counterparties and their subsidiaries (economic
groups). These systems also provide management with
comprehensive information on our aggregate credit risk by
product, internal credit rating, industry, country
andregion.
94 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Risk Measures and Limits
We measure our credit risk based on the potential loss in an
event of non-payment by a counterparty. For derivatives
and securities financing transactions, the primary measure
is potential exposure, which is our estimate of the future
exposure that could arise over the life of a transaction based
on market movements within a specified confidence level.
Potential exposure takes into account netting and collateral
arrangements. For loans and lending commitments, the
primary measure is a function of the notional amount of the
position. We also monitor credit risk in terms of current
exposure, which is the amount presently owed to the firm
after taking into account applicable netting and collateral.
We use credit limits at various levels (counterparty,
economic group, industry, country) to control the size of
our credit exposures. Limits for counterparties and
economic groups are reviewed regularly and revised to
reflect changing appetites for a given counterparty or group
of counterparties. Limits for industries and countries are
based on the firm’s risk tolerance and are designed to allow
for regular monitoring, review, escalation and management
of credit risk concentrations.
Stress Tests/Scenario Analysis
We use regular stress tests to calculate the credit exposures,
including potential concentrations that would result from
applying shocks to counterparty credit ratings or credit risk
factors (e.g., currency rates, interest rates, equity prices).
These shocks include a wide range of moderate and more
extreme market movements. Some of our stress tests
include shocks to multiple risk factors, consistent with the
occurrence of a severe market or economic event. In the
case of sovereign default, we estimate the direct impact of
the default on our sovereign credit exposures, changes to
our credit exposures arising frompotential market moves in
response to the default, and the impact of credit market
deterioration on corporate borrowers and counterparties
that may result from the sovereign default. Unlike potential
exposure, which is calculated within a specified confidence
level, with a stress test there is generally no assumed
probability of these events occurring.
We run stress tests on a regular basis as part of our routine
risk management processes and conduct tailored stress tests
on an ad hoc basis in response to market developments.
Stress tests are regularly conducted jointly with the firm’s
market and liquidity risk functions.
Risk Mitigants
To reduce our credit exposures on derivatives and securities
financing transactions, we may enter into netting
agreements with counterparties that permit us to offset
receivables and payables with such counterparties. We may
also reduce credit risk with counterparties by entering into
agreements that enable us to obtain collateral fromthemon
an upfront or contingent basis and/or to terminate
transactions if the counterparty’s credit rating falls below a
specified level.
For loans and lending commitments, depending on the
credit quality of the borrower and other characteristics of
the transaction, we employ a variety of potential risk
mitigants. Risk mitigants include: collateral provisions,
guarantees, covenants, structural seniority of the bank loan
claims and, for certain lending commitments, provisions in
the legal documentation that allow the firm to adjust loan
amounts, pricing, structure and other terms as market
conditions change. The type and structure of risk mitigants
employed can significantly influence the degree of credit
risk involved in a loan.
When we do not have sufficient visibility into a
counterparty’s financial strength or when we believe a
counterparty requires support from its parent company, we
may obtain third-party guarantees of the counterparty’s
obligations. We may also mitigate our credit risk using
credit derivatives or participation agreements.
Goldman Sachs 2012 Annual Report 95
Management’s Discussion and Analysis
Credit Exposures
The firm’s credit exposures are described further below.
Cash and Cash Equivalents. Cash and cash equivalents
include both interest-bearing and non-interest-bearing
deposits. To mitigate the risk of credit loss, we place
substantially all of our deposits with highly rated banks and
central banks.
OTC Derivatives. Derivatives are reported on a net-by-
counterparty basis (i.e., the net payable or receivable for
derivative assets and liabilities for a given counterparty)
when a legal right of setoff exists under an enforceable
netting agreement.
Derivatives are accounted for at fair value, net of cash
collateral received or posted under credit support
agreements. As credit risk is an essential component of fair
value, the firm includes a credit valuation adjustment
(CVA) in the fair value of derivatives to reflect counterparty
credit risk, as described in Note 7 to the consolidated
financial statements. CVA is a function of the present value
of expected exposure, the probability of counterparty
default and the assumed recovery upon default.
The tables belowpresent the distribution of our exposure to
OTC derivatives by tenor, based on expected duration for
mortgage-related credit derivatives and generally on
remaining contractual maturity for other derivatives, both
before and after the effect of collateral and netting
agreements. Receivable and payable balances for the same
counterparty across tenor categories are netted under
enforceable netting agreements, and cash collateral received
is netted under credit support agreements. Receivable and
payable balances with the same counterparty in the same
tenor category are netted within such tenor category. The
categories shown reflect our internally determined public
rating agency equivalents.
As of December 2012
in millions
Credit Rating Equivalent
0 - 12
Months
1 - 5
Years
5 Years
or Greater Total Netting Exposure
Exposure
Net of
Collateral
AAA/Aaa $ 494 $ 1,934 $ 2,778 $ 5,206 $ (1,476) $ 3,730 $ 3,443
AA/Aa2 4,631 7,483 20,357 32,471 (16,026) 16,445 10,467
A/A2 13,422 26,550 42,797 82,769 (57,868) 24,901 16,326
BBB/Baa2 7,032 12,173 27,676 46,881 (32,962) 13,919 4,577
BB/Ba2 or lower 2,489 5,762 7,676 15,927 (9,116) 6,811 4,544
Unrated 326 927 358 1,611 (13) 1,598 1,259
Total $28,394 $54,829 $101,642 $184,865 $(117,461) $67,404 $40,616
As of December 2011
in millions
Credit Rating Equivalent
0 - 12
Months
1 - 5
Years
5 Years
or Greater Total Netting Exposure
Exposure
Net of
Collateral
AAA/Aaa $ 727 $ 786 $ 2,297 $ 3,810 $ (729) $ 3,081 $ 2,770
AA/Aa2 4,661 10,198 28,094 42,953 (22,972) 19,981 12,954
A/A2 17,704 36,553 50,787 105,044 (73,873) 31,171 17,109
BBB/Baa2 7,376 14,222 25,612 47,210 (36,214) 10,996 6,895
BB/Ba2 or lower 2,896 4,497 6,597 13,990 (6,729) 7,261 4,527
Unrated 752 664 391 1,807 (149) 1,658 1,064
Total $34,116 $66,920 $113,778 $214,814 $(140,666) $74,148 $45,319
96 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Lending Activities. We manage the firm’s traditional
credit origination activities, including funded loans and
lending commitments (both fair value and held for
investment loans and lending commitments), using the
credit risk process, measures and limits described above.
Other lending positions, including secondary trading
positions, are risk-managed as a component of market risk.
Other Credit Exposures. The firmis exposed to credit risk
from its receivables from brokers, dealers and clearing
organizations and customers and counterparties.
Receivables from brokers, dealers and clearing
organizations are primarily comprised of initial margin
placed with clearing organizations and receivables related
to sales of securities which have traded, but not yet settled.
These receivables have minimal credit risk due to the low
probability of clearing organization default and the short-
term nature of receivables related to securities settlements.
Receivables from customers and counterparties are
generally comprised of collateralized receivables related to
customer securities transactions and have minimal credit
risk due to both the value of the collateral received and the
short-termnature of these receivables.
Credit Exposures
As of December 2012, our credit exposures increased as
compared with December 2011, reflecting an increase in
cash and loans and lending commitments, partially offset
by a decrease in OTC derivative exposures. The percentage
of our credit exposure arising from non-investment-grade
counterparties (based on our internally determined public
rating agency equivalents) increased from December 2011
reflecting an increase in loans and lending commitments.
Counterparty defaults rose slightly during the year ended
December 2012; however, the estimated losses associated
with these counterparty defaults were lower as compared
with the prior year.
The tables below present the firm’s credit exposures related
to cash, OTC derivatives, and loans and lending
commitments associated with traditional credit origination
activities broken down by industry, region and internal
credit rating.
Goldman Sachs 2012 Annual Report 97
Management’s Discussion and Analysis
Credit Exposure by Industry
Cash OTC Derivatives
Loans and Lending
Commitments
1
As of December As of December As of December
in millions 2012 2011 2012 2011 2012 2011
Asset Managers & Funds $ — $ 64 $10,552 $10,582 $ 1,673 $ 1,290
Banks, Brokers & Other Financial Institutions 10,507 12,535 21,310 25,041 6,192 3,591
Consumer Products, Non-Durables & Retail — 11 1,516 1,031 13,304 12,685
Government & Central Banks 62,162 43,389 14,729 16,642 1,782 1,828
Healthcare & Education — — 3,764 2,962 7,717 7,158
Insurance — — 4,214 2,828 3,199 2,891
Natural Resources & Utilities — — 4,383 4,803 16,360 14,795
Real Estate — — 381 327 3,796 2,695
Technology, Media, Telecommunications & Services — 2 2,016 2,124 17,674 12,646
Transportation — — 1,207 1,104 6,557 5,753
Other — 7 3,332 6,704 4,650 5,759
Total
2
$72,669 $56,008 $67,404 $74,148 $82,904 $71,091
Credit Exposure by Region
Cash OTC Derivatives
Loans and Lending
Commitments
1
As of December As of December As of December
in millions 2012 2011 2012 2011 2012 2011
Americas $65,193 $48,543 $32,968 $36,591 $59,792 $52,755
EMEA
3
1,683 1,800 26,739 29,549 21,104 16,989
Asia 5,793 5,665 7,697 8,008 2,008 1,347
Total
2
$72,669 $56,008 $67,404 $74,148 $82,904 $71,091
Credit Exposure by Credit Quality
Cash OTC Derivatives
Loans and Lending
Commitments
1
in millions
Credit Rating Equivalent
As of December As of December As of December
2012 2011 2012 2011 2012 2011
AAA/Aaa $59,825 $40,559 $ 3,730 $ 3,081 $ 2,179 $ 2,192
AA/Aa2 6,356 7,463 16,445 19,981 7,220 7,026
A/A2 5,068 6,464 24,901 31,171 21,901 21,055
BBB/Baa2 326 195 13,919 10,996 26,313 22,937
BB/Ba2 or lower 1,094 1,209 6,811 7,261 25,291 17,820
Unrated — 118 1,598 1,658 — 61
Total
2
$72,669 $56,008 $67,404 $74,148 $82,904 $71,091
1. Includes approximately $12 billion and $10 billion of loans as of December 2012 and December 2011, respectively, and approximately $71 billion and $61 billion of
lending commitments as of December 2012 and December 2011, respectively. Excludes certain bank loans and bridge loans and certain lending commitments that
are risk managed as part of market risk using VaR and sensitivity measures.
2. The firm bears credit risk related to resale agreements and securities borrowed only to the extent that cash advanced or the value of securities pledged or delivered
to the counterparty exceeds the value of the collateral received. The firm also has credit exposure on repurchase agreements and securities loaned to the extent that
the value of securities pledged or delivered to the counterparty for these transactions exceeds the amount of cash or collateral received. We had approximately
$37 billion and $41 billion as of December 2012 and December 2011, respectively, in credit exposure related to securities financing transactions reflecting applicable
netting agreements and collateral.
3. EMEA (Europe, Middle East and Africa).
98 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Selected Country Exposures
During 2011 and throughout 2012, there have been
concerns about European sovereign debt risk and its impact
on the European banking system and a number of
European member states have been experiencing significant
credit deterioration. The most pronounced market concerns
relate to Greece, Ireland, Italy, Portugal and Spain. The
tables below present our credit exposure (both gross and
net of hedges) to all sovereigns, financial institutions and
corporate counterparties or borrowers in these countries.
Credit exposure represents the potential for loss due to the
default or deterioration in credit quality of a counterparty
or borrower. In addition, the tables include the market
exposure of our long and short inventory for which the
issuer or underlier is located in these countries. Market
exposure represents the potential for loss in value of our
inventory due to changes in market prices. There is no
overlap between the credit and market exposures in the
tables below.
The country of risk is determined by the location of the
counterparty, issuer or underlier’s assets, where they
generate revenue, the country in which they are
headquartered, and/or the government whose policies affect
their ability to repay their obligations.
As of December 2012
Credit Exposure Market Exposure
in millions Loans
OTC
Derivatives Other
Gross
Funded Hedges
Total Net
Funded
Credit
Exposure
Unfunded
Credit
Exposure
Total
Credit
Exposure Debt
Equities
and
Other
Credit
Derivatives
Total
Market
Exposure
Greece
Sovereign $ — $ — $ — $ — $ — $ — $ — $ — $ 30 $ — $ — $ 30
Non-Sovereign — 5 1 6 — 6 — 6 65 15 (5) 75
Total Greece — 5 1 6 — 6 — 6 95 15 (5) 105
Ireland
Sovereign — 1 103 104 — 104 — 104 8 — (150) (142)
Non-Sovereign — 126 36 162 — 162 — 162 801 74 155 1,030
Total Ireland — 127 139 266 — 266 — 266 809 74 5 888
Italy
Sovereign — 1,756 1 1,757 (1,714) 43 — 43 (415) — (603) (1,018)
Non-Sovereign 43 560 129 732 (33) 699 587 1,286 434 65 (996) (497)
Total Italy 43 2,316 130 2,489 (1,747) 742 587 1,329 19 65 (1,599) (1,515)
Portugal
Sovereign — 141 61 202 — 202 — 202 155 — (226) (71)
Non-Sovereign — 44 2 46 — 46 — 46 168 (6) (133) 29
Total Portugal — 185 63 248 — 248 — 248 323 (6) (359) (42)
Spain
Sovereign — 75 — 75 — 75 — 75 986 — (268) 718
Non-Sovereign 1,048 259 23 1,330 (95) 1,235 733 1,968 1,268 83 (186) 1,165
Total Spain 1,048 334 23 1,405 (95) 1,310 733 2,043 2,254 83 (454) 1,883
Subtotal $1,091
1
$2,967
2
$356 $4,414 $(1,842)
3
$2,572 $1,320 $3,892 $3,500 $231 $(2,412)
3
$ 1,319
1. Principally consists of collateralized loans.
2. Includes the benefit of $6.6 billion of cash and U.S. Treasury securities collateral and excludes non-U.S. government and agency obligations and corporate securities
collateral of $357 million.
3. Includes written and purchased credit derivative notionals reduced by the fair values of such credit derivatives.
Goldman Sachs 2012 Annual Report 99
Management’s Discussion and Analysis
As of December 2011
Credit Exposure Market Exposure
in millions Loans
OTC
Derivatives Other
Gross
Funded Hedges
Total Net
Funded
Credit
Exposure
Unfunded
Credit
Exposure
Total
Credit
Exposure Debt
Equities
and
Other
Credit
Derivatives
Total
Market
Exposure
Greece
Sovereign $ — $ — $ — $ — $ — $ — $ — $ — $ 329 $ — $ (22) $ 307
Non-Sovereign 20 53 — 73 — 73 — 73 32 11 18 61
Total Greece 20 53 — 73 — 73 — 73 361 11 (4) 368
Ireland
Sovereign — 1 256 257 — 257 — 257 411 — (352) 59
Non-Sovereign — 542 66 608 (8) 600 57 657 412 85 115 612
Total Ireland — 543 322 865 (8) 857 57 914 823 85 (237) 671
Italy
Sovereign — 1,666 3 1,669 (1,410) 259 — 259 210 — 200 410
Non-Sovereign 126 457 — 583 (25) 558 408 966 190 297 (896) (409)
Total Italy 126 2,123 3 2,252 (1,435) 817 408 1,225 400 297 (696) 1
Portugal
Sovereign — 151 — 151 — 151 — 151 (98) — 23 (75)
Non-Sovereign — 53 2 55 — 55 — 55 230 13 (179) 64
Total Portugal — 204 2 206 — 206 — 206 132 13 (156) (11)
Spain
Sovereign — 88 — 88 — 88 — 88 151 — (550) (399)
Non-Sovereign 153 254 11 418 (141) 277 146 423 345 239 (629) (45)
Total Spain 153 342 11 506 (141) 365 146 511 496 239 (1,179) (444)
Subtotal $299 $3,265
1
$338 $3,902 $(1,584) $2,318 $611 $2,929 $2,212 $645 $(2,272)
2
$ 585
1. Includes the benefit of $6.5 billion of cash and U.S. Treasury securities collateral and excludes non-U.S. government and agency obligations and corporate securities
collateral of $341 million.
2. Includes written and purchased credit derivative notionals reduced by the fair values of such credit derivatives.
We economically hedge our exposure to written credit
derivatives by entering into offsetting purchased credit
derivatives with identical underlyings. Where possible, we
endeavor to match the tenor and credit default terms of
such hedges to that of our written credit derivatives.
Substantially all purchased credit derivatives included
above are bought from investment-grade counterparties
domiciled outside of these countries and are collateralized
with cash or U.S. Treasury securities. The gross purchased
and written credit derivative notionals across the above
countries for single-name and index credit default swaps
(included in ‘Hedges’ and ‘Credit Derivatives’ in the tables
above) were $179.4 billion and $168.6 billion, respectively,
as of December 2012, and $177.8 billion and
$167.3 billion, respectively, as of December 2011.
Including netting under legally enforceable netting
agreements, within each and across all of the countries
above, the purchased and written credit derivative
notionals for single-name and index credit default swaps
were $26.0 billion and $15.3 billion, respectively, as of
December 2012, and $28.2 billion and $17.7 billion,
respectively, as of December 2011. These notionals are not
representative of our exposure because they exclude
available netting under legally enforceable netting
agreements on other derivatives outside of these countries
and collateral received or posted under credit
support agreements.
In credit exposure above, ‘Other’ principally consists of
deposits, secured lending transactions and other secured
receivables, net of applicable collateral. As of
December 2012 and December 2011, $4.8 billion and
$7.0 billion, respectively, of secured lending transactions
and other secured receivables were fully collateralized.
For information about the nature of or payout under trigger
events related to written and purchased credit protection
contracts see Note 7 to the consolidated financial
statements.
100 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
We conduct stress tests intended to estimate the direct and
indirect impact that might result from a variety of possible
events involving the above countries, including sovereign
defaults and the exit of one or more countries fromthe Euro
area. In the stress tests, described in “Market Risk
Management — Stress Testing” and “Credit Risk
Management — Stress Tests/Scenario Analysis,” we
estimate the direct impact of the event on our credit and
market exposures resulting from shocks to risk factors
including, but not limited to, currency rates, interest rates,
and equity prices. The parameters of these shocks vary
based on the scenario reflected in each stress test. We also
estimate the indirect impact on our exposures arising from
potential market moves in response to the event, such as the
impact of credit market deterioration on corporate
borrowers and counterparties along with the shocks to the
risk factors described above. We review estimated losses
produced by the stress tests in order to understand their
magnitude, highlight potential loss concentrations, and
assess and mitigate our exposures where necessary.
Euro area exit scenarios include analysis of the impacts on
exposure that might result from the redenomination of
assets in the exiting country or countries. Constructing
stress tests for these scenarios requires many assumptions
about how exposures might be directly impacted and how
resulting secondary market moves would indirectly impact
such exposures. Given the multiple parameters involved in
such scenarios, losses from such events are inherently
difficult to quantify and may materially differ from our
estimates. In order to prepare for any market disruption
that might result from a Euro area exit, we test our
operational and risk management readiness and capability
to respond to a redenomination event.
See “Liquidity Risk Management — Modeled Liquidity
Outflow,” “Market Risk Management — Stress Testing”
and “Credit Risk Management — Stress Tests/Scenario
Analysis” for further discussion.
Operational Risk Management
Overview
Operational risk is the risk of loss resulting from
inadequate or failed internal processes, people and systems
or from external events. Our exposure to operational risk
arises from routine processing errors as well as
extraordinary incidents, such as major systems failures.
Potential types of loss events related to internal and external
operational risk include:
‰ clients, products and business practices;
‰ execution, delivery and process management;
‰ business disruption and systemfailures;
‰ employment practices and workplace safety;
‰ damage to physical assets;
‰ internal fraud; and
‰ external fraud.
The firm maintains a comprehensive control framework
designed to provide a well-controlled environment to
minimize operational risks. The Firmwide Operational Risk
Committee, along with the support of regional or entity-
specific working groups or committees, provides oversight
of the ongoing development and implementation of our
operational risk policies and framework. Our Operational
Risk Management department (Operational Risk
Management) is a risk management function independent
of our revenue-producing units, reports to the firm’s chief
risk officer, and is responsible for developing and
implementing policies, methodologies and a formalized
framework for operational risk management with the goal
of minimizing our exposure to operational risk.
Goldman Sachs 2012 Annual Report 101
Management’s Discussion and Analysis
Operational Risk Management Process
Managing operational risk requires timely and accurate
information as well as a strong control culture. We seek to
manage our operational risk through:
‰ the training, supervision and development of our people;
‰ the active participation of senior management in
identifying and mitigating key operational risks across
the firm;
‰ independent control and support functions that monitor
operational risk on a daily basis and have instituted
extensive policies and procedures and implemented
controls designed to prevent the occurrence of
operational risk events;
‰ proactive communication between our revenue-
producing units and our independent control and support
functions; and
‰ a network of systems throughout the firm to facilitate the
collection of data used to analyze and assess our
operational risk exposure.
We combine top-down and bottom-up approaches to
manage and measure operational risk. From a top-down
perspective, the firm’s senior management assesses
firmwide and business level operational risk profiles. From
a bottom-up perspective, revenue-producing units and
independent control and support functions are responsible
for risk management on a day-to-day basis, including
identifying, mitigating, and escalating operational risks to
senior management.
Our operational risk framework is in part designed to
comply with the operational risk measurement rules under
Basel 2 and has evolved based on the changing needs of our
businesses and regulatory guidance. Our framework
comprises the following practices:
‰ Risk identification and reporting;
‰ Risk measurement; and
‰ Risk monitoring.
Internal Audit performs a review of our operational risk
framework, including our key controls, processes and
applications, on an annual basis to assess the effectiveness
of our framework.
Risk Identification and Reporting
The core of our operational risk management framework is
risk identification and reporting. We have a comprehensive
data collection process, including firmwide policies and
procedures, for operational risk events.
We have established policies that require managers in our
revenue-producing units and our independent control and
support functions to escalate operational risk events. When
operational risk events are identified, our policies require
that the events be documented and analyzed to determine
whether changes are required in the firm’s systems and/or
processes to further mitigate the risk of future events.
In addition, our firmwide systems capture internal
operational risk event data, key metrics such as transaction
volumes, and statistical information such as performance
trends. We use an internally-developed operational risk
management application to aggregate and organize this
information. Managers from both revenue-producing units
and independent control and support functions analyze the
information to evaluate operational risk exposures and
identify businesses, activities or products with heightened
levels of operational risk. We also provide periodic
operational risk reports to senior management, risk
committees and the Board.
102 Goldman Sachs 2012 Annual Report
Management’s Discussion and Analysis
Risk Measurement
We measure the firm’s operational risk exposure over a
twelve-month time horizon using both statistical modeling
and scenario analyses, which involve qualitative assessments
of the potential frequency and extent of potential operational
risk losses, for each of the firm’s businesses. Operational risk
measurement incorporates qualitative and quantitative
assessments of factors including:
‰ internal and external operational risk event data;
‰ assessments of the firm’s internal controls;
‰ evaluations of the complexity of the firm’s
business activities;
‰ the degree of and potential for automation in the
firm’s processes;
‰ newproduct information;
‰ the legal and regulatory environment;
‰ changes in the markets for the firm’s products and
services, including the diversity and sophistication of the
firm’s customers and counterparties; and
‰ the liquidity of the capital markets and the reliability of
the infrastructure that supports the capital markets.
The results from these scenario analyses are used to
monitor changes in operational risk and to determine
business lines that may have heightened exposure to
operational risk. These analyses ultimately are used in the
determination of the appropriate level of operational risk
capital to hold.
Risk Monitoring
We evaluate changes in the operational risk profile of the
firm and its businesses, including changes in business mix
or jurisdictions in which the firm operates, by monitoring
the factors noted above at a firmwide level. The firm has
both detective and preventive internal controls, which are
designed to reduce the frequency and severity of
operational risk losses and the probability of operational
risk events. We monitor the results of assessments and
independent internal audits of these internal controls.
Recent Accounting Developments
See Note 3 to the consolidated financial statements for
information about Recent Accounting Developments.
Goldman Sachs 2012 Annual Report 103
Management’s Discussion and Analysis
Certain Risk Factors That May Affect Our
Businesses
We face a variety of risks that are substantial and inherent
in our businesses, including market, liquidity, credit,
operational, legal, regulatory and reputational risks. For a
discussion of how management seeks to manage some of
these risks, see “Overview and Structure of Risk
Management.” A summary of the more important factors
that could affect our businesses follows. For a further
discussion of these and other important factors that could
affect our businesses, financial condition, results of
operations, cash flows and liquidity, see “Risk Factors” in
Part I, Item 1Aof our Annual Report on Form10-K.
‰ Our businesses have been and may continue to be
adversely affected by conditions in the global financial
markets and economic conditions generally.
‰ Our businesses have been and may be adversely affected
by declining asset values. This is particularly true for
those businesses in which we have net “long” positions,
receive fees based on the value of assets managed, or
receive or post collateral.
‰ Our businesses have been and may be adversely affected
by disruptions in the credit markets, including reduced
access to credit and higher costs of obtaining credit.
‰ Our market-making activities have been and may be
affected by changes in the levels of market volatility.
‰ Our investment banking, client execution and
investment management businesses have been adversely
affected and may continue to be adversely affected by
market uncertainty or lack of confidence among
investors and CEOs due to general declines in economic
activity and other unfavorable economic, geopolitical or
market conditions.
‰ Our investment management business may be affected
by the poor investment performance of our
investment products.
‰ We may incur losses as a result of ineffective risk
management processes and strategies.
‰ Our liquidity, profitability and businesses may be
adversely affected by an inability to access the debt capital
markets or to sell assets or by a reduction in our credit
ratings or by an increase in our credit spreads.
‰ Conflicts of interest are increasing and a failure to
appropriately identify and address conflicts of interest
could adversely affect our businesses.
‰ Group Inc. is a holding company and is dependent for
liquidity on payments from its subsidiaries, many of
which are subject to restrictions.
‰ Our businesses, profitability and liquidity may be
adversely affected by deterioration in the credit quality of,
or defaults by, third parties who owe us money, securities
or other assets or whose securities or obligations we hold.
‰ Concentration of risk increases the potential for
significant losses in our market-making, underwriting,
investing and lending activities.
‰ The financial services industry is highly competitive.
‰ We face enhanced risks as new business initiatives lead
us to transact with a broader array of clients and
counterparties and expose us to new asset classes and
newmarkets.
‰ Derivative transactions and delayed settlements may
expose us to unexpected risk and potential losses.
‰ Our businesses may be adversely affected if we are unable
to hire and retain qualified employees.
‰ Our businesses and those of our clients are subject to
extensive and pervasive regulation around the world.
‰ We may be adversely affected by increased governmental
and regulatory scrutiny or negative publicity.
‰ A failure in our operational systems or infrastructure, or
those of third parties, could impair our liquidity, disrupt
our businesses, result in the disclosure of confidential
information, damage our reputation and cause losses.
‰ Substantial legal liability or significant regulatory action
against us could have material adverse financial effects or
cause us significant reputational harm, which in turn
could seriously harmour business prospects.
‰ The growth of electronic trading and the introduction of
new trading technology may adversely affect our business
and may increase competition.
‰ Our commodities activities, particularly our power
generation interests and our physical commodities
activities, subject us to extensive regulation, potential
catastrophic events and environmental, reputational and
other risks that may expose us to significant liabilities
and costs.
‰ In conducting our businesses around the world, we are
subject to political, economic, legal, operational and other
risks that are inherent in operating in many countries.
‰ We may incur losses as a result of unforeseen or
catastrophic events, including the emergence of a
pandemic, terrorist attacks, extreme weather events or
other natural disasters.
104 Goldman Sachs 2012 Annual Report
Management’s Report on Internal Control over Financial Reporting
Management of The Goldman Sachs Group, Inc., together
with its consolidated subsidiaries (the firm), is responsible
for establishing and maintaining adequate internal control
over financial reporting. The firm’s internal control over
financial reporting is a process designed under the
supervision of the firm’s principal executive and principal
financial officers to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
the firm’s financial statements for external reporting
purposes in accordance with U.S. generally accepted
accounting principles.
As of December 31, 2012, management conducted an
assessment of the firm’s internal control over financial
reporting based on the framework established in Internal
Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission
(COSO). Based on this assessment, management has
determined that the firm’s internal control over financial
reporting as of December 31, 2012 was effective.
Our internal control over financial reporting includes
policies and procedures that pertain to the maintenance of
records that, in reasonable detail, accurately and fairly
reflect transactions and dispositions of assets; provide
reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures are being
made only in accordance with authorizations of
management and the directors of the firm; and provide
reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of
the firm’s assets that could have a material effect on our
financial statements.
The firm’s internal control over financial reporting as of
December 31, 2012 has been audited by
PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report
appearing on page 106, which expresses an unqualified
opinion on the effectiveness of the firm’s internal control
over financial reporting as of December 31, 2012.
Goldman Sachs 2012 Annual Report 105
Report of Independent Registered Public Accounting Firm
To the Board of Directors and the Shareholders of
The Goldman Sachs Group, Inc.:
In our opinion, the accompanying consolidated statements
of financial condition and the related consolidated
statements of earnings, comprehensive income, changes in
shareholders’ equity and cash flows present fairly, in all
material respects, the financial position of The Goldman
Sachs Group, Inc. and its subsidiaries (the Company) at
December 31, 2012 and 2011, and the results of its
operations and its cash flows for each of the three years in
the period ended December 31, 2012, in conformity with
accounting principles generally accepted in the United
States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2012,
based on criteria established in Internal Control —
Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for
these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in Management’s Report on Internal Control over
Financial Reporting appearing on page 105. Our
responsibility is to express opinions on these financial
statements and on the Company’s internal control over
financial reporting based on our audits. We conducted our
audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and
whether effective internal control over financial reporting
was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included
obtaining an understanding of internal control over
financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such
other procedures as we considered necessary in the
circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the
company are being made only in accordance with
authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
NewYork, NewYork
February 28, 2013
106 Goldman Sachs 2012 Annual Report
Consolidated Statements of Earnings
Year Ended December
in millions, except per share amounts 2012 2011 2010
Revenues
Investment banking $ 4,941 $ 4,361 $ 4,810
Investment management 4,968 4,691 4,669
Commissions and fees 3,161 3,773 3,569
Market making 11,348 9,287 13,678
Other principal transactions 5,865 1,507 6,932
Total non-interest revenues 30,283 23,619 33,658
Interest income 11,381 13,174 12,309
Interest expense 7,501 7,982 6,806
Net interest income 3,880 5,192 5,503
Net revenues, including net interest income 34,163 28,811 39,161
Operating expenses
Compensation and benefits 12,944 12,223 15,376
U.K. bank payroll tax — — 465
Brokerage, clearing, exchange and distribution fees 2,208 2,463 2,281
Market development 509 640 530
Communications and technology 782 828 758
Depreciation and amortization 1,738 1,865 1,889
Occupancy 875 1,030 1,086
Professional fees 867 992 927
Insurance reserves 598 529 398
Other expenses 2,435 2,072 2,559
Total non-compensation expenses 10,012 10,419 10,428
Total operating expenses 22,956 22,642 26,269
Pre-tax earnings 11,207 6,169 12,892
Provision for taxes 3,732 1,727 4,538
Net earnings 7,475 4,442 8,354
Preferred stock dividends 183 1,932 641
Net earnings applicable to common shareholders $ 7,292 $ 2,510 $ 7,713
Earnings per common share
Basic $ 14.63 $ 4.71 $ 14.15
Diluted 14.13 4.51 13.18
Average common shares outstanding
Basic 496.2 524.6 542.0
Diluted 516.1 556.9 585.3
The accompanying notes are an integral part of these consolidated financial statements.
Goldman Sachs 2012 Annual Report 107
Consolidated Statements of Comprehensive Income
Year Ended December
in millions 2012 2011 2010
Net earnings $7,475 $4,442 $8,354
Other comprehensive income/(loss), net of tax:
Currency translation adjustment, net of tax (89) (55) (38)
Pension and postretirement liability adjustments, net of tax 168 (145) 88
Net unrealized gains/(losses) on available-for-sale securities, net of tax 244 (30) 26
Other comprehensive income/(loss) 323 (230) 76
Comprehensive income $7,798 $4,212 $8,430
The accompanying notes are an integral part of these consolidated financial statements.
108 Goldman Sachs 2012 Annual Report
Consolidated Statements of Financial Condition
As of December
in millions, except share and per share amounts 2012 2011
Assets
Cash and cash equivalents $ 72,669 $ 56,008
Cash and securities segregated for regulatory and other purposes (includes $30,484 and $42,014 at fair value as of
December 2012 and December 2011, respectively) 49,671 64,264
Collateralized agreements:
Securities purchased under agreements to resell and federal funds sold (includes $141,331 and $187,789 at fair value as
of December 2012 and December 2011, respectively) 141,334 187,789
Securities borrowed (includes $38,395 and $47,621 at fair value as of December 2012 and December 2011,
respectively) 136,893 153,341
Receivables from brokers, dealers and clearing organizations 18,480 14,204
Receivables from customers and counterparties (includes $7,866 and $9,682 at fair value as of December 2012 and
December 2011, respectively) 72,874 60,261
Financial instruments owned, at fair value (includes $67,177 and $53,989 pledged as collateral as of December 2012 and
December 2011, respectively) 407,011 364,206
Other assets (includes $13,426 and $0 at fair value as of December 2012 and December 2011, respectively) 39,623 23,152
Total assets $938,555 $923,225
Liabilities and shareholders’ equity
Deposits (includes $5,100 and $4,526 at fair value as of December 2012 and December 2011, respectively) $ 70,124 $ 46,109
Collateralized financings:
Securities sold under agreements to repurchase, at fair value 171,807 164,502
Securities loaned (includes $1,558 and $107 at fair value as of December 2012 and December 2011,
respectively) 13,765 7,182
Other secured financings (includes $30,337 and $30,019 at fair value as of December 2012 and
December 2011, respectively) 32,010 37,364
Payables to brokers, dealers and clearing organizations 5,283 3,667
Payables to customers and counterparties 189,202 194,625
Financial instruments sold, but not yet purchased, at fair value 126,644 145,013
Unsecured short-term borrowings, including the current portion of unsecured long-term borrowings (includes $17,595 and
$17,854 at fair value as of December 2012 and December 2011, respectively) 44,304 49,038
Unsecured long-term borrowings (includes $12,593 and $17,162 at fair value as of December 2012 and
December 2011, respectively) 167,305 173,545
Other liabilities and accrued expenses (includes $12,043 and $9,486 at fair value as of December 2012 and
December 2011, respectively) 42,395 31,801
Total liabilities 862,839 852,846
Commitments, contingencies and guarantees
Shareholders’ equity
Preferred stock, par value $0.01 per share; aggregate liquidation preference of $6,200 and $3,100 as of December 2012
and December 2011, respectively 6,200 3,100
Common stock, par value $0.01 per share; 4,000,000,000 shares authorized, 816,807,400 and 795,555,310 shares issued
as of December 2012 and December 2011, respectively, and 465,148,387 and 485,467,565 shares outstanding as of
December 2012 and December 2011, respectively 8 8
Restricted stock units and employee stock options 3,298 5,681
Nonvoting common stock, par value $0.01 per share; 200,000,000 shares authorized, no shares issued and outstanding — —
Additional paid-in capital 48,030 45,553
Retained earnings 65,223 58,834
Accumulated other comprehensive loss (193) (516)
Stock held in treasury, at cost, par value $0.01 per share; 351,659,015 and 310,087,747 shares as of December 2012 and
December 2011, respectively (46,850) (42,281)
Total shareholders’ equity 75,716 70,379
Total liabilities and shareholders’ equity $938,555 $923,225
The accompanying notes are an integral part of these consolidated financial statements.
Goldman Sachs 2012 Annual Report 109
Consolidated Statements of Changes in Shareholders’ Equity
Year Ended December
in millions 2012 2011 2010
Preferred stock
Balance, beginning of year $ 3,100 $ 6,957 $ 6,957
Issued 3,100 — —
Repurchased — (3,857) —
Balance, end of year 6,200 3,100 6,957
Common stock
Balance, beginning of year 8 8 8
Issued — — —
Balance, end of year 8 8 8
Restricted stock units and employee stock options
Balance, beginning of year 5,681 7,706 6,245
Issuance and amortization of restricted stock units and employee stock options 1,368 2,863 4,137
Delivery of common stock underlying restricted stock units (3,659) (4,791) (2,521)
Forfeiture of restricted stock units and employee stock options (90) (93) (149)
Exercise of employee stock options (2) (4) (6)
Balance, end of year 3,298 5,681 7,706
Additional paid-in capital
Balance, beginning of year 45,553 42,103 39,770
Issuance of common stock — 103 —
Delivery of common stock underlying share-based awards 3,939 5,160 3,067
Cancellation of restricted stock units in satisfaction of withholding tax requirements (1,437) (1,911) (972)
Preferred stock issuance costs (13) — —
Excess net tax benefit/(provision) related to share-based awards (11) 138 239
Cash settlement of share-based compensation (1) (40) (1)
Balance, end of year 48,030 45,553 42,103
Retained earnings
Balance, beginning of year 58,834 57,163 50,252
Net earnings 7,475 4,442 8,354
Dividends and dividend equivalents declared on common stock and restricted stock units (903) (769) (802)
Dividends on preferred stock (183) (2,002) (641)
Balance, end of year 65,223 58,834 57,163
Accumulated other comprehensive loss
Balance, beginning of year (516) (286) (362)
Other comprehensive income/(loss) 323 (230) 76
Balance, end of year (193) (516) (286)
Stock held in treasury, at cost
Balance, beginning of year (42,281) (36,295) (32,156)
Repurchased (4,646) (6,051) (4,185)
Reissued 77 65 46
Balance, end of year (46,850) (42,281) (36,295)
Total shareholders’ equity $ 75,716 $ 70,379 $ 77,356
The accompanying notes are an integral part of these consolidated financial statements.
110 Goldman Sachs 2012 Annual Report
Consolidated Statements of Cash Flows
Year Ended December
in millions 2012 2011 2010
Cash flows from operating activities
Net earnings $ 7,475 $ 4,442 $ 8,354
Adjustments to reconcile net earnings to net cash provided by/(used for) operating activities
Depreciation and amortization 1,738 1,869 1,904
Deferred income taxes (356) 726 1,339
Share-based compensation 1,319 2,849 4,035
Gain on sale of hedge fund administration business (494) — —
Changes in operating assets and liabilities
Cash and securities segregated for regulatory and other purposes 10,817 (10,532) (17,094)
Net receivables from brokers, dealers and clearing organizations (2,838) (3,780) 201
Net payables to customers and counterparties (17,661) 13,883 (4,637)
Securities borrowed, net of securities loaned 23,031 8,940 19,638
Securities sold under agreements to repurchase, net of securities purchased under agreements to resell
and federal funds sold 53,527 122 (10,092)
Financial instruments owned, at fair value (48,783) 5,085 (9,231)
Financial instruments sold, but not yet purchased, at fair value (18,867) 4,243 11,602
Other, net 3,971 (5,346) (11,376)
Net cash provided by/(used for) operating activities 12,879 22,501 (5,357)
Cash flows from investing activities
Purchase of property, leasehold improvements and equipment (961) (1,184) (1,227)
Proceeds from sales of property, leasehold improvements and equipment 49 78 72
Business acquisitions, net of cash acquired (593) (431) (804)
Proceeds from sales of investments 1,195 2,645 1,371
Purchase of available-for-sale securities (5,220) (2,752) (1,885)
Proceeds from sales of available-for-sale securities 4,537 3,129 2,288
Loans held for investment, net (2,741) (856) (800)
Net cash provided by/(used for) investing activities (3,734) 629 (985)
Cash flows from financing activities
Unsecured short-term borrowings, net (1,952) (3,780) 1,196
Other secured financings (short-term), net 1,540 (1,195) 12,689
Proceeds from issuance of other secured financings (long-term) 4,687 9,809 5,500
Repayment of other secured financings (long-term), including the current portion (11,576) (8,878) (4,849)
Proceeds from issuance of unsecured long-term borrowings 27,734 29,169 20,231
Repayment of unsecured long-term borrowings, including the current portion (36,435) (29,187) (22,607)
Derivative contracts with a financing element, net 1,696 1,602 1,222
Deposits, net 24,015 7,540 (849)
Preferred stock repurchased — (3,857) —
Common stock repurchased (4,640) (6,048) (4,183)
Dividends and dividend equivalents paid on common stock, preferred stock and restricted stock units (1,086) (2,771) (1,443)
Proceeds from issuance of preferred stock, net of issuance costs 3,087 — —
Proceeds from issuance of common stock, including stock option exercises 317 368 581
Excess tax benefit related to share-based compensation 130 358 352
Cash settlement of share-based compensation (1) (40) (1)
Net cash provided by/(used for) financing activities 7,516 (6,910) 7,839
Net increase in cash and cash equivalents 16,661 16,220 1,497
Cash and cash equivalents, beginning of year 56,008 39,788 38,291
Cash and cash equivalents, end of year $ 72,669 $ 56,008 $ 39,788
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest, net of capitalized interest, were $9.25 billion, $8.05 billion and $6.74 billion for the years ended December 2012, December 2011 and
December 2010, respectively.
Cash payments for income taxes, net of refunds, were $1.88 billion, $1.78 billion and $4.48 billion for the years ended December 2012, December 2011 and
December 2010, respectively.
Non-cash activities:
During the year ended December 2012, the firm assumed $77 million of debt in connection with business acquisitions. During the year ended December 2011, the
firm assumed $2.09 billion of debt and issued $103 million of common stock in connection with the acquisition of Goldman Sachs Australia Pty Ltd (GS Australia),
formerly Goldman Sachs & Partners Australia Group Holdings Pty Ltd. During the year ended December 2010, the firm assumed $90 million of debt in connection
with business acquisitions. In addition, in the first quarter of 2010, the firm recorded an increase of approximately $3 billion in both assets (primarily financial
instruments owned, at fair value) and liabilities (primarily unsecured short-term borrowings and other liabilities) upon adoption of Accounting Standards Update (ASU)
No. 2009-17, “Consolidations (Topic 810) — Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.”
The accompanying notes are an integral part of these consolidated financial statements.
Goldman Sachs 2012 Annual Report 111
Notes to Consolidated Financial Statements
Note 1.
Description of Business
The Goldman Sachs Group, Inc. (Group Inc.), a Delaware
corporation, together with its consolidated subsidiaries
(collectively, the firm), is a leading global investment
banking, securities and investment management firm that
provides a wide range of financial services to a substantial
and diversified client base that includes corporations,
financial institutions, governments and high-net-worth
individuals. Founded in 1869, the firm is headquartered in
New York and maintains offices in all major financial
centers around the world.
The firm reports its activities in the following four
business segments:
Investment Banking
The firm provides a broad range of investment banking
services to a diverse group of corporations, financial
institutions, investment funds and governments. Services
include strategic advisory assignments with respect to
mergers and acquisitions, divestitures, corporate defense
activities, risk management, restructurings and spin-offs,
and debt and equity underwriting of public offerings and
private placements, including domestic and cross-border
transactions, as well as derivative transactions directly
related to these activities.
Institutional Client Services
The firm facilitates client transactions and makes markets
in fixed income, equity, currency and commodity products,
primarily with institutional clients such as corporations,
financial institutions, investment funds and governments.
The firm also makes markets in and clears client
transactions on major stock, options and futures exchanges
worldwide and provides financing, securities lending and
other prime brokerage services to institutional clients.
Investing & Lending
The firm invests in and originates loans to provide
financing to clients. These investments and loans are
typically longer-term in nature. The firm makes
investments, directly and indirectly through funds that the
firm manages, in debt securities and loans, public and
private equity securities, real estate, consolidated
investment entities and power generation facilities.
Investment Management
The firm provides investment management services and
offers investment products (primarily through separately
managed accounts and commingled vehicles, such as
mutual funds and private investment funds) across all
major asset classes to a diverse set of institutional and
individual clients. The firm also offers wealth advisory
services, including portfolio management and financial
counseling, and brokerage and other transaction services to
high-net-worth individuals and families.
Note 2.
Basis of Presentation
These consolidated financial statements are prepared in
accordance with accounting principles generally accepted in
the United States (U.S. GAAP) and include the accounts of
Group Inc. and all other entities in which the firm has a
controlling financial interest. Intercompany transactions
and balances have been eliminated.
All references to 2012, 2011 and 2010 refer to the firm’s
years ended, or the dates, as the context requires,
December 31, 2012, December 31, 2011 and
December 31, 2010, respectively. Any reference to a future
year refers to a year ending on December 31 of that year.
Certain reclassifications have been made to previously
reported amounts to conformto the current presentation.
112 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Note 3.
Significant Accounting Policies
The firm’s significant accounting policies include when and
how to measure the fair value of assets and liabilities,
accounting for goodwill and identifiable intangible assets,
and when to consolidate an entity. See Notes 5 through 8
for policies on fair value measurements, Note 13 for
policies on goodwill and identifiable intangible assets, and
below and Note 11 for policies on consolidation
accounting. All other significant accounting policies are
either discussed below or included in the
following footnotes:
Financial Instruments Owned, at Fair Value and
Financial Instruments Sold, But Not Yet Purchased, at
Fair Value Note 4
Fair Value Measurements Note 5
Cash Instruments Note 6
Derivatives and Hedging Activities Note 7
Fair Value Option Note 8
Collateralized Agreements and Financings Note 9
Securitization Activities Note 10
Variable Interest Entities Note 11
Other Assets Note 12
Goodwill and Identifiable Intangible Assets Note 13
Deposits Note 14
Short-Term Borrowings Note 15
Long-Term Borrowings Note 16
Other Liabilities and Accrued Expenses Note 17
Commitments, Contingencies and Guarantees Note 18
Shareholders’ Equity Note 19
Regulation and Capital Adequacy Note 20
Earnings Per Common Share Note 21
Transactions with Affiliated Funds Note 22
Interest Income and Interest Expense Note 23
Income Taxes Note 24
Business Segments Note 25
Credit Concentrations Note 26
Legal Proceedings Note 27
Employee Benefit Plans Note 28
Employee Incentive Plans Note 29
Parent Company Note 30
Consolidation
The firm consolidates entities in which the firm has a
controlling financial interest. The firm determines whether
it has a controlling financial interest in an entity by first
evaluating whether the entity is a voting interest entity or a
variable interest entity (VIE).
Voting Interest Entities. Voting interest entities are
entities in which (i) the total equity investment at risk is
sufficient to enable the entity to finance its activities
independently and (ii) the equity holders have the power to
direct the activities of the entity that most significantly
impact its economic performance, the obligation to absorb
the losses of the entity and the right to receive the residual
returns of the entity. The usual condition for a controlling
financial interest in a voting interest entity is ownership of a
majority voting interest. If the firm has a majority voting
interest in a voting interest entity, the entity is consolidated.
Variable Interest Entities. A VIE is an entity that lacks
one or more of the characteristics of a voting interest entity.
The firm has a controlling financial interest in a VIE when
the firm has a variable interest or interests that provide it
with (i) the power to direct the activities of the VIE that
most significantly impact the VIE’s economic performance
and (ii) the obligation to absorb losses of the VIE or the
right to receive benefits from the VIE that could potentially
be significant to the VIE. See Note 11 for further
information about VIEs.
Equity-Method Investments. When the firm does not
have a controlling financial interest in an entity but can
exert significant influence over the entity’s operating and
financial policies, the investment is accounted for either
(i) under the equity method of accounting or (ii) at fair value
by electing the fair value option available under U.S. GAAP.
Significant influence generally exists when the firm owns
20% to 50% of the entity’s common stock or in-substance
common stock.
Goldman Sachs 2012 Annual Report 113
Notes to Consolidated Financial Statements
In general, the firm accounts for investments acquired after
the fair value option became available, at fair value. In
certain cases, the firm applies the equity method of
accounting to new investments that are strategic in nature
or closely related to the firm’s principal business activities,
when the firm has a significant degree of involvement in the
cash flows or operations of the investee or when
cost-benefit considerations are less significant. See Note 12
for further information about equity-method investments.
Investment Funds. The firm has formed numerous
investment funds with third-party investors. These funds
are typically organized as limited partnerships or limited
liability companies for which the firm acts as general
partner or manager. Generally, the firm does not hold a
majority of the economic interests in these funds. These
funds are usually voting interest entities and generally are
not consolidated because third-party investors typically
have rights to terminate the funds or to remove the firm as
general partner or manager. Investments in these funds are
included in “Financial instruments owned, at fair value.”
See Notes 6, 18 and 22 for further information about
investments in funds.
Use of Estimates
Preparation of these consolidated financial statements
requires management to make certain estimates and
assumptions, the most important of which relate to fair
value measurements, accounting for goodwill and
identifiable intangible assets, and the provision for losses
that may arise from litigation, regulatory proceedings and
tax audits. These estimates and assumptions are based on
the best available information but actual results could be
materially different.
Revenue Recognition
Financial Assets and Financial Liabilities at Fair Value.
Financial instruments owned, at fair value and Financial
instruments sold, but not yet purchased, at fair value are
recorded at fair value either under the fair value option or in
accordance with other U.S. GAAP. In addition, the firmhas
elected to account for certain of its other financial assets
and financial liabilities at fair value by electing the fair value
option. The fair value of a financial instrument is the
amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date. Financial assets are
marked to bid prices and financial liabilities are marked to
offer prices. Fair value measurements do not include
transaction costs. Fair value gains or losses are generally
included in “Market making” for positions in Institutional
Client Services and “Other principal transactions” for
positions in Investing &Lending. See Notes 5 through 8 for
further information about fair value measurements.
Investment Banking. Fees from financial advisory
assignments and underwriting revenues are recognized in
earnings when the services related to the underlying
transaction are completed under the terms of the
assignment. Expenses associated with such transactions are
deferred until the related revenue is recognized or the
assignment is otherwise concluded. Expenses associated
with financial advisory assignments are recorded as
non-compensation expenses, net of client reimbursements.
Underwriting revenues are presented net of
relatedexpenses.
Investment Management. The firm earns management
fees and incentive fees for investment management services.
Management fees are calculated as a percentage of net asset
value, invested capital or commitments, and are recognized
over the period that the related service is provided.
Incentive fees are calculated as a percentage of a fund’s or
separately managed account’s return, or excess return
above a specified benchmark or other performance target.
Incentive fees are generally based on investment
performance over a 12-month period or over the life of a
fund. Fees that are based on performance over a 12-month
period are subject to adjustment prior to the end of the
measurement period. For fees that are based on investment
performance over the life of the fund, future investment
underperformance may require fees previously distributed
to the firm to be returned to the fund. Incentive fees are
recognized only when all material contingencies have been
resolved. Management and incentive fee revenues are
included in “Investment management” revenues.
Commissions and Fees. The firm earns “Commissions
and fees” fromexecuting and clearing client transactions on
stock, options and futures markets. Commissions and fees
are recognized on the day the trade is executed.
114 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Transfers of Assets
Transfers of assets are accounted for as sales when the firm
has relinquished control over the assets transferred. For
transfers of assets accounted for as sales, any related gains
or losses are recognized in net revenues. Assets or liabilities
that arise from the firm’s continuing involvement with
transferred assets are measured at fair value. For transfers
of assets that are not accounted for as sales, the assets
remain in “Financial instruments owned, at fair value” and
the transfer is accounted for as a collateralized financing,
with the related interest expense recognized over the life of
the transaction. See Note 9 for further information about
transfers of assets accounted for as collateralized financings
and Note 10 for further information about transfers of
assets accounted for as sales.
Receivables from Customers and Counterparties
Receivables from customers and counterparties generally
relate to collateralized transactions. Such receivables are
primarily comprised of customer margin loans, certain
transfers of assets accounted for as secured loans rather
than purchases at fair value, collateral posted in connection
with certain derivative transactions, and loans held for
investment. Certain of the firm’s receivables from
customers and counterparties are accounted for at fair
value under the fair value option, with changes in fair value
generally included in “Market making” revenues.
Receivables from customers and counterparties not
accounted for at fair value are accounted for at amortized
cost net of estimated uncollectible amounts. Interest on
receivables from customers and counterparties is
recognized over the life of the transaction and included in
“Interest income.” See Note 8 for further information
about receivables fromcustomers and counterparties.
Payables to Customers and Counterparties
Payables to customers and counterparties primarily consist
of customer credit balances related to the firm’s prime
brokerage activities. Payables to customers and
counterparties are accounted for at cost plus accrued
interest, which generally approximates fair value. While
these payables are carried at amounts that approximate fair
value, they are not accounted for at fair value under the fair
value option or at fair value in accordance with other U.S.
GAAP and therefore are not included in the firm’s fair value
hierarchy in Notes 6, 7 and 8. Had these payables been
included in the firm’s fair value hierarchy, substantially all
would have been classified in level 2 as of December 2012.
Receivables from and Payables to Brokers, Dealers
and Clearing Organizations
Receivables from and payables to brokers, dealers and
clearing organizations are accounted for at cost plus
accrued interest, which generally approximates fair value.
While these receivables and payables are carried at amounts
that approximate fair value, they are not accounted for at
fair value under the fair value option or at fair value in
accordance with other U.S. GAAP and therefore are not
included in the firm’s fair value hierarchy in Notes 6, 7 and
8. Had these receivables and payables been included in the
firm’s fair value hierarchy, substantially all would have
been classified in level 2 as of December 2012.
Insurance Activities
Certain of the firm’s insurance and reinsurance contracts
are accounted for at fair value under the fair value option,
with changes in fair value included in “Market making”
revenues. See Note 8 for further information about the fair
values of these insurance and reinsurance contracts. See
Note 12 for further information about the firm’s
reinsurance business classified as held for sale as of
December 2012.
Revenues from variable annuity and life insurance and
reinsurance contracts not accounted for at fair value
generally consist of fees assessed on contract holder account
balances for mortality charges, policy administration fees
and surrender charges. These revenues are recognized in
earnings over the period that services are provided and are
included in “Market making” revenues. Changes in
reserves, including interest credited to policyholder account
balances, are recognized in “Insurance reserves.”
Premiums earned for underwriting property catastrophe
reinsurance are recognized in earnings over the coverage
period, net of premiums ceded for the cost of reinsurance,
and are included in “Market making” revenues. Expenses
for liabilities related to property catastrophe reinsurance
claims, including estimates of losses that have been incurred
but not reported, are included in “Insurance reserves.”
Goldman Sachs 2012 Annual Report 115
Notes to Consolidated Financial Statements
Foreign Currency Translation
Assets and liabilities denominated in non-U.S. currencies
are translated at rates of exchange prevailing on the date of
the consolidated statements of financial condition and
revenues and expenses are translated at average rates of
exchange for the period. Foreign currency remeasurement
gains or losses on transactions in nonfunctional currencies
are recognized in earnings. Gains or losses on translation of
the financial statements of a non-U.S. operation, when the
functional currency is other than the U.S. dollar, are
included, net of hedges and taxes, in the consolidated
statements of comprehensive income.
Cash and Cash Equivalents
The firm defines cash equivalents as highly liquid overnight
deposits held in the ordinary course of business. As of
December 2012 and December 2011, “Cash and cash
equivalents” included $6.75 billion and $7.95 billion,
respectively, of cash and due from banks, and
$65.92 billion and $48.05 billion, respectively, of
interest-bearing deposits with banks.
Recent Accounting Developments
Reconsideration of Effective Control for Repurchase
Agreements (ASC 860). In April 2011, the FASB issued
ASU No. 2011-03, “Transfers and Servicing (Topic 860) —
Reconsideration of Effective Control for Repurchase
Agreements.” ASU No. 2011-03 changes the assessment of
effective control by removing (i) the criterion that requires
the transferor to have the ability to repurchase or redeem
financial assets on substantially the agreed terms, even in
the event of default by the transferee, and (ii) the collateral
maintenance implementation guidance related to that
criterion. ASU No. 2011-03 was effective for periods
beginning after December 15, 2011. The firm adopted the
standard on January 1, 2012. Adoption of ASU
No. 2011-03 did not affect the firm’s financial condition,
results of operations or cash flows.
Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S.
GAAP and IFRSs (ASC 820). In May 2011, the FASB
issued ASU No. 2011-04, “Fair Value Measurements and
Disclosures (Topic 820) — Amendments to Achieve
Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs.” ASUNo. 2011-04
clarifies the application of existing fair value measurement
and disclosure requirements, changes certain principles
related to measuring fair value, and requires additional
disclosures about fair value measurements. ASU
No. 2011-04 was effective for periods beginning after
December 15, 2011. The firm adopted the standard on
January 1, 2012. Adoption of ASU No. 2011-04 did not
materially affect the firm’s financial condition, results of
operations or cash flows.
Derecognition of in Substance Real Estate (ASC 360).
In December 2011, the FASB issued ASU No. 2011-10,
“Property, Plant, and Equipment (Topic 360) —
Derecognition of in Substance Real Estate — a Scope
Clarification.” ASU No. 2011-10 clarifies that in order to
deconsolidate a subsidiary (that is in substance real estate)
as a result of a parent no longer controlling the subsidiary
due to a default on the subsidiary’s nonrecourse debt, the
parent also must satisfy the sale criteria in ASC 360-20,
“Property, Plant, and Equipment —Real Estate Sales.” The
ASU was effective for fiscal years beginning on or after
June 15, 2012. The firm will apply the provisions of the
ASU to such events occurring on or after January 1, 2013.
Since the ASU applies only to events occurring on or after
January 1, 2013, adoption did not affect the firm’s financial
condition, results of operations or cash flows.
Disclosures about Offsetting Assets and Liabilities
(ASC 210). In December 2011, the FASB issued ASU
No. 2011-11, “Balance Sheet (Topic 210) — Disclosures
about Offsetting Assets and Liabilities.” ASU No. 2011-11,
as amended by ASU 2013-01, “Balance Sheet (Topic 210):
Clarifying the Scope of Disclosures about Offsetting Assets
and Liabilities,” requires disclosure of the effect or potential
effect of offsetting arrangements on the firm’s financial
position as well as enhanced disclosure of the rights of
setoff associated with the firm’s recognized derivative
instruments, including bifurcated embedded derivatives,
repurchase agreements and reverse repurchase agreements,
and securities borrowing and lending transactions. ASU
No. 2011-11 is effective for periods beginning on or after
January 1, 2013. Since these amended principles require
only additional disclosures concerning offsetting and
related arrangements, adoption will not affect the firm’s
financial condition, results of operations or cash flows.
116 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Note 4.
Financial Instruments Owned, at Fair Value
and Financial Instruments Sold, But Not
Yet Purchased, at Fair Value
Financial instruments owned, at fair value and financial
instruments sold, but not yet purchased, at fair value are
accounted for at fair value either under the fair value option
or in accordance with other U.S. GAAP. See Note 8 for
further information about the fair value option. The table
below presents the firm’s financial instruments owned, at
fair value, including those pledged as collateral, and
financial instruments sold, but not yet purchased, at
fair value.
The firm held $9.07 billion and $4.86 billion as of
December 2012 and December 2011, respectively, of
securities accounted for as available-for-sale related to the
firm’s reinsurance business. As of December 2012, such
assets were classified as held for sale and were included in
“Other assets.” See Note 12 for further information about
assets held for sale. As of December 2011, all
available-for-sale securities were included in “Financial
instruments owned, at fair value.”
As of December 2012 As of December 2011
in millions
Financial
Instruments
Owned
Financial
Instruments
Sold, But
Not Yet
Purchased
Financial
Instruments
Owned
Financial
Instruments
Sold, But
Not Yet
Purchased
Commercial paper, certificates of deposit, time deposits and other
money market instruments $ 6,057 $ — $ 13,440 $ —
U.S. government and federal agency obligations 93,241 15,905 87,040 21,006
Non-U.S. government and agency obligations 62,250 32,361 49,205 34,886
Mortgage and other asset-backed loans and securities:
Loans and securities backed by commercial real estate 9,805 — 6,699 27
Loans and securities backed by residential real estate 8,216 4 7,592 3
Bank loans and bridge loans 22,407 1,779
3
19,745 2,756
3
Corporate debt securities 20,981 5,761 22,131 6,553
State and municipal obligations 2,477 1 3,089 3
Other debt obligations 2,251 — 4,362 —
Equities and convertible debentures 96,454 20,406 65,113 21,326
Commodities
1
11,696 — 5,762 —
Derivatives
2
71,176 50,427 80,028 58,453
Total $407,011 $126,644 $364,206 $145,013
1. Includes commodities that have been transferred to third parties, which were accounted for as collateralized financings rather than sales, of $4.29 billion and
$2.49 billion as of December 2012 and December 2011, respectively.
2. Net of cash collateral received or posted under credit support agreements and reported on a net-by-counterparty basis when a legal right of setoff exists under an
enforceable netting agreement.
3. Primarily relates to the fair value of unfunded lending commitments for which the fair value option was elected.
Goldman Sachs 2012 Annual Report 117
Notes to Consolidated Financial Statements
Gains and Losses from Market Making and Other
Principal Transactions
The table below presents, by major product type, the firm’s
“Market making” and “Other principal transactions”
revenues. These gains/(losses) are primarily related to the
firm’s financial instruments owned, at fair value and
financial instruments sold, but not yet purchased, at fair
value, including both derivative and non-derivative
financial instruments. These gains/(losses) exclude related
interest income and interest expense. See Note 23 for
further information about interest income and
interest expense.
The gains/(losses) in the table are not representative of the
manner in which the firm manages its business activities
because many of the firm’s market-making, client
facilitation, and investing and lending strategies utilize
financial instruments across various product types.
Accordingly, gains or losses in one product type frequently
offset gains or losses in other product types. For example,
most of the firm’s longer-term derivatives are sensitive to
changes in interest rates and may be economically hedged
with interest rate swaps. Similarly, a significant portion of
the firm’s cash instruments and derivatives has exposure to
foreign currencies and may be economically hedged with
foreign currency contracts.
Year Ended December
in millions 2012 2011 2010
Interest rates $ 4,366 $ 1,557 $ (2,042)
Credit 5,506 2,715 8,679
Currencies (1,004) 901 3,219
Equities 5,802 2,788 6,862
Commodities 575 1,588 1,567
Other 1,968
1
1,245 2,325
Total $17,213 $10,794 $20,610
1. Includes a gain of approximately $500 million on the sale of the firm’s hedge
fund administration business, which is included in “Market making”
revenues.
Note 5.
Fair Value Measurements
The fair value of a financial instrument is the amount that
would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market
participants at the measurement date. Financial assets are
marked to bid prices and financial liabilities are marked to
offer prices. Fair value measurements do not include
transaction costs. The firmmeasures certain financial assets
and financial liabilities as a portfolio (i.e., based on its net
exposure to market and/or credit risks).
The best evidence of fair value is a quoted price in an active
market. If quoted prices in active markets are not available,
fair value is determined by reference to prices for similar
instruments, quoted prices or recent transactions in less
active markets, or internally developed models that
primarily use market-based or independently sourced
parameters as inputs including, but not limited to, interest
rates, volatilities, equity or debt prices, foreign exchange
rates, commodity prices, credit spreads and funding spreads
(i.e., the spread, or difference, between the interest rate at
which a borrower could finance a given financial
instrument relative to a benchmark interest rate).
U.S. GAAP has a three-level fair value hierarchy for
disclosure of fair value measurements. The fair value
hierarchy prioritizes inputs to the valuation techniques used
to measure fair value, giving the highest priority to level 1
inputs and the lowest priority to level 3 inputs. A financial
instrument’s level in the fair value hierarchy is based on the
lowest level of input that is significant to its fair value
measurement.
The fair value hierarchy is as follows:
Level 1. Inputs are unadjusted quoted prices in active
markets to which the firm had access at the measurement
date for identical, unrestricted assets or liabilities.
Level 2. Inputs to valuation techniques are observable,
either directly or indirectly.
Level 3. One or more inputs to valuation techniques are
significant and unobservable.
118 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
The fair values for substantially all of the firm’s financial
assets and financial liabilities are based on observable prices
and inputs and are classified in levels 1 and 2 of the fair
value hierarchy. Certain level 2 and level 3 financial assets
and financial liabilities may require appropriate valuation
adjustments that a market participant would require to
arrive at fair value for factors such as counterparty and the
firm’s credit quality, funding risk, transfer restrictions,
liquidity and bid/offer spreads. Valuation adjustments are
generally based on market evidence.
See Notes 6 and 7 for further information about fair value
measurements of cash instruments and derivatives,
respectively, included in “Financial instruments owned, at
fair value” and “Financial instruments sold, but not yet
purchased, at fair value,” and Note 8 for further
information about fair value measurements of other
financial assets and financial liabilities accounted for at fair
value under the fair value option.
Financial assets and financial liabilities accounted for at fair
value under the fair value option or in accordance with
other U.S. GAAP are summarized below.
As of December
$ in millions 2012 2011
Total level 1 financial assets $ 190,737 $ 136,780
Total level 2 financial assets 502,293 587,416
Total level 3 financial assets 47,095 47,937
Cash collateral and counterparty netting
1
(101,612) (120,821)
Total financial assets at fair value $ 638,513 $ 651,312
Total assets $ 938,555 $ 923,225
Total level 3 financial assets as a percentage of Total assets 5.0% 5.2%
Total level 3 financial assets as a percentage of Total financial assets at fair value 7.4% 7.4%
Total level 1 financial liabilities $ 65,994 $ 75,557
Total level 2 financial liabilities 318,764 319,160
Total level 3 financial liabilities 25,679 25,498
Cash collateral and counterparty netting
1
(32,760) (31,546)
Total financial liabilities at fair value $ 377,677 $ 388,669
Total level 3 financial liabilities as a percentage of Total financial liabilities at fair value 6.8% 6.6%
1. Represents the impact on derivatives of cash collateral netting, and counterparty netting across levels of the fair value hierarchy. Netting among positions classified
in the same level is included in that level.
Level 3 financial assets as of December 2012 decreased
compared with December 2011, primarily reflecting a
decrease in derivative assets, partially offset by an increase
in private equity investments. The decrease in derivative
assets primarily reflected a decline in credit derivative
assets, principally due to settlements, unrealized losses and
sales, partially offset by net transfers from level 2. Level 3
currency derivative assets also declined compared with
December 2011, principally due to unrealized losses and
net transfers to level 2. The increase in private equity
investments primarily reflected purchases and unrealized
gains, partially offset by settlements and net transfers to
level 2.
See Notes 6, 7 and 8 for further information about level 3
cash instruments, derivatives and other financial assets and
financial liabilities accounted for at fair value under the fair
value option, respectively, including information about
significant unrealized gains and losses, and transfers in and
out of level 3.
Goldman Sachs 2012 Annual Report 119
Notes to Consolidated Financial Statements
Note 6.
Cash Instruments
Cash instruments include U.S. government and federal
agency obligations, non-U.S. government and agency
obligations, bank loans and bridge loans, corporate debt
securities, equities and convertible debentures, and other
non-derivative financial instruments owned and financial
instruments sold, but not yet purchased. See below for the
types of cash instruments included in each level of the fair
value hierarchy and the valuation techniques and
significant inputs used to determine their fair values. See
Note 5 for an overview of the firm’s fair value
measurement policies.
Level 1 Cash Instruments
Level 1 cash instruments include U.S. government
obligations and most non-U.S. government obligations,
actively traded listed equities, certain government agency
obligations and money market instruments. These
instruments are valued using quoted prices for identical
unrestricted instruments in active markets.
The firm defines active markets for equity instruments
based on the average daily trading volume both in absolute
terms and relative to the market capitalization for the
instrument. The firm defines active markets for debt
instruments based on both the average daily trading volume
and the number of days with trading activity.
Level 2 Cash Instruments
Level 2 cash instruments include commercial paper,
certificates of deposit, time deposits, most government
agency obligations, certain non-U.S. government
obligations, most corporate debt securities, commodities,
certain mortgage-backed loans and securities, certain bank
loans and bridge loans, restricted or less liquid listed
equities, most state and municipal obligations and certain
lending commitments.
Valuations of level 2 cash instruments can be verified to
quoted prices, recent trading activity for identical or similar
instruments, broker or dealer quotations or alternative
pricing sources with reasonable levels of price transparency.
Consideration is given to the nature of the quotations (e.g.,
indicative or firm) and the relationship of recent market
activity to the prices provided from alternative
pricing sources.
Valuation adjustments are typically made to level 2 cash
instruments (i) if the cash instrument is subject to transfer
restrictions and/or (ii) for other premiums and liquidity
discounts that a market participant would require to arrive
at fair value. Valuation adjustments are generally based on
market evidence.
Level 3 Cash Instruments
Level 3 cash instruments have one or more significant
valuation inputs that are not observable. Absent evidence to
the contrary, level 3 cash instruments are initially valued at
transaction price, which is considered to be the best initial
estimate of fair value. Subsequently, the firm uses other
methodologies to determine fair value, which vary based on
the type of instrument. Valuation inputs and assumptions
are changed when corroborated by substantive observable
evidence, including values realized on sales of
financial assets.
120 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
The table below presents the valuation techniques and the
nature of significant inputs generally used to determine the
fair values of each type of level 3 cash instrument.
Level 3 Cash Instruments Valuation Techniques and Significant Inputs
Loans and securities backed by
commercial real estate
‰ Collateralized by a single commercial
real estate property or a portfolio
of properties
‰ May include tranches of varying
levels of subordination
Valuation techniques vary by instrument, but are generally based on discounted cash flowtechniques.
Significant inputs are generally determined based on relative value analyses and include:
‰ Transaction prices in both the underlying collateral and instruments with the same or similar
underlying collateral and the basis, or price difference, to such prices
‰ Market yields implied by transactions of similar or related assets and/or current levels and
changes in market indices such as the CMBX (an index that tracks the performance of
commercial mortgage bonds)
‰ Recovery rates implied by the value of the underlying collateral, which is mainly driven by current
performance of the underlying collateral, capitalization rates and multiples
‰ Timing of expected future cash flows (duration)
Loans and securities backed by
residential real estate
‰ Collateralized by portfolios of
residential real estate
‰ May include tranches of varying levels
of subordination
Valuation techniques vary by instrument, but are generally based on discounted cash flowtechniques.
Significant inputs are generally determined based on relative value analyses, which incorporate
comparisons to instruments with similar collateral and risk profiles, including relevant indices such as
the ABX (an index that tracks the performance of subprime residential mortgage bonds). Significant
inputs include:
‰ Transaction prices in both the underlying collateral and instruments with the same or similar
underlying collateral
‰ Market yields implied by transactions of similar or related assets
‰ Cumulative loss expectations, driven by default rates, home price projections, residential property
liquidation timelines and related costs
‰ Duration, driven by underlying loan prepayment speeds and residential property
liquidation timelines
Bank loans and bridge loans Valuation techniques vary by instrument, but are generally based on discounted cash flowtechniques.
Significant inputs are generally determined based on relative value analyses, which incorporate
comparisons both to prices of credit default swaps that reference the same or similar underlying
instrument or entity and to other debt instruments for the same issuer for which observable prices or
broker quotations are available. Significant inputs include:
‰ Market yields implied by transactions of similar or related assets and/or current levels and trends
of market indices such as CDX and LCDX (indices that track the performance of corporate credit
and loans, respectively)
‰ Current performance and recovery assumptions and, where the firm uses credit default swaps to
value the related cash instrument, the cost of borrowing the underlying reference obligation
‰ Duration
Non-U.S. government and
agency obligations
Corporate debt securities
State and municipal obligations
Other debt obligations
Valuation techniques vary by instrument, but are generally based on discounted cash flowtechniques.
Significant inputs are generally determined based on relative value analyses, which incorporate
comparisons both to prices of credit default swaps that reference the same or similar underlying
instrument or entity and to other debt instruments for the same issuer for which observable prices or
broker quotations are available. Significant inputs include:
‰ Market yields implied by transactions of similar or related assets and/or current levels and trends
of market indices such as CDX, LCDX and MCDX (an index that tracks the performance of
municipal obligations)
‰ Current performance and recovery assumptions and, where the firm uses credit default swaps to
value the related cash instrument, the cost of borrowing the underlying reference obligation
‰ Duration
Equities and convertible debentures
(including private equity investments
and investments in real estate entities)
Recent third-party completed or pending transactions (e.g., merger proposals, tender offers, debt
restructurings) are considered to be the best evidence for any change in fair value. When these are not
available, the following valuation methodologies are used, as appropriate:
‰ Industry multiples (primarily EBITDAmultiples) and public comparables
‰ Transactions in similar instruments
‰ Discounted cash flowtechniques
‰ Third-party appraisals
The firm also considers changes in the outlook for the relevant industry and financial performance of
the issuer as compared to projected performance. Significant inputs include:
‰ Market and transaction multiples
‰ Discount rates, long-term growth rates, earnings compound annual growth rates and
capitalization rates
‰ For equity instruments with debt-like features: market yields implied by transactions of similar or
related assets, current performance and recovery assumptions, and duration
Goldman Sachs 2012 Annual Report 121
Notes to Consolidated Financial Statements
Significant Unobservable Inputs
The table below presents the ranges of significant
unobservable inputs used to value the firm’s level 3 cash
instruments. These ranges represent the significant
unobservable inputs that were used in the valuation of each
type of cash instrument. The ranges and weighted averages
of these inputs are not representative of the appropriate
inputs to use when calculating the fair value of any one cash
instrument. For example, the highest multiple presented in
the table for private equity investments is appropriate for
valuing a specific private equity investment but may not be
appropriate for valuing any other private equity
investment. Accordingly, the ranges of inputs presented
belowdo not represent uncertainty in, or possible ranges of,
fair value measurements of the firm’s level 3
cashinstruments.
Level 3 Cash Instruments
Level 3 Assets as of
December 2012
(in millions)
Significant Unobservable Inputs
by Valuation Technique
Range of Significant Unobservable
Inputs (Weighted Average
1
) as
of December 2012
Loans and securities backed by commercial
real estate
‰ Collateralized by a single commercial real
estate property or a portfolio of properties
‰ May include tranches of varying levels
of subordination
$3,389 Discounted cash flows:
‰ Yield 4.0% to 43.3% (9.8%)
‰ Recovery rate
3
37.0% to 96.2% (81.7%)
‰ Duration (years)
4
0.1 to 7.0 (2.6)
‰ Basis (13) points to 18 points
(2 points)
Loans and securities backed by residential
real estate
‰ Collateralized by portfolios of residential
real estate
‰ May include tranches of varying levels
of subordination
$1,619 Discounted cash flows:
‰ Yield 3.1% to 17.0% (9.7%)
‰ Cumulative loss rate 0.0% to 61.6% (31.6%)
‰ Duration (years)
4
1.3 to 5.9 (3.7)
Bank loans and bridge loans $11,235 Discounted cash flows:
‰ Yield 0.3% to 34.5% (8.3%)
‰ Recovery rate
3
16.5% to 85.0% (56.0%)
‰ Duration (years)
4
0.2 to 4.4 (1.9)
Non-U.S. government and agency obligations
Corporate debt securities
State and municipal obligations
Other debt obligations
$4,651 Discounted cash flows:
‰ Yield 0.6% to 33.7% (8.6%)
‰ Recovery rate
3
0.0% to 70.0% (53.4%)
‰ Duration (years)
4
0.5 to 15.5 (4.0)
Equities and convertible debentures (including
private equity investments and investments in
real estate entities)
$14,855
2
Comparable multiples:
‰ Multiples 0.7x to 21.0x (7.2x)
Discounted cash flows:
‰ Discount rate 10.0% to 25.0% (14.3%)
‰ Long-termgrowth rate/
compound annual growth rate
0.7% to 25.0% (9.3%)
‰ Capitalization rate 3.9% to 11.4% (7.3%)
1. Weighted averages are calculated by weighting each input by the relative fair value of the respective financial instruments.
2. The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparables and discounted cash flows may be
used together to determine fair value. Therefore, the level 3 balance encompasses both of these techniques.
3. Recovery rate is a measure of expected future cash flows in a default scenario, expressed as a percentage of notional or face value of the instrument, and reflects
the benefit of credit enhancement on certain instruments.
4. Duration is an estimate of the timing of future cash flows and, in certain cases, may incorporate the impact of other unobservable inputs (e.g., prepayment speeds).
Increases in yield, discount rate, capitalization rate,
duration or cumulative loss rate used in the valuation of the
firm’s level 3 cash instruments would result in a lower fair
value measurement, while increases in recovery rate, basis,
multiples, long-term growth rate or compound annual
growth rate would result in a higher fair value
measurement. Due to the distinctive nature of each of the
firm’s level 3 cash instruments, the interrelationship of
inputs is not necessarily uniformwithin each product type.
122 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Fair Value of Cash Instruments by Level
The tables below present, by level within the fair value
hierarchy, cash instrument assets and liabilities, at fair
value. Cash instrument assets and liabilities are included in
“Financial instruments owned, at fair value” and
“Financial instruments sold, but not yet purchased, at fair
value,” respectively.
Cash Instrument Assets at Fair Value as of December 2012
in millions Level 1 Level 2 Level 3 Total
Commercial paper, certificates of deposit, time deposits and other
money market instruments $ 2,155 $ 3,902 $ — $ 6,057
U.S. government and federal agency obligations 42,856 50,385 — 93,241
Non-U.S. government and agency obligations 46,715 15,509 26 62,250
Mortgage and other asset-backed loans and securities
1
:
Loans and securities backed by commercial real estate — 6,416 3,389 9,805
Loans and securities backed by residential real estate — 6,597 1,619 8,216
Bank loans and bridge loans — 11,172 11,235 22,407
Corporate debt securities
2
111 18,049 2,821 20,981
State and municipal obligations — 1,858 619 2,477
Other debt obligations
2
— 1,066 1,185 2,251
Equities and convertible debentures 72,875 8,724 14,855
3
96,454
Commodities — 11,696 — 11,696
Total $164,712 $135,374 $35,749 $335,835
Cash Instrument Liabilities at Fair Value as of December 2012
in millions Level 1 Level 2 Level 3 Total
U.S. government and federal agency obligations $ 15,475 $ 430 $ — $ 15,905
Non-U.S. government and agency obligations 31,011 1,350 — 32,361
Mortgage and other asset-backed loans and securities:
Loans and securities backed by residential real estate — 4 — 4
Bank loans and bridge loans — 1,143 636 1,779
Corporate debt securities 28 5,731 2 5,761
State and municipal obligations — 1 — 1
Equities and convertible debentures 19,416 986 4 20,406
Total $ 65,930 $ 9,645 $ 642 $ 76,217
1. Includes $489 million and $446 million of collateralized debt obligations (CDOs) backed by real estate in level 2 and level 3, respectively.
2. Includes $284 million and $1.76 billion of CDOs and collateralized loan obligations (CLOs) backed by corporate obligations in level 2 and level 3, respectively.
3. Includes $12.67 billion of private equity investments, $1.58 billion of investments in real estate entities and $600 million of convertible debentures.
Goldman Sachs 2012 Annual Report 123
Notes to Consolidated Financial Statements
Cash Instrument Assets at Fair Value as of December 2011
in millions Level 1 Level 2 Level 3 Total
Commercial paper, certificates of deposit, time deposits and other
money market instruments $ 3,255 $ 10,185 $ — $ 13,440
U.S. government and federal agency obligations 29,263 57,777 — 87,040
Non-U.S. government and agency obligations 42,854 6,203 148 49,205
Mortgage and other asset-backed loans and securities
1
:
Loans and securities backed by commercial real estate — 3,353 3,346 6,699
Loans and securities backed by residential real estate — 5,883 1,709 7,592
Bank loans and bridge loans — 8,460 11,285 19,745
Corporate debt securities
2
133 19,518 2,480 22,131
State and municipal obligations — 2,490 599 3,089
Other debt obligations
2
— 2,911 1,451 4,362
Equities and convertible debentures 39,955 11,491 13,667
3
65,113
Commodities — 5,762 — 5,762
Total $115,460 $134,033 $34,685 $284,178
Cash Instrument Liabilities at Fair Value as of December 2011
in millions Level 1 Level 2 Level 3 Total
U.S. government and federal agency obligations $ 20,940 $ 66 $ — $ 21,006
Non-U.S. government and agency obligations 34,339 547 — 34,886
Mortgage and other asset-backed loans and securities:
Loans and securities backed by commercial real estate — 27 — 27
Loans and securities backed by residential real estate — 3 — 3
Bank loans and bridge loans — 1,891 865 2,756
Corporate debt securities
4
— 6,522 31 6,553
State and municipal obligations — 3 — 3
Equities and convertible debentures 20,069 1,248 9 21,326
Total $ 75,348 $ 10,307 $ 905 $ 86,560
1. Includes $213 million and $595 million of CDOs backed by real estate in level 2 and level 3, respectively.
2. Includes $403 million and $1.19 billion of CDOs and CLOs backed by corporate obligations in level 2 and level 3, respectively.
3. Includes $12.07 billion of private equity investments, $1.10 billion of investments in real estate entities and $497 million of convertible debentures.
4. Includes $27 million of CDOs and CLOs backed by corporate obligations in level 3.
Transfers Between Levels of the Fair Value Hierarchy
Transfers between levels of the fair value hierarchy are
reported at the beginning of the reporting period in which
they occur. During the year ended December 2012,
transfers into level 2 from level 1 of cash instruments were
$1.85 billion, including transfers of non-U.S. government
obligations of $1.05 billion, reflecting the level of market
activity in these instruments, and transfers of equity
securities of $806 million, primarily reflecting the impact of
transfer restrictions. Transfers into level 1 from level 2 of
cash instruments were $302 million, including transfers of
non-U.S. government obligations of $180 million, reflecting
the level of market activity in these instruments, and
transfers of equity securities of $102 million, where the firm
was able to obtain quoted prices for certain actively
tradedinstruments.
124 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Level 3 Rollforward
If a cash instrument asset or liability was transferred to
level 3 during a reporting period, its entire gain or loss for
the period is included in level 3.
Level 3 cash instruments are frequently economically
hedged with level 1 and level 2 cash instruments and/or
level 1, level 2 or level 3 derivatives. Accordingly, gains or
losses that are reported in level 3 can be partially offset by
gains or losses attributable to level 1 or level 2 cash
instruments and/or level 1, level 2 or level 3 derivatives. As
a result, gains or losses included in the level 3 rollforward
belowdo not necessarily represent the overall impact on the
firm’s results of operations, liquidity or capital resources.
The tables below present changes in fair value for all cash
instrument assets and liabilities categorized as level 3 as of
the end of the year.
Level 3 Cash Instrument Assets at Fair Value for the Year Ended December 2012
in millions
Balance,
beginning
of year
Net
realized
gains/
(losses)
Net unrealized
gains/(losses)
relating to
instruments
still held at
year-end Purchases
1
Sales Settlements
Transfers
into
level 3
Transfers
out of
level 3
Balance,
end of
year
Non-U.S. government and
agency obligations $ 148 $ 2 $ (52) $ 16 $ (40) $ (45) $ 1 $ (4) $ 26
Mortgage and other asset-backed loans
and securities:
Loans and securities backed by
commercial real estate 3,346 238 232 1,613 (910) (1,389) 337 (78) 3,389
Loans and securities backed by
residential real estate 1,709 146 276 703 (844) (380) 65 (56) 1,619
Bank loans and bridge loans 11,285 592 322 4,595 (2,794) (2,738) 1,178 (1,205) 11,235
Corporate debt securities 2,480 331 266 1,143 (961) (438) 197 (197) 2,821
State and municipal obligations 599 26 2 96 (90) (22) 8 — 619
Other debt obligations 1,451 64 (25) 759 (355) (125) 39 (623)
2
1,185
Equities and convertible debentures 13,667 292 992 3,071 (702) (1,278) 965 (2,152) 14,855
Total $34,685 $1,691
3
$2,013
3
$11,996 $(6,696) $(6,415) $2,790 $(4,315) $35,749
Level 3 Cash Instrument Liabilities at Fair Value for the Year Ended December 2012
in millions
Balance,
beginning
of year
Net
realized
(gains)/
losses
Net unrealized
(gains)/losses
relating to
instruments
still held at
year-end Purchases
1
Sales Settlements
Transfers
into
level 3
Transfers
out of
level 3
Balance,
end of
year
Total $ 905 $ (19) $ (54) $ (530) $ 366 $ 45 $ 63 $ (134) $ 642
1. Includes both originations and secondary market purchases.
2. Primarily reflects transfers related to the firm’s reinsurance business of level 3 “Other debt obligations” within cash instruments at fair value to level 3 “Other
assets,” within other financial assets at fair value, as this business was classified as held for sale as of December 2012. See Note 8 for further information.
3. The aggregate amounts include approximately $617 million, $2.13 billion and $962 million reported in “Market making,” “Other principal transactions” and “Interest
income,” respectively.
The net unrealized gain on level 3 cash instruments of
$2.07 billion (reflecting $2.01 billion on cash instrument
assets and $54 million on cash instrument liabilities) for the
year ended December 2012 primarily consisted of gains on
private equity investments, mortgage and other asset-backed
loans and securities, bank loans and bridge loans, and
corporate debt securities. Unrealized gains during the year
ended December 2012 primarily reflected the impact of an
increase in global equity prices and tighter credit spreads.
Transfers into level 3 during the year ended December 2012
primarily reflected transfers from level 2 of certain bank
loans and bridge loans, and private equity investments,
principally due to a lack of market transactions in
these instruments.
Transfers out of level 3 during the year ended
December 2012 primarily reflected transfers to level 2 of
certain private equity investments and bank loans and
bridge loans. Transfers of private equity investments to
level 2 were principally due to improved transparency of
market prices as a result of market transactions in these
instruments. Transfers of bank loans and bridge loans to
level 2 were principally due to market transactions in these
instruments and unobservable inputs no longer being
significant to the valuation of certain loans.
Goldman Sachs 2012 Annual Report 125
Notes to Consolidated Financial Statements
Level 3 Cash Instrument Assets at Fair Value for the Year Ended December 2011
in millions
Balance,
beginning
of year
Net realized
gains/
(losses)
Net unrealized
gains/(losses)
relating to
instruments
still held at
year-end Purchases
1
Sales Settlements
Net
transfers
in and/or
(out) of
level 3
Balance,
end of
year
Non-U.S. government obligations $ — $ 25 $ (63) $ 27 $ (123) $ (8) $ 290 $ 148
Mortgage and other asset-backed loans
and securities:
Loans and securities backed by
commercial real estate 3,976 222 80 1,099 (1,124) (831) (76) 3,346
Loans and securities backed by
residential real estate 2,501 253 (81) 768 (702) (456) (574) 1,709
Bank loans and bridge loans 9,905 540 (216) 6,725 (2,329) (1,554) (1,786) 11,285
Corporate debt securities 2,737 391 (132) 1,319 (1,137) (697) (1) 2,480
State and municipal obligations 754 12 (1) 448 (591) (13) (10) 599
Other debt obligations 1,274 124 (17) 560 (388) (212) 110 1,451
Equities and convertible debentures 11,060 240 338 2,731 (1,196) (855) 1,349 13,667
Total $32,207 $1,807
2
$ (92)
2
$13,677 $(7,590) $(4,626) $ (698) $34,685
Level 3 Cash Instrument Liabilities at Fair Value for the Year Ended December 2011
in millions
Balance,
beginning
of year
Net realized
(gains)/
losses
Net unrealized
(gains)/losses
relating to
instruments
still held at
year-end Purchases
1
Sales Settlements
Net
transfers
in and/or
(out) of
level 3
Balance,
end of
year
Total $ 446 $ (27) $ 218 $ (491) $ 475 $ 272 $ 12 $ 905
1. Includes both originations and secondary market purchases.
2. The aggregate amounts include approximately $(202) million, $623 million and $1.29 billion reported in “Market making,” “Other principal transactions” and
“Interest income,” respectively.
The net unrealized loss on level 3 cash instruments of
$310 million (reflecting losses of $92 million on cash
instrument assets and $218 million on cash instrument
liabilities) for the year ended December 2011 primarily
consisted of losses on bank loans and bridge loans and
corporate debt securities, primarily reflecting the impact of
unfavorable credit markets and losses on relationship
lending. These losses were partially offset by gains in
private equity investments, where prices were generally
corroborated through market transactions in similar
financial instruments during the year.
Significant transfers in or out of level 3 during the year
ended December 2011 included:
‰ Bank loans and bridge loans: net transfer out of level 3 of
$1.79 billion, primarily due to transfers to level 2 of
certain loans due to improved transparency of market
prices as a result of market transactions in these or similar
loans, partially offset by transfers to level 3 of other loans
primarily due to reduced transparency of market prices as
a result of less market activity in these loans.
‰ Equities and convertible debentures: net transfer into
level 3 of $1.35 billion, primarily due to transfers to
level 3 of certain private equity investments due to
reduced transparency of market prices as a result of less
market activity in these financial instruments, partially
offset by transfers to level 2 of other private equity
investments due to improved transparency of market
prices as a result of market transactions in these
financial instruments.
‰ Loans and securities backed by residential real estate: net
transfer out of level 3 of $574 million, principally due to
transfers to level 2 of certain loans due to improved
transparency of market prices used to value these loans,
as well as unobservable inputs no longer being significant
to the valuation of these loans.
126 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Investments in Funds That Calculate Net Asset
Value Per Share
Cash instruments at fair value include investments in funds
that are valued based on the net asset value per share
(NAV) of the investment fund. The firm uses NAV as its
measure of fair value for fund investments when (i) the fund
investment does not have a readily determinable fair value
and (ii) the NAV of the investment fund is calculated in a
manner consistent with the measurement principles of
investment company accounting, including measurement of
the underlying investments at fair value.
The firm’s investments in funds that calculate NAV
primarily consist of investments in firm-sponsored funds
where the firm co-invests with third-party investors. The
private equity, credit and real estate funds are primarily
closed-end funds in which the firm’s investments are not
eligible for redemption. Distributions will be received from
these funds as the underlying assets are liquidated and it is
estimated that substantially all of the underlying assets of
existing funds will be liquidated over the next seven years.
The firm continues to manage its existing funds taking into
account the transition periods under the Volcker Rule of
the U.S. Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act), although the rules have
not yet been finalized.
The firm’s investments in hedge funds are generally
redeemable on a quarterly basis with 91 days’ notice,
subject to a maximum redemption level of 25% of the
firm’s initial investments at any quarter-end. The firm
currently plans to comply with the Volcker Rule by
redeeming certain of its interests in hedge funds. The firm
redeemed approximately $1.06 billion of these interests in
hedge funds during the year ended December 2012.
The table below presents the fair value of the firm’s
investments in, and unfunded commitments to, funds that
calculate NAV.
As of December 2012 As of December 2011
in millions
Fair Value of
Investments
Unfunded
Commitments
Fair Value of
Investments
Unfunded
Commitments
Private equity funds
1
$ 7,680 $2,778 $ 8,074 $3,514
Credit funds
2
3,927 2,843 3,596 3,568
Hedge funds
3
2,167 — 3,165 —
Real estate funds
4
2,006 870 1,531 1,613
Total $15,780 $6,491 $16,366 $8,695
1. These funds primarily invest in a broad range of industries worldwide in a variety of situations, including leveraged buyouts, recapitalizations and growth
investments.
2. These funds generally invest in loans and other fixed income instruments and are focused on providing private high-yield capital for mid- to large-sized leveraged and
management buyout transactions, recapitalizations, financings, refinancings, acquisitions and restructurings for private equity firms, private family companies and
corporate issuers.
3. These funds are primarily multi-disciplinary hedge funds that employ a fundamental bottom-up investment approach across various asset classes and strategies
including long/short equity, credit, convertibles, risk arbitrage, special situations and capital structure arbitrage.
4. These funds invest globally, primarily in real estate companies, loan portfolios, debt recapitalizations and direct property.
Goldman Sachs 2012 Annual Report 127
Notes to Consolidated Financial Statements
Note 7.
Derivatives and Hedging Activities
Derivative Activities
Derivatives are instruments that derive their value from
underlying asset prices, indices, reference rates and other
inputs, or a combination of these factors. Derivatives may
be privately negotiated contracts, which are usually referred
to as over-the-counter (OTC) derivatives, or they may be
listed and traded on an exchange (exchange-traded).
Market-Making. As a market maker, the firm enters into
derivative transactions to provide liquidity and to facilitate
the transfer and hedging of risk. In this capacity, the firm
typically acts as principal and is consequently required to
commit capital to provide execution. As a market maker, it
is essential to maintain an inventory of financial
instruments sufficient to meet expected client and
market demands.
Risk Management. The firmalso enters into derivatives to
actively manage risk exposures that arise from
market-making and investing and lending activities in
derivative and cash instruments. The firm’s holdings and
exposures are hedged, in many cases, on either a portfolio
or risk-specific basis, as opposed to an
instrument-by-instrument basis. The offsetting impact of
this economic hedging is reflected in the same business
segment as the related revenues. In addition, the firm may
enter into derivatives designated as hedges under U.S.
GAAP. These derivatives are used to manage foreign
currency exposure on the net investment in certain non-U.S.
operations and to manage interest rate exposure in certain
fixed-rate unsecured long-term and short-term borrowings,
and deposits.
The firmenters into various types of derivatives, including:
‰ Futures and Forwards. Contracts that commit
counterparties to purchase or sell financial instruments,
commodities or currencies in the future.
‰ Swaps. Contracts that require counterparties to
exchange cash flows such as currency or interest payment
streams. The amounts exchanged are based on the
specific terms of the contract with reference to specified
rates, financial instruments, commodities, currencies
or indices.
‰ Options. Contracts in which the option purchaser has
the right, but not the obligation, to purchase from or sell
to the option writer financial instruments, commodities
or currencies within a defined time period for a
specifiedprice.
Derivatives are accounted for at fair value, net of cash
collateral received or posted under credit support
agreements. Derivatives are reported on a
net-by-counterparty basis (i.e., the net payable or receivable
for derivative assets and liabilities for a given counterparty)
when a legal right of setoff exists under an enforceable
netting agreement. Derivative assets and liabilities are
included in “Financial instruments owned, at fair value”
and “Financial instruments sold, but not yet purchased, at
fair value,” respectively.
Substantially all gains and losses on derivatives not
designated as hedges under ASC 815 are included in
“Market making” and “Other principal transactions.”
128 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
The table belowpresents the fair value of derivatives on a net-by-counterparty basis.
As of December 2012 As of December 2011
in millions
Derivative
Assets
Derivative
Liabilities
Derivative
Assets
Derivative
Liabilities
Exchange-traded $ 3,772 $ 2,937 $ 5,880 $ 3,172
Over-the-counter 67,404 47,490 74,148 55,281
Total $71,176 $50,427 $80,028 $58,453
The table below presents the fair value and the notional
amount of derivative contracts by major product type on a
gross basis. Gross fair values in the table below exclude the
effects of both netting of receivable balances with payable
balances under enforceable netting agreements, and netting
of cash collateral received or posted under credit support
agreements, and therefore are not representative of the
firm’s exposure. Notional amounts, which represent the
sumof gross long and short derivative contracts, provide an
indication of the volume of the firm’s derivative activity;
however, they do not represent anticipated losses.
As of December 2012 As of December 2011
in millions
Derivative
Assets
Derivative
Liabilities
Notional
Amount
Derivative
Assets
Derivative
Liabilities
Notional
Amount
Derivatives not accounted for as hedges
Interest rates $ 584,584 $ 545,605 $34,891,763 $ 624,189 $ 582,608 $38,111,097
Credit 85,816 74,927 3,615,757 150,816 130,659 4,032,330
Currencies 72,128 60,808 3,833,114 88,654 71,736 3,919,525
Commodities 23,320 24,350 774,115 35,966 38,050 799,925
Equities 49,483 43,681 1,202,181 64,135 51,928 1,433,087
Subtotal 815,331 749,371 44,316,930 963,760 874,981 48,295,964
Derivatives accounted for as hedges
Interest rates 23,772 66 128,302 21,981 13 109,860
Currencies 21 86 8,452 124 21 8,307
Subtotal 23,793 152 136,754 22,105 34 118,167
Gross fair value/notional amount of derivatives $ 839,124 $ 749,523 $44,453,684 $ 985,865 $ 875,015 $48,414,131
Counterparty netting
1
(668,460) (668,460) (787,733) (787,733)
Cash collateral netting
2
(99,488) (30,636) (118,104) (28,829)
Fair value included in financial instruments owned $ 71,176 $ 80,028
Fair value included in financial instruments sold,
but not yet purchased $ 50,427 $ 58,453
1. Represents the netting of receivable balances with payable balances for the same counterparty under enforceable netting agreements.
2. Represents the netting of cash collateral received and posted on a counterparty basis under credit support agreements.
Goldman Sachs 2012 Annual Report 129
Notes to Consolidated Financial Statements
Valuation Techniques for Derivatives
The firm’s level 2 and level 3 derivatives are valued using
derivative pricing models (e.g., models that incorporate
option pricing methodologies, Monte Carlo simulations
and discounted cash flows). Price transparency of
derivatives can generally be characterized by product type.
Interest Rate. In general, the prices and other inputs used
to value interest rate derivatives are transparent, even for
long-dated contracts. Interest rate swaps and options
denominated in the currencies of leading industrialized
nations are characterized by high trading volumes and tight
bid/offer spreads. Interest rate derivatives that reference
indices, such as an inflation index, or the shape of the yield
curve (e.g., 10-year swap rate vs. 2-year swap rate) are
more complex, but the prices and other inputs are
generally observable.
Credit. Price transparency for credit default swaps,
including both single names and baskets of credits, varies
by market and underlying reference entity or obligation.
Credit default swaps that reference indices, large corporates
and major sovereigns generally exhibit the most price
transparency. For credit default swaps with other
underliers, price transparency varies based on credit rating,
the cost of borrowing the underlying reference obligations,
and the availability of the underlying reference obligations
for delivery upon the default of the issuer. Credit default
swaps that reference loans, asset-backed securities and
emerging market debt instruments tend to have less price
transparency than those that reference corporate bonds. In
addition, more complex credit derivatives, such as those
sensitive to the correlation between two or more underlying
reference obligations, generally have less
price transparency.
Currency. Prices for currency derivatives based on the
exchange rates of leading industrialized nations, including
those with longer tenors, are generally transparent. The
primary difference between the price transparency of
developed and emerging market currency derivatives is that
emerging markets tend to be observable for contracts with
shorter tenors.
Commodity. Commodity derivatives include transactions
referenced to energy (e.g., oil and natural gas), metals (e.g.,
precious and base) and soft commodities (e.g., agricultural).
Price transparency varies based on the underlying
commodity, delivery location, tenor and product quality
(e.g., diesel fuel compared to unleaded gasoline). In general,
price transparency for commodity derivatives is greater for
contracts with shorter tenors and contracts that are more
closely aligned with major and/or benchmark
commodity indices.
Equity. Price transparency for equity derivatives varies by
market and underlier. Options on indices and the common
stock of corporates included in major equity indices exhibit
the most price transparency. Equity derivatives generally
have observable market prices, except for contracts with
long tenors or reference prices that differ significantly from
current market prices. More complex equity derivatives,
such as those sensitive to the correlation between two or
more individual stocks, generally have less
price transparency.
Liquidity is essential to observability of all product types. If
transaction volumes decline, previously transparent prices
and other inputs may become unobservable. Conversely,
even highly structured products may at times have trading
volumes large enough to provide observability of prices and
other inputs. See Note 5 for an overview of the firm’s fair
value measurement policies.
Level 1 Derivatives
Level 1 derivatives include short-term contracts for future
delivery of securities when the underlying security is a
level 1 instrument, and exchange-traded derivatives if they
are actively traded and are valued at their quoted
market price.
Level 2 Derivatives
Level 2 derivatives include OTC derivatives for which all
significant valuation inputs are corroborated by market
evidence and exchange-traded derivatives that are not
actively traded and/or that are valued using models that
calibrate to market-clearing levels of OTCderivatives.
The selection of a particular model to value a derivative
depends on the contractual terms of and specific risks
inherent in the instrument, as well as the availability of
pricing information in the market. For derivatives that
trade in liquid markets, model selection does not involve
significant management judgment because outputs of
models can be calibrated to market-clearing levels.
130 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Valuation models require a variety of inputs, including
contractual terms, market prices, yield curves, credit curves,
measures of volatility, prepayment rates, loss severity rates
and correlations of such inputs. Inputs to the valuations of
level 2 derivatives can be verified to market transactions,
broker or dealer quotations or other alternative pricing
sources with reasonable levels of price transparency.
Consideration is given to the nature of the quotations (e.g.,
indicative or firm) and the relationship of recent market
activity to the prices provided from alternative
pricing sources.
Level 3 Derivatives
Level 3 derivatives are valued using models which utilize
observable level 1 and/or level 2 inputs, as well as
unobservable level 3 inputs.
‰ For the majority of the firm’s interest rate and currency
derivatives classified within level 3, significant
unobservable inputs include correlations of certain
currencies and interest rates (e.g., the correlation between
Euro inflation and Euro interest rates) and specific
interest rate volatilities.
‰ For level 3 credit derivatives, significant level 3 inputs
include illiquid credit spreads, which are unique to
specific reference obligations and reference entities,
recovery rates and certain correlations required to value
credit and mortgage derivatives (e.g., the likelihood of
default of the underlying reference obligation relative to
one another).
‰ For level 3 equity derivatives, significant level 3 inputs
generally include equity volatility inputs for options that
are very long-dated and/or have strike prices that differ
significantly from current market prices. In addition, the
valuation of certain structured trades requires the use of
level 3 inputs for the correlation of the price performance
of two or more individual stocks or the correlation of the
price performance for a basket of stocks to another asset
class such as commodities.
‰ For level 3 commodity derivatives, significant level 3
inputs include volatilities for options with strike prices
that differ significantly from current market prices and
prices or spreads for certain products for which the
product quality or physical location of the commodity is
not aligned with benchmark indices.
Subsequent to the initial valuation of a level 3 derivative,
the firm updates the level 1 and level 2 inputs to reflect
observable market changes and any resulting gains and
losses are recorded in level 3. Level 3 inputs are changed
when corroborated by evidence such as similar market
transactions, third-party pricing services and/or broker or
dealer quotations or other empirical market data. In
circumstances where the firm cannot verify the model value
by reference to market transactions, it is possible that a
different valuation model could produce a materially
different estimate of fair value. See below for further
information about unobservable inputs used in the
valuation of level 3 derivatives.
Valuation Adjustments
Valuation adjustments are integral to determining the fair
value of derivatives and are used to adjust the mid-market
valuations, produced by derivative pricing models, to the
appropriate exit price valuation. These adjustments
incorporate bid/offer spreads, the cost of liquidity, credit
valuation adjustments (CVA) and funding valuation
adjustments, which account for the credit and funding risk
inherent in derivative portfolios. Market-based inputs are
generally used when calibrating valuation adjustments to
market-clearing levels.
In addition, for derivatives that include significant
unobservable inputs, the firm makes model or exit price
adjustments to account for the valuation uncertainty
present in the transaction.
Goldman Sachs 2012 Annual Report 131
Notes to Consolidated Financial Statements
Significant Unobservable Inputs
The table below presents the ranges of significant
unobservable inputs used to value the firm’s level 3
derivatives. These ranges represent the significant
unobservable inputs that were used in the valuation of each
type of derivative. The ranges, averages and medians of
these inputs are not representative of the appropriate inputs
to use when calculating the fair value of any one derivative.
For example, the highest correlation presented in the table
for interest rate derivatives is appropriate for valuing a
specific interest rate derivative but may not be appropriate
for valuing any other interest rate derivative. Accordingly,
the ranges of inputs presented below do not represent
uncertainty in, or possible ranges of, fair value
measurements of the firm’s level 3 derivatives.
Level 3 Derivative
Product Type
Net Level 3 Assets/(Liabilities)
as of December 2012
(in millions)
Significant Unobservable Inputs
of Derivative Pricing Models
Range of Significant Unobservable
Inputs (Average / Median)
1
as of December 2012
Interest rates $(355) Correlation
2
Volatility
22% to 97% (67% / 68%)
37 basis points per annum (bpa) to
59 bpa (48 bpa / 47 bpa)
Credit $6,228 Correlation
2
Credit spreads
Recovery rates
5% to 95% (50% / 50%)
9 bps to 2,341 bps
(225 bps / 140 bps)
3
15% to 85% (54% / 53%)
Currencies $35 Correlation
2
65% to 87% (76% / 79%)
Commodities $(304) Volatility
Spread per million British Thermal units
(MMBTU) of natural gas
Price per megawatt hour of power
Price per barrel of oil
13% to 53% (30% / 29%)
$(0.61) to $6.07 ($0.02 / $0.00)
$17.30 to $57.39 ($33.17 / $32.80)
$86.64 to $98.43 ($92.76 / $93.62)
Equities $(1,248) Correlation
2
Volatility
48% to 98% (68% / 67%)
15% to 73% (31% / 30%)
1. Averages represent the arithmetic average of the inputs and are not weighted by the relative fair value or notional of the respective financial instruments. An average
greater than the median indicates that the majority of inputs are below the average.
2. The range of unobservable inputs for correlation across derivative product types (i.e., cross-asset correlation) was (51)% to 66% (Average: 30% / Median: 35%) as of
December 2012.
3. The difference between the average and the median for the credit spreads input indicates that the majority of the inputs fall in the lower end of the range.
132 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Range of Significant Unobservable Inputs
The following provides further information about the
ranges of unobservable inputs used to value the firm’s
level 3 derivative instruments.
‰ Correlation: Ranges for correlation cover a variety of
underliers both within one market (e.g., equity index and
equity single stock names) and across markets (e.g.,
correlation of a commodity price and a foreign exchange
rate), as well as across regions. Generally, cross-asset
correlation inputs are used to value more complex
instruments and are lower than correlation inputs on
assets within the same derivative product type.
‰ Volatility: Ranges for volatility cover numerous
underliers across a variety of markets, maturities and
strike prices. For example, volatility of equity indices is
generally lower than volatility of single stocks.
‰ Credit spreads and recovery rates: The ranges for credit
spreads and recovery rates cover a variety of underliers
(index and single names), regions, sectors, maturities and
credit qualities (high-yield and investment-grade). The
broad range of this population gives rise to the width of
the ranges of unobservable inputs.
‰ Commodity prices and spreads: The ranges for
commodity prices and spreads cover variability in
products, maturities and locations, as well as peak and
off-peak prices.
Sensitivity of Fair Value Measurement to Changes
in Significant Unobservable Inputs
The following provides a description of the directional
sensitivity of the firm’s level 3 fair value measurements to
changes in significant unobservable inputs, in isolation.
Due to the distinctive nature of each of the firm’s level 3
derivatives, the interrelationship of inputs is not necessarily
uniformwithin each product type.
‰ Correlation: In general, for contracts where the holder
benefits from the convergence of the underlying asset or
index prices (e.g., interest rates, credit spreads, foreign
exchange rates, inflation rates and equity prices), an
increase in correlation results in a higher fair
value measurement.
‰ Volatility: In general, for purchased options an increase in
volatility results in a higher fair value measurement.
‰ Credit spreads and recovery rates: In general, the fair
value of purchased credit protection increases as credit
spreads increase or recovery rates decrease. Credit
spreads and recovery rates are strongly related to
distinctive risk factors of the underlying reference
obligations, which include reference entity-specific
factors such as leverage, volatility and industry,
market-based risk factors, such as borrowing costs or
liquidity of the underlying reference obligation, and
macro-economic conditions.
‰ Commodity prices and spreads: In general, for contracts
where the holder is receiving a commodity, an increase in
the spread (price difference from a benchmark index due
to differences in quality or delivery location) or price
results in a higher fair value measurement.
Goldman Sachs 2012 Annual Report 133
Notes to Consolidated Financial Statements
Fair Value of Derivatives by Level
The tables below present the fair value of derivatives on a
gross basis by level and major product type. Gross fair
values in the tables belowexclude the effects of both netting
of receivable balances with payable balances under
enforceable netting agreements, and netting of cash
received or posted under credit support agreements both in
and across levels of the fair value hierarchy, and therefore
are not representative of the firm’s exposure.
Derivative Assets at Fair Value as of December 2012
in millions Level 1 Level 2 Level 3
Cross-Level
Netting Total
Interest rates $13 $ 608,151 $ 192 $ — $ 608,356
Credit — 74,907 10,909 — 85,816
Currencies — 71,157 992 — 72,149
Commodities — 22,697 623 — 23,320
Equities 43 48,698 742 — 49,483
Gross fair value of derivative assets 56 825,610 13,458 — 839,124
Counterparty netting
1
— (662,798) (3,538) (2,124)
3
(668,460)
Subtotal $56 $ 162,812 $ 9,920 $(2,124) $ 170,664
Cash collateral netting
2
(99,488)
Fair value included in financial instruments owned $ 71,176
Derivative Liabilities at Fair Value as of December 2012
in millions Level 1 Level 2 Level 3
Cross-Level
Netting Total
Interest rates $14 $ 545,110 $ 547 $ — $ 545,671
Credit — 70,246 4,681 — 74,927
Currencies — 59,937 957 — 60,894
Commodities — 23,423 927 — 24,350
Equities 50 41,641 1,990 — 43,681
Gross fair value of derivative liabilities 64 740,357 9,102 — 749,523
Counterparty netting
1
— (662,798) (3,538) (2,124)
3
(668,460)
Subtotal $64 $ 77,559 $ 5,564 $(2,124) $ 81,063
Cash collateral netting
2
(30,636)
Fair value included in financial instruments sold,
but not yet purchased $ 50,427
1. Represents the netting of receivable balances with payable balances for the same counterparty under enforceable netting agreements.
2. Represents the netting of cash collateral received and posted on a counterparty basis under credit support agreements.
3. Represents the netting of receivable balances with payable balances for the same counterparty across levels of the fair value hierarchy under enforceable netting
agreements.
134 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Derivative Assets at Fair Value as of December 2011
in millions Level 1 Level 2 Level 3
Cross-Level
Netting Total
Interest rates $ 33 $ 645,923 $ 214 $ — $ 646,170
Credit — 137,110 13,706 — 150,816
Currencies — 86,752 2,026 — 88,778
Commodities — 35,062 904 — 35,966
Equities 24 62,684 1,427 — 64,135
Gross fair value of derivative assets 57 967,531 18,277 — 985,865
Counterparty netting
1
— (778,639) (6,377) (2,717)
3
(787,733)
Subtotal $ 57 $ 188,892 $11,900 $(2,717) $ 198,132
Cash collateral netting
2
(118,104)
Fair value included in financial instruments owned $ 80,028
Derivative Liabilities at Fair Value as of December 2011
in millions Level 1 Level 2 Level 3
Cross-Level
Netting Total
Interest rates $ 24 $ 582,012 $ 585 $ — $ 582,621
Credit — 123,253 7,406 — 130,659
Currencies — 70,573 1,184 — 71,757
Commodities — 36,541 1,509 — 38,050
Equities 185 49,884 1,859 — 51,928
Gross fair value of derivative liabilities 209 862,263 12,543 — 875,015
Counterparty netting
1
— (778,639) (6,377) (2,717)
3
(787,733)
Subtotal $209 $ 83,624 $ 6,166 $(2,717) $ 87,282
Cash collateral netting
2
(28,829)
Fair value included in financial instruments sold,
but not yet purchased $ 58,453
1. Represents the netting of receivable balances with payable balances for the same counterparty under enforceable netting agreements.
2. Represents the netting of cash collateral received and posted on a counterparty basis under credit support agreements.
3. Represents the netting of receivable balances with payable balances for the same counterparty across levels of the fair value hierarchy under enforceable netting
agreements.
Goldman Sachs 2012 Annual Report 135
Notes to Consolidated Financial Statements
Level 3 Rollforward
If a derivative was transferred to level 3 during a reporting
period, its entire gain or loss for the period is included in
level 3. Transfers between levels are reported at the
beginning of the reporting period in which they occur.
Gains and losses on level 3 derivatives should be considered
in the context of the following:
‰ A derivative with level 1 and/or level 2 inputs is classified
in level 3 in its entirety if it has at least one significant
level 3 input.
‰ If there is one significant level 3 input, the entire gain or
loss from adjusting only observable inputs (i.e., level 1
and level 2 inputs) is classified as level 3.
‰ Gains or losses that have been reported in level 3 resulting
from changes in level 1 or level 2 inputs are frequently
offset by gains or losses attributable to level 1 or level 2
derivatives and/or level 1, level 2 and level 3 cash
instruments. As a result, gains/(losses) included in the
level 3 rollforward below do not necessarily represent the
overall impact on the firm’s results of operations,
liquidity or capital resources.
The tables below present changes in fair value for all
derivatives categorized as level 3 as of the end of the year.
Level 3 Derivative Assets and Liabilities at Fair Value for the Year Ended December 2012
in millions
Asset/
(liability)
balance,
beginning
of year
Net
realized
gains/
(losses)
Net unrealized
gains/(losses)
relating to
instruments
still held at
year-end Purchases Sales Settlements
Transfers
into
level 3
Transfers
out of
level 3
Asset/
(liability)
balance,
end of
year
Interest rates — net $ (371) $ (60) $ 19 $ 7 $ (28) $ 71 $ 68 $ (61) $ (355)
Credit — net 6,300 246 (701) 138 (270) (1,597) 2,503 (391) 6,228
Currencies — net 842 (17) (502) 17 (5) (144) 65 (221) 35
Commodities — net (605) (11) 228 63 (410) 307 (41)
3
165
4
(304)
Equities — net (432) (80) (276) 123 (724) 267 (50)
3
(76) (1,248)
Total derivatives — net $5,734 $ 78
1
$(1,232)
1, 2
$348 $(1,437) $(1,096) $2,545 $(584) $4,356
1. The aggregate amounts include approximately $(903) million and $(251) million reported in “Market making” and “Other principal transactions,” respectively.
2. Principally resulted from changes in level 2 inputs.
3. Reflects a net transfer to level 3 of derivative liabilities.
4. Reflects a net transfer to level 2 of derivative liabilities.
The net unrealized loss on level 3 derivatives of
$1.23 billion for the year ended December 2012 was
primarily attributable to the impact of tighter credit
spreads, changes in foreign exchange rates and increases in
global equity prices on certain derivatives, partially offset
by the impact of a decline in volatility on certain
commodity derivatives.
Transfers into level 3 derivatives during the year ended
December 2012 primarily reflected transfers from level 2 of
certain credit derivative assets, principally due to
unobservable inputs becoming significant to the valuation
of these derivatives, and transfers from level 2 of other
credit derivative assets, principally due to reduced
transparency of correlation inputs used to value
these derivatives.
Transfers out of level 3 derivatives during the year ended
December 2012 primarily reflected transfers to level 2 of
certain credit derivative assets, principally due to
unobservable inputs no longer being significant to the
valuation of these derivatives, transfers to level 2 of certain
currency derivative assets, principally due to unobservable
correlation inputs no longer being significant to the
valuation of these derivatives, and transfers to level 2 of
certain commodity derivative liabilities, principally due to
increased transparency of volatility inputs used to value
these derivatives.
136 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Level 3 Derivative Assets and Liabilities at Fair Value for the Year Ended December 2011
in millions
Asset/
(liability)
balance,
beginning
of year
Net
realized
gains/
(losses)
Net unrealized
gains/(losses)
relating to
instruments
still held at
year-end Purchases Sales Settlements
Net
transfers
in and/or
(out) of
level 3
Asset/
(liability)
balance,
end of
year
Interest rates — net $ 194 $ (38) $ (305) $ 23 $ (29) $ 84 $(300) $ (371)
Credit — net 7,040 46 2,525 348 (1,310) (1,713) (636) 6,300
Currencies — net 1,098 (26) (351) 29 (25) (54) 171 842
Commodities — net 220 (35) 259 125 (835) 150 (489) (605)
Equities — net (990) 184 151 382 (683) 159 365 (432)
Total derivatives — net $7,562 $131
1
$2,279
1, 2
$907 $(2,882) $(1,374) $(889) $5,734
1. The aggregate amounts include approximately $2.35 billion and $62 million reported in “Market making” and “Other principal transactions,” respectively.
2. Principally resulted from changes in level 2 inputs.
The net unrealized gain on level 3 derivatives of
$2.28 billion for the year ended December 2011 was
primarily attributable to the impact of changes in interest
rates and exchange rates underlying certain credit
derivatives. Unrealized gains on level 3 derivatives were
substantially offset by unrealized losses on derivatives
classified within level 2 which economically hedge
derivatives classified within level 3.
Significant transfers in or out of level 3 derivatives during
the year ended December 2011 included:
‰ Credit — net: net transfer out of level 3 of $636 million,
primarily reflecting transfers to level 2 of certain credit
derivative assets principally due to unobservable inputs
no longer being significant to the valuation of these
derivatives, and transfers into level 3 of certain credit
derivative liabilities due to reduced transparency of the
correlation inputs used to value these derivatives. The
impact of these transfers was partially offset by transfers
into level 3 of certain credit and mortgage derivative
assets, primarily due to reduced transparency of the
correlation inputs used to value these derivatives.
‰ Commodities — net: net transfer out of level 3 of
$489 million, primarily reflecting transfers to level 2, due
to increased transparency of market prices used to value
certain commodity derivative assets as a result of market
activity in similar instruments, and unobservable inputs
becoming less significant to the valuation of other
commodity derivative assets. In addition, certain
commodity derivative liabilities were transferred into
level 3 due to reduced transparency of volatility inputs
used to value these derivatives.
Impact of Credit Spreads on Derivatives
On an ongoing basis, the firm realizes gains or losses
relating to changes in credit risk through the unwind of
derivative contracts and changes in credit mitigants.
The net gain/(loss), including hedges, attributable to the
impact of changes in credit exposure and credit spreads
(counterparty and the firm’s) on derivatives was
$(735) million, $573 million and $68 million for the years
ended December 2012, December 2011 and
December 2010, respectively.
Bifurcated Embedded Derivatives
The table below presents the fair value and the notional
amount of derivatives that have been bifurcated from their
related borrowings. These derivatives, which are recorded
at fair value, primarily consist of interest rate, equity and
commodity products and are included in “Unsecured
short-term borrowings” and “Unsecured long-term
borrowings.” See Note 8 for further information.
As of December
in millions 2012 2011
Fair value of assets $ 320 $ 422
Fair value of liabilities 398 304
Net asset/(liability) $ (78) $ 118
Notional amount $10,567 $9,530
Goldman Sachs 2012 Annual Report 137
Notes to Consolidated Financial Statements
OTC Derivatives
The tables below present the fair values of OTC derivative
assets and liabilities by tenor and by product type. Tenor is
based on expected duration for mortgage-related credit
derivatives and generally on remaining contractual
maturity for other derivatives.
in millions OTC Derivatives as of December 2012
Assets
Product Type
0 -12
Months
1 - 5
Years
5 Years or
Greater Total
Interest rates $10,318 $28,445 $ 80,449 $119,212
Credit 2,190 12,244 7,970 22,404
Currencies 11,100 8,379 11,044 30,523
Commodities 3,840 3,862 304 8,006
Equities 3,757 7,730 6,957 18,444
Netting across product types
1
(2,811) (5,831) (5,082) (13,724)
Subtotal $28,394 $54,829 $101,642 184,865
Cross maturity netting
2
(17,973)
Cash collateral netting
3
(99,488)
Total $ 67,404
Liabilities
Product Type
0 - 12
Months
1 - 5
Years
5 Years or
Greater Total
Interest rates $ 6,266 $17,860 $ 32,422 $ 56,548
Credit 809 7,537 3,168 11,514
Currencies 8,586 4,849 5,782 19,217
Commodities 3,970 3,119 2,267 9,356
Equities 3,775 5,476 3,937 13,188
Netting across product types
1
(2,811) (5,831) (5,082) (13,724)
Subtotal $20,595 $33,010 $ 42,494 96,099
Cross maturity netting
2
(17,973)
Cash collateral netting
3
(30,636)
Total $ 47,490
1. Represents the netting of receivable balances with payable balances for the same counterparty across product types within a tenor category under enforceable
netting agreements. Receivable and payable balances with the same counterparty in the same product type and tenor category are netted within such product type
and tenor category.
2. Represents the netting of receivable balances with payable balances for the same counterparty across tenor categories under enforceable netting agreements.
3. Represents the netting of cash collateral received and posted on a counterparty basis under credit support agreements.
138 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
in millions OTC Derivatives as of December 2011
Assets
Product Type
0 - 12
Months
1 - 5
Years
5 Years or
Greater Total
Interest rates $10,931 $32,194 $ 82,480 $ 125,605
Credit 3,054 15,468 13,687 32,209
Currencies 11,253 11,592 16,023 38,868
Commodities 5,286 5,931 147 11,364
Equities 6,663 7,768 7,468 21,899
Netting across product types
1
(3,071) (6,033) (6,027) (15,131)
Subtotal $34,116 $66,920 $113,778 214,814
Cross maturity netting
2
(22,562)
Cash collateral netting
3
(118,104)
Total $ 74,148
Liabilities
Product Type
0 - 12
Months
1 - 5
Years
5 Years or
Greater Total
Interest rates $ 5,787 $18,607 $37,739 $ 62,133
Credit 1,200 6,957 3,894 12,051
Currencies 9,826 5,514 6,502 21,842
Commodities 6,322 5,174 2,727 14,223
Equities 3,290 4,018 4,246 11,554
Netting across product types
1
(3,071) (6,033) (6,027) (15,131)
Subtotal $23,354 $34,237 $49,081 106,672
Cross maturity netting
2
(22,562)
Cash collateral netting
3
(28,829)
Total $ 55,281
1. Represents the netting of receivable balances with payable balances for the same counterparty across product types within a tenor category under enforceable
netting agreements. Receivable and payable balances with the same counterparty in the same product type and tenor category are netted within such product type
and tenor category.
2. Represents the netting of receivable balances with payable balances for the same counterparty across tenor categories under enforceable netting agreements.
3. Represents the netting of cash collateral received and posted on a counterparty basis under credit support agreements.
Goldman Sachs 2012 Annual Report 139
Notes to Consolidated Financial Statements
Derivatives with Credit-Related Contingent Features
Certain of the firm’s derivatives have been transacted under
bilateral agreements with counterparties who may require
the firm to post collateral or terminate the transactions
based on changes in the firm’s credit ratings. The firm
assesses the impact of these bilateral agreements by
determining the collateral or termination payments that
would occur assuming a downgrade by all rating agencies.
A downgrade by any one rating agency, depending on the
agency’s relative ratings of the firm at the time of the
downgrade, may have an impact which is comparable to
the impact of a downgrade by all rating agencies. The table
below presents the aggregate fair value of net derivative
liabilities under such agreements (excluding application of
collateral posted to reduce these liabilities), the related
aggregate fair value of the assets posted as collateral, and
the additional collateral or termination payments that
could have been called at the reporting date by
counterparties in the event of a one-notch and two-notch
downgrade in the firm’s credit ratings.
As of December
in millions 2012 2011
Net derivative liabilities under bilateral
agreements $27,885 $35,066
Collateral posted 24,296 29,002
Additional collateral or termination payments for
a one-notch downgrade 1,534 1,303
Additional collateral or termination payments for
a two-notch downgrade 2,500 2,183
Credit Derivatives
The firm enters into a broad array of credit derivatives in
locations around the world to facilitate client transactions
and to manage the credit risk associated with market-
making and investing and lending activities. Credit
derivatives are actively managed based on the firm’s net
risk position.
Credit derivatives are individually negotiated contracts and
can have various settlement and payment conventions.
Credit events include failure to pay, bankruptcy,
acceleration of indebtedness, restructuring, repudiation and
dissolution of the reference entity.
Credit Default Swaps. Single-name credit default swaps
protect the buyer against the loss of principal on one or
more bonds, loans or mortgages (reference obligations) in
the event the issuer (reference entity) of the reference
obligations suffers a credit event. The buyer of protection
pays an initial or periodic premiumto the seller and receives
protection for the period of the contract. If there is no credit
event, as defined in the contract, the seller of protection
makes no payments to the buyer of protection. However, if
a credit event occurs, the seller of protection is required to
make a payment to the buyer of protection, which is
calculated in accordance with the terms of the contract.
Credit Indices, Baskets and Tranches. Credit derivatives
may reference a basket of single-name credit default swaps
or a broad-based index. If a credit event occurs in one of the
underlying reference obligations, the protection seller pays
the protection buyer. The payment is typically a pro-rata
portion of the transaction’s total notional amount based on
the underlying defaulted reference obligation. In certain
transactions, the credit risk of a basket or index is separated
into various portions (tranches), each having different levels
of subordination. The most junior tranches cover initial
defaults and once losses exceed the notional amount of
these junior tranches, any excess loss is covered by the next
most senior tranche in the capital structure.
Total Return Swaps. A total return swap transfers the
risks relating to economic performance of a reference
obligation from the protection buyer to the protection
seller. Typically, the protection buyer receives from the
protection seller a floating rate of interest and protection
against any reduction in fair value of the reference
obligation, and in return the protection seller receives the
cash flows associated with the reference obligation, plus
any increase in the fair value of the reference obligation.
Credit Options. In a credit option, the option writer
assumes the obligation to purchase or sell a reference
obligation at a specified price or credit spread. The option
purchaser buys the right, but does not assume the
obligation, to sell the reference obligation to, or purchase it
from, the option writer. The payments on credit options
depend either on a particular credit spread or the price of
the reference obligation.
The firm economically hedges its exposure to written credit
derivatives primarily by entering into offsetting purchased
credit derivatives with identical underlyings. Substantially
all of the firm’s purchased credit derivative transactions are
with financial institutions and are subject to stringent
collateral thresholds. In addition, upon the occurrence of a
specified trigger event, the firm may take possession of the
reference obligations underlying a particular written credit
derivative, and consequently may, upon liquidation of the
reference obligations, recover amounts on the underlying
reference obligations in the event of default.
140 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
As of December 2012, written and purchased credit
derivatives had total gross notional amounts of
$1.76 trillion and $1.86 trillion, respectively, for total net
notional purchased protection of $98.33 billion. As of
December 2011, written and purchased credit derivatives
had total gross notional amounts of $1.96 trillion and
$2.08 trillion, respectively, for total net notional purchased
protection of $116.93 billion.
The table below presents certain information about credit
derivatives. In the table below:
‰ fair values exclude the effects of both netting of receivable
balances with payable balances under enforceable netting
agreements, and netting of cash received or posted under
credit support agreements, and therefore are not
representative of the firm’s credit exposure;
‰ tenor is based on expected duration for mortgage-related
credit derivatives and on remaining contractual maturity
for other credit derivatives; and
‰ the credit spread on the underlying, together with the
tenor of the contract, are indicators of payment/
performance risk. The firm is less likely to pay or
otherwise be required to perform where the credit spread
and the tenor are lower.
Maximum Payout/Notional Amount
of Written Credit Derivatives by Tenor
Maximum Payout/Notional
Amount of Purchased
Credit Derivatives
Fair Value of
Written Credit Derivatives
$ in millions
0 - 12
Months
1 - 5
Years
5 Years
or
Greater Total
Offsetting
Purchased
Credit
Derivatives
1
Other
Purchased
Credit
Derivatives
2
Asset Liability
Net
Asset/
(Liability)
As of December 2012
Credit spread on underlying
(basis points)
0 - 250 $360,289 $ 989,941 $103,481 $1,453,711 $1,343,561 $201,459 $28,817 $ 8,249 $ 20,568
251 - 500 13,876 126,659 35,086 175,621 157,371 19,063 4,284 7,848 (3,564)
501 - 1,000 9,209 52,012 5,619 66,840 60,456 8,799 769 4,499 (3,730)
Greater than 1,000 11,453 49,721 3,622 64,796 57,774 10,812 568 21,970 (21,402)
Total $394,827 $1,218,333 $147,808 $1,760,968 $1,619,162 $240,133 $34,438 $ 42,566 $ (8,128)
As of December 2011
Credit spread on underlying
(basis points)
0 - 250 $282,851 $ 794,193 $141,688 $1,218,732 $1,122,296 $180,316 $17,572 $ 16,907 $ 665
251 - 500 42,682 269,687 69,864 382,233 345,942 47,739 4,517 20,810 (16,293)
501 - 1,000 29,377 140,389 21,819 191,585 181,003 23,176 138 15,398 (15,260)
Greater than 1,000 30,244 114,103 22,995 167,342 147,614 28,734 512 57,201 (56,689)
Total $385,154 $1,318,372 $256,366 $1,959,892 $1,796,855 $279,965 $22,739 $110,316 $(87,577)
1. Offsetting purchased credit derivatives represent the notional amount of purchased credit derivatives to the extent they economically hedge written credit
derivatives with identical underlyings.
2. This purchased protection represents the notional amount of purchased credit derivatives in excess of the notional amount included in “Offsetting Purchased
Credit Derivatives.”
Hedge Accounting
The firm applies hedge accounting for (i) certain interest
rate swaps used to manage the interest rate exposure of
certain fixed-rate unsecured long-term and short-term
borrowings and certain fixed-rate certificates of deposit and
(ii) certain foreign currency forward contracts and foreign
currency-denominated debt used to manage foreign
currency exposures on the firm’s net investment in certain
non-U.S. operations.
To qualify for hedge accounting, the derivative hedge must
be highly effective at reducing the risk from the exposure
being hedged. Additionally, the firm must formally
document the hedging relationship at inception and test the
hedging relationship at least on a quarterly basis to ensure
the derivative hedge continues to be highly effective over the
life of the hedging relationship.
Goldman Sachs 2012 Annual Report 141
Notes to Consolidated Financial Statements
Interest Rate Hedges
The firm designates certain interest rate swaps as fair value
hedges. These interest rate swaps hedge changes in fair
value attributable to the relevant benchmark interest rate
(e.g., London Interbank Offered Rate (LIBOR)), effectively
converting a substantial portion of fixed-rate obligations
into floating-rate obligations.
The firm applies a statistical method that utilizes regression
analysis when assessing the effectiveness of its fair value
hedging relationships in achieving offsetting changes in the
fair values of the hedging instrument and the risk being
hedged (i.e., interest rate risk). An interest rate swap is
considered highly effective in offsetting changes in fair value
attributable to changes in the hedged risk when the
regression analysis results in a coefficient of determination
of 80%or greater and a slope between 80%and 125%.
For qualifying fair value hedges, gains or losses on
derivatives are included in “Interest expense.” The change
in fair value of the hedged itemattributable to the risk being
hedged is reported as an adjustment to its carrying value
and is subsequently amortized into interest expense over its
remaining life. Gains or losses resulting from hedge
ineffectiveness are included in “Interest expense.” When a
derivative is no longer designated as a hedge, any remaining
difference between the carrying value and par value of the
hedged item is amortized to interest expense over the
remaining life of the hedged item using the effective interest
method. See Note 23 for further information about interest
income and interest expense.
The table below presents the gains/(losses) from interest
rate derivatives accounted for as hedges, the related hedged
borrowings and bank deposits, and the hedge
ineffectiveness on these derivatives.
Year Ended December
in millions 2012 2011 2010
Interest rate hedges $(2,383) $ 4,679 $ 1,617
Hedged borrowings and bank deposits 665 (6,300) (3,447)
Hedge ineffectiveness
1
(1,718) (1,621) (1,836)
1. Primarily consisted of amortization of prepaid credit spreads resulting from
the passage of time.
The gain/(loss) excluded from the assessment of hedge
effectiveness was not material for the years ended
December 2012, December 2011 and December 2010.
Net Investment Hedges
The firm seeks to reduce the impact of fluctuations in
foreign exchange rates on its net investment in certain non-
U.S. operations through the use of foreign currency forward
contracts and foreign currency-denominated debt. For
foreign currency forward contracts designated as hedges,
the effectiveness of the hedge is assessed based on the
overall changes in the fair value of the forward contracts
(i.e., based on changes in forward rates). For foreign
currency-denominated debt designated as a hedge, the
effectiveness of the hedge is assessed based on changes in
spot rates.
For qualifying net investment hedges, the gains or losses
on the hedging instruments, to the extent effective,
are included in “Currency translation adjustment, net
of tax” within the consolidated statements of
comprehensive income.
The table below presents the gains/(losses) from net
investment hedging.
Year Ended December
in millions 2012 2011 2010
Currency hedges $(233) $ 160 $(261)
Foreign currency-denominated
debt hedges 347 (147) (498)
The gain/(loss) related to ineffectiveness was not material
for the years ended December 2012, December 2011 and
December 2010. The loss reclassified to earnings from
accumulated other comprehensive income was not material
for the years ended December 2012 and December 2010,
and was $186 million for the year ended December 2011.
As of December 2012 and December 2011, the firm had
designated $2.77 billion and $3.11 billion, respectively, of
foreign currency-denominated debt, included in
“Unsecured long-term borrowings” and “Unsecured
short-term borrowings,” as hedges of net investments in
non-U.S. subsidiaries.
142 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Note 8.
Fair Value Option
Other Financial Assets and Financial Liabilities at
Fair Value
In addition to all cash and derivative instruments included
in “Financial instruments owned, at fair value” and
“Financial instruments sold, but not yet purchased, at fair
value,” the firm has elected to account for certain of its
other financial assets and financial liabilities at fair value
under the fair value option.
The primary reasons for electing the fair value option
are to:
‰ reflect economic events in earnings on a timely basis;
‰ mitigate volatility in earnings from using different
measurement attributes (e.g., transfers of financial
instruments owned accounted for as financings are
recorded at fair value whereas the related secured
financing would be recorded on an accrual basis absent
electing the fair value option); and
‰ address simplification and cost-benefit considerations
(e.g., accounting for hybrid financial instruments at fair
value in their entirety versus bifurcation of embedded
derivatives and hedge accounting for debt hosts).
Hybrid financial instruments are instruments that contain
bifurcatable embedded derivatives and do not require
settlement by physical delivery of non-financial assets (e.g.,
physical commodities). If the firm elects to bifurcate the
embedded derivative from the associated debt, the
derivative is accounted for at fair value and the host
contract is accounted for at amortized cost, adjusted for the
effective portion of any fair value hedges. If the firm does
not elect to bifurcate, the entire hybrid financial instrument
is accounted for at fair value under the fair value option.
Other financial assets and financial liabilities accounted for
at fair value under the fair value option include:
‰ repurchase agreements and substantially all resale
agreements;
‰ securities borrowed and loaned within Fixed Income,
Currency and Commodities Client Execution;
‰ substantially all other secured financings, including
transfers of assets accounted for as financings rather than
sales and certain other nonrecourse financings;
‰ certain unsecured short-termborrowings, consisting of all
promissory notes and commercial paper and certain
hybrid financial instruments;
‰ certain unsecured long-term borrowings, including
prepaid commodity transactions and certain hybrid
financial instruments;
‰ certain receivables from customers and counterparties,
including certain margin loans and transfers of assets
accounted for as secured loans rather than purchases;
‰ certain insurance and reinsurance contract assets and
liabilities and certain guarantees;
‰ certain subordinated liabilities issued by consolidated
VIEs; and
‰ certain time deposits issued by the firm’s bank
subsidiaries (deposits with no stated maturity are not
eligible for a fair value option election), including
structured certificates of deposit, which are hybrid
financial instruments.
These financial assets and financial liabilities at fair value
are generally valued based on discounted cash flow
techniques, which incorporate inputs with reasonable levels
of price transparency, and are generally classified as level 2
because the inputs are observable. Valuation adjustments
may be made for liquidity and for counterparty and the
firm’s credit quality.
See below for information about the significant inputs used
to value other financial assets and financial liabilities at fair
value, including the ranges of significant unobservable
inputs used to value the level 3 instruments within these
categories. These ranges represent the significant
unobservable inputs that were used in the valuation of each
type of other financial assets and financial liabilities at fair
value. The ranges and weighted averages of these inputs are
not representative of the appropriate inputs to use when
calculating the fair value of any one instrument. For
example, the highest yield presented below for resale and
repurchase agreements is appropriate for valuing a specific
agreement in that category but may not be appropriate for
valuing any other agreements in that category. Accordingly,
the range of inputs presented below do not represent
uncertainty in, or possible ranges of, fair value
measurements of the firm’s level 3 other financial assets and
financial liabilities.
Goldman Sachs 2012 Annual Report 143
Notes to Consolidated Financial Statements
Resale and Repurchase Agreements and Securities
Borrowed and Loaned. The significant inputs to the
valuation of resale and repurchase agreements and
securities borrowed and loaned are collateral funding
spreads, the amount and timing of expected future cash
flows and interest rates. The ranges of significant
unobservable inputs used to value level 3 resale and
repurchase agreements as of December 2012 are as follows:
‰ Yield: 1.7%to 5.4%(weighted average: 1.9%)
‰ Duration: 0.4 to 4.5 years (weighted average: 4.1 years)
Generally, increases in yield or duration, in isolation, would
result in a lower fair value measurement. Due to the
distinctive nature of each of the firm’s level 3 resale and
repurchase agreements, the interrelationship of inputs is not
necessarily uniformacross such agreements.
See Note 9 for further information about collateralized
agreements.
Other Secured Financings. The significant inputs to the
valuation of other secured financings at fair value are the
amount and timing of expected future cash flows, interest
rates, collateral funding spreads, the fair value of the
collateral delivered by the firm (which is determined using
the amount and timing of expected future cash flows,
market prices, market yields and recovery assumptions) and
the frequency of additional collateral calls. The ranges of
significant unobservable inputs used to value level 3 other
secured financings as of December 2012 are as follows:
‰ Yield: 0.3%to 20.0%(weighted average: 4.2%)
‰ Duration: 0.3 to 10.8 years (weighted average: 2.4 years)
Generally, increases in yield or duration, in isolation, would
result in a lower fair value measurement. Due to the
distinctive nature of each of the firm’s level 3 other secured
financings, the interrelationship of inputs is not necessarily
uniformacross such financings.
See Note 9 for further information about collateralized
financings.
Unsecured Short-term and Long-term Borrowings.
The significant inputs to the valuation of unsecured short-
termand long-termborrowings at fair value are the amount
and timing of expected future cash flows, interest rates, the
credit spreads of the firm, as well as commodity prices in
the case of prepaid commodity transactions. The inputs
used to value the embedded derivative component of hybrid
financial instruments are consistent with the inputs used to
value the firm’s other derivative instruments. See Note 7 for
further information about derivatives. See Notes 15 and 16
for further information about unsecured short-term and
long-termborrowings, respectively.
Certain of the firm’s unsecured short-term and long-term
instruments are included in level 3, substantially all of
which are hybrid financial instruments. As the significant
unobservable inputs used to value hybrid financial
instruments primarily relate to the embedded derivative
component of these borrowings, these inputs are
incorporated in the firm’s derivative disclosures related to
unobservable inputs in Note 7.
Insurance and Reinsurance Contracts. Insurance and
reinsurance contracts at fair value are primarily included in
“Receivables from customers and counterparties” and
“Other liabilities and accrued expenses.” In addition, assets
related to the firm’s reinsurance business that were
classified as held for sale as of December 2012 are included
in “Other assets.” The insurance and reinsurance contracts
for which the firm has elected the fair value option are
contracts that can be settled only in cash and that qualify
for the fair value option because they are recognized
financial instruments. These contracts are valued using
market transactions and other market evidence where
possible, including market-based inputs to models,
calibration to market-clearing transactions or other
alternative pricing sources with reasonable levels of price
transparency. Significant inputs are interest rates, inflation
rates, volatilities, funding spreads, yield and duration,
which incorporates policy lapse and projected mortality
assumptions. When unobservable inputs to a valuation
model are significant to the fair value measurement of an
instrument, the instrument is classified in level 3. The range
of significant unobservable inputs used to value level 3
insurance and reinsurance contracts as of December 2012 is
as follows:
‰ Funding spreads: 64 bps to 105 bps (weighted average:
85 bps)
‰ Yield: 4.4%to 15.1%(weighted average: 6.2%)
‰ Duration: 5.3 to 8.8 years (weighted average: 7.6 years)
Generally, increases in funding spreads, yield or duration, in
isolation, would result in a lower fair value measurement.
144 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Receivables from Customers and Counterparties.
Receivables from customers and counterparties at fair
value, excluding insurance and reinsurance contracts, are
primarily comprised of transfers of assets accounted for as
secured loans rather than purchases. The significant inputs
to the valuation of such receivables are commodity prices,
interest rates, the amount and timing of expected future
cash flows and funding spreads. The range of significant
unobservable inputs used to value level 3 receivables from
customers and counterparties as of December 2012 is
as follows:
‰ Funding spreads: 57 bps to 145 bps (weighted average:
105 bps)
Generally, an increase in funding spreads would result in a
lower fair value measurement.
Receivables from customers and counterparties not
accounted for at fair value are accounted for at amortized
cost net of estimated uncollectible amounts, which
generally approximates fair value. Such receivables are
primarily comprised of customer margin loans and
collateral posted in connection with certain derivative
transactions. While these items are carried at amounts that
approximate fair value, they are not accounted for at fair
value under the fair value option or at fair value in
accordance with other U.S. GAAP and therefore are not
included in the firm’s fair value hierarchy in Notes 6, 7 and
8. Had these items been included in the firm’s fair value
hierarchy, substantially all would have been classified in
level 2 as of December 2012. Receivables from customers
and counterparties not accounted for at fair value also
includes loans held for investment, which are primarily
comprised of collateralized loans to private wealth
management clients and corporate loans. As of
December 2012 and December 2011, the carrying value of
such loans was $6.50 billion and $3.76 billion, respectively,
which generally approximated fair value. As of
December 2012, had these loans been carried at fair value
and included in the fair value hierarchy, $2.41 billion and
$4.06 billion would have been classified in level 2 and
level 3, respectively.
Deposits. The significant inputs to the valuation of time
deposits are interest rates and the amount and timing of
future cash flows. The inputs used to value the embedded
derivative component of hybrid financial instruments are
consistent with the inputs used to value the firm’s other
derivative instruments. See Note 7 for further information
about derivatives. See Note 14 for further information
about deposits.
The firm’s deposits that are included in level 3 are hybrid
financial instruments. As the significant unobservable
inputs used to value hybrid financial instruments primarily
relate to the embedded derivative component of these
deposits, these inputs are incorporated in the firm’s
derivative disclosures related to unobservable inputs in
Note 7.
Goldman Sachs 2012 Annual Report 145
Notes to Consolidated Financial Statements
Fair Value of Other Financial Assets and Financial
Liabilities by Level
The tables below present, by level within the fair value
hierarchy, other financial assets and financial liabilities
accounted for at fair value primarily under the fair
value option.
Other Financial Assets at Fair Value as of December 2012
in millions Level 1 Level 2 Level 3 Total
Securities segregated for regulatory and other purposes
1
$21,549 $ 8,935 $ — $ 30,484
Securities purchased under agreements to resell — 141,053 278 141,331
Securities borrowed — 38,395 — 38,395
Receivables from customers and counterparties — 7,225 641 7,866
Other assets
2
4,420 8,499 507
3
13,426
Total $25,969 $204,107 $ 1,426 $231,502
Other Financial Liabilities at Fair Value as of December 2012
in millions Level 1 Level 2 Level 3 Total
Deposits $ — $ 4,741 $ 359 $ 5,100
Securities sold under agreements to repurchase — 169,880 1,927 171,807
Securities loaned — 1,558 — 1,558
Other secured financings — 28,925 1,412 30,337
Unsecured short-term borrowings — 15,011 2,584 17,595
Unsecured long-term borrowings — 10,676 1,917 12,593
Other liabilities and accrued expenses — 769 11,274
4
12,043
Total $ — $231,560 $19,473 $251,033
1. Includes securities segregated for regulatory and other purposes accounted for at fair value under the fair value option, which consists of securities borrowed and
resale agreements. The table above includes $21.55 billion of level 1 securities segregated for regulatory and other purposes accounted for at fair value under other
U.S. GAAP, consisting of U.S. Treasury securities and money market instruments.
2. Consists of assets classified as held for sale related to the firm’s reinsurance business, primarily consisting of securities accounted for as available-for-sale and
insurance separate account assets which are accounted for at fair value under other U.S. GAAP. Such assets were previously included in “Financial instruments
owned, at fair value” and “Securities segregated for regulatory and other purposes,” respectively.
3. Consists of insurance contracts and derivatives classified as held for sale. See “Insurance and Reinsurance Contracts” above and Note 7 for further information
about valuation techniques and inputs related to insurance contracts and derivatives, respectively.
4. Includes $692 million of liabilities classified as held for sale related to the firm’s reinsurance business accounted for at fair value under the fair value option.
146 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Other Financial Assets at Fair Value as of December 2011
in millions Level 1 Level 2 Level 3 Total
Securities segregated for regulatory and other purposes
1
$21,263 $ 20,751 $ — $ 42,014
Securities purchased under agreements to resell — 187,232 557 187,789
Securities borrowed — 47,621 — 47,621
Receivables from customers and counterparties — 8,887 795 9,682
Total $21,263 $264,491 $ 1,352 $287,106
Other Financial Liabilities at Fair Value as of December 2011
in millions Level 1 Level 2 Level 3 Total
Deposits $ — $ 4,513 $ 13 $ 4,526
Securities sold under agreements to repurchase — 162,321 2,181 164,502
Securities loaned — 107 — 107
Other secured financings — 28,267 1,752 30,019
Unsecured short-term borrowings — 14,560 3,294 17,854
Unsecured long-term borrowings — 14,971 2,191 17,162
Other liabilities and accrued expenses — 490 8,996 9,486
Total $ — $225,229 $18,427 $243,656
1. Includes securities segregated for regulatory and other purposes accounted for at fair value under the fair value option, which consists of securities borrowed and
resale agreements. The table above includes $21.26 billion of level 1 and $528 million of level 2 securities segregated for regulatory and other purposes accounted
for at fair value under other U.S. GAAP, principally consisting of U.S. Treasury securities, money market instruments and insurance separate account assets.
Goldman Sachs 2012 Annual Report 147
Notes to Consolidated Financial Statements
Transfers Between Levels of the Fair Value Hierarchy
Transfers between levels of the fair value hierarchy are
reported at the beginning of the reporting period in which
they occur. There were no transfers of other financial assets
and financial liabilities between level 1 and level 2 during
the year ended December 2012. The tables below present
information about transfers between level 2 and level 3.
Level 3 Rollforward
If a financial asset or financial liability was transferred to
level 3 during a reporting year, its entire gain or loss for the
year is included in level 3.
The tables below present changes in fair value for other
financial assets and financial liabilities accounted for at fair
value categorized as level 3 as of the end of the year. Level 3
other financial assets and liabilities are frequently
economically hedged with cash instruments and derivatives.
Accordingly, gains or losses that are reported in level 3 can
be partially offset by gains or losses attributable to level 1, 2
or 3 cash instruments or derivatives. As a result, gains or
losses included in the level 3 rollforward below do not
necessarily represent the overall impact on the firm’s results
of operations, liquidity or capital resources.
Level 3 Other Financial Assets at Fair Value for the Year Ended December 2012
in millions
Balance,
beginning
of year
Net
realized
gains/
(losses)
Net unrealized
gains/(losses)
relating to
instruments
still held at
year-end Purchases Sales Issuances Settlements
Transfers
into
level 3
Transfers
out of
level 3
Balance,
end of
year
Securities purchased under
agreements to resell $ 557 $ 7 $ — $ 116 $— $ — $ (402) $ — $ — $ 278
Receivables from customers
and counterparties 795 — 37 199 — — (17) — (373) 641
Other assets — — 82 — — — (23) 448 — 507
Total $ 1,352 $ 7
1
$ 119
1
$ 315 $— $ — $ (442) $448 $ (373) $ 1,426
1. The aggregate amounts include gains/(losses) of approximately $119 million, $(3) million and $10 million reported in “Market making,” “Other principal transactions”
and “Interest income,” respectively.
Level 3 Other Financial Liabilities at Fair Value for the Year Ended December 2012
in millions
Balance,
beginning
of year
Net
realized
(gains)/
losses
Net unrealized
(gains)/losses
relating to
instruments
still held at
year-end Purchases Sales Issuances Settlements
Transfers
into
level 3
Transfers
out of
level 3
Balance,
end of
year
Deposits $ 13 $ — $ 5 $ — $— $ 326 $ (1) $ 16 $ — $ 359
Securities sold under
agreements to repurchase,
at fair value 2,181 — — — — — (254) — — 1,927
Other secured financings 1,752 12 (51) — — 854 (1,155) — — 1,412
Unsecured short-term
borrowings 3,294 (13) 204 (13) — 762 (1,206) 240 (684) 2,584
Unsecured long-term
borrowings 2,191 31 286 — — 329 (344) 225 (801) 1,917
Other liabilities and
accrued expenses 8,996 78 941 1,617 — — (360) 2 — 11,274
Total $18,427 $108
1
$1,385
1
$1,604 $— $2,271 $(3,320) $483 $(1,485) $19,473
1. The aggregate amounts include losses of approximately $1.37 billion, $113 million and $15 million reported in “Market making,” “Other principal transactions” and
“Interest expense,” respectively.
The net unrealized loss on level 3 other financial liabilities
of $1.39 billion for the year ended December 2012
primarily reflected the impact of tighter funding spreads
and changes in foreign exchange rates on certain insurance
liabilities, and an increase in global equity prices and tighter
credit spreads on certain hybrid financial instruments.
Transfers into level 3 of other financial assets during the
year ended December 2012 reflected transfers of level 3
assets classified as held for sale related to the firm’s
reinsurance business, which were previously included in
level 3 “Financial instruments owned, at fair value.”
148 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Transfers out of level 3 of other financial assets during the
year ended December 2012 reflected transfers to level 2 of
certain insurance receivables primarily due to increased
transparency of the mortality inputs used to value
these receivables.
Transfers into level 3 of other financial liabilities during the
year ended December 2012 primarily reflected transfers
from level 2 of certain hybrid financial instruments,
principally due to decreased transparency of certain
correlation and volatility inputs used to value
these instruments.
Transfers out of level 3 of other financial liabilities during
the year ended December 2012 primarily reflected transfers
to level 2 of certain hybrid financial instruments, principally
due to increased transparency of certain correlation and
volatility inputs used to value these instruments, and
unobservable inputs no longer being significant to the
valuation of other instruments.
Level 3 Other Financial Assets at Fair Value for the Year Ended December 2011
in millions
Balance,
beginning
of year
Net
realized
gains/
(losses)
Net unrealized
gains/(losses)
relating to
instruments
still held at
year-end Purchases Sales Issuances Settlements
Net
transfers
in and/or
(out) of
level 3
Balance,
end of
year
Securities purchased under agreements
to resell $ 100 $ 2 $ — $ 620 $— $ — $ (165) $ — $ 557
Receivables from customers
and counterparties 298 — 54 468 — — (25) — 795
Total $ 398 $ 2
1
$ 54
1
$1,088 $— $ — $ (190) $ — $ 1,352
1. The aggregate amounts include gains of approximately $54 million and $2 million reported in “Market making” and “Other principal transactions,” respectively.
Level 3 Other Financial Liabilities at Fair Value for the Year Ended December 2011
in millions
Balance,
beginning
of year
Net
realized
(gains)/
losses
Net unrealized
(gains)/losses
relating to
instruments
still held at
year-end Purchases Sales Issuances Settlements
Net
transfers
in and/or
(out) of
level 3
Balance,
end of
year
Deposits $ — $— $ — $ — $— $ 13 $ — $ — $ 13
Securities sold under agreements to
repurchase, at fair value 2,060 — — — — 299 (178) — 2,181
Other secured financings 8,349 8 3 — — 483 (4,062) (3,029) 1,752
Unsecured short-term borrowings 3,476 (15) (340) (5) — 815 (1,080) 443 3,294
Unsecured long-term borrowings 2,104 25 5 — — 441 (193) (191) 2,191
Other liabilities and accrued expenses 2,409 — 1,095 5,840 — — (348) — 8,996
Total $18,398 $18
1
$ 763
1
$5,835 $— $2,051 $(5,861) $(2,777) $18,427
1. The aggregate amounts include losses of approximately $766 million, $7 million and $8 million reported in “Market making,” “Other principal transactions” and
“Interest expense,” respectively.
The net unrealized loss on other financial assets and
liabilities at fair value of $709 million for the year ended
December 2011 primarily consisted of losses on other
liabilities and accrued expenses, primarily attributable to
the impact of a change in interest rates on certain insurance
liabilities. These losses were primarily offset by gains on
unsecured short-termborrowings, primarily reflecting gains
on certain equity-linked notes, principally due to a decline
in global equity markets.
Significant transfers in or out of level 3 during the year
ended December 2011 included:
‰ Other secured financings: net transfer out of level 3 of
$3.03 billion, principally due to transfers to level 2 of
certain borrowings as unobservable inputs were no longer
significant to the valuation of these borrowings as they
neared maturity.
‰ Unsecured short-term borrowings: net transfer into
level 3 of $443 million, principally due to transfers to
level 3 of certain borrowings due to less transparency of
market prices as a result of less activity in these
financial instruments.
Goldman Sachs 2012 Annual Report 149
Notes to Consolidated Financial Statements
Gains and Losses on Financial Assets and Financial
Liabilities Accounted for at Fair Value Under the
Fair Value Option
The table below presents the gains and losses recognized as
a result of the firm electing to apply the fair value option to
certain financial assets and financial liabilities. These gains
and losses are included in “Market making” and “Other
principal transactions.” The table below also includes gains
and losses on the embedded derivative component of hybrid
financial instruments included in unsecured short-term
borrowings and unsecured long-term borrowings. These
gains and losses would have been recognized under other
U.S. GAAP even if the firm had not elected to account for
the entire hybrid instrument at fair value.
The amounts in the table exclude contractual interest,
which is included in “Interest income” and “Interest
expense,” for all instruments other than hybrid financial
instruments. See Note 23 for further information about
interest income and interest expense.
Gains/(Losses) on Financial Assets and Financial Liabilities
at Fair Value Under the Fair Value Option
Year Ended December
in millions 2012 2011 2010
Receivables from customers and counterparties
1
$ 190 $ 97 $ (97)
Other secured financings (190) (63) (227)
Unsecured short-term borrowings
2
(973) 2,149 (1,455)
Unsecured long-term borrowings
3
(1,523) 2,336 (1,169)
Other liabilities and accrued expenses
4
(1,486) (911) 50
Other
5
(81) 90 (10)
Total $(4,063) $3,698 $(2,908)
1. Primarily consists of gains/(losses) on certain reinsurance contracts and certain transfers accounted for as receivables rather than purchases.
2. Includes gains/(losses) on the embedded derivative component of hybrid financial instruments of $(814) million, $2.01 billion, and $(1.49) billion as of
December 2012, December 2011 and December 2010, respectively.
3. Includes gains/(losses) on the embedded derivative component of hybrid financial instruments of $(887) million, $1.80 billion and $(1.32) billion as of December 2012,
December 2011 and December 2010, respectively.
4. Primarily consists of gains/(losses) on certain insurance contracts.
5. Primarily consists of gains/(losses) on resale and repurchase agreements, securities borrowed and loaned and deposits.
Excluding the gains and losses on the instruments
accounted for under the fair value option described above,
“Market making” and “Other principal transactions”
primarily represent gains and losses on “Financial
instruments owned, at fair value” and “Financial
instruments sold, but not yet purchased, at fair value.”
150 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Loans and Lending Commitments
The table below presents the difference between the
aggregate fair value and the aggregate contractual principal
amount for loans and long-term receivables for which the
fair value option was elected.
As of December
in millions 2012 2011
Aggregate contractual principal amount
of performing loans and long-term
receivables in excess of the
related fair value $ 2,742 $ 3,826
Aggregate contractual principal amount
of loans on nonaccrual status and/or more than
90 days past due in excess
of the related fair value 22,610 23,034
Total
1
$25,352 $26,860
Aggregate fair value of loans on nonaccrual
status and/or more than 90 days past due $ 1,832 $ 3,174
1. The aggregate contractual principal exceeds the related fair value primarily
because the firm regularly purchases loans, such as distressed loans, at
values significantly below contractual principal amounts.
As of December 2012 and December 2011, the fair value of
unfunded lending commitments for which the fair value
option was elected was a liability of $1.99 billion and
$2.82 billion, respectively, and the related total contractual
amount of these lending commitments was $59.29 billion
and $66.12 billion, respectively. See Note 18 for further
information about lending commitments.
Long-term Debt Instruments
The aggregate contractual principal amount of long-term
other secured financings for which the fair value option was
elected exceeded the related fair value by $115 million and
$239 million as of December 2012 and December 2011,
respectively. The fair value of unsecured long-term
borrowings for which the fair value option was elected
exceeded the related aggregate contractual principal
amount by $379 million as of December 2012, whereas the
aggregate contractual principal amount exceeded the
related fair value by $693 million as of December 2011.
The amounts above include both principal and
non-principal-protected long-termborrowings.
Impact of Credit Spreads on Loans and Lending
Commitments
The estimated net gain/(loss) attributable to changes in
instrument-specific credit spreads on loans and lending
commitments for which the fair value option was elected
was $3.07 billion, $(805) million and $1.85 billion for the
years ended December 2012, December 2011 and
December 2010, respectively. Changes in the fair value of
loans and lending commitments are primarily attributable
to changes in instrument-specific credit spreads.
Substantially all of the firm’s performing loans and lending
commitments are floating-rate.
Impact of Credit Spreads on Borrowings
The table below presents the net gains/(losses) attributable
to the impact of changes in the firm’s own credit spreads on
borrowings for which the fair value option was elected. The
firm calculates the fair value of borrowings by discounting
future cash flows at a rate which incorporates the firm’s
credit spreads.
Year Ended December
in millions 2012 2011 2010
Net gains/(losses) including hedges $(714) $596 $198
Net gains/(losses) excluding hedges (800) 714 199
Goldman Sachs 2012 Annual Report 151
Notes to Consolidated Financial Statements
Note 9.
Collateralized Agreements and Financings
Collateralized agreements are securities purchased under
agreements to resell (resale agreements or reverse
repurchase agreements) and securities borrowed.
Collateralized financings are securities sold under
agreements to repurchase (repurchase agreements),
securities loaned and other secured financings. The firm
enters into these transactions in order to, among other
things, facilitate client activities, invest excess cash, acquire
securities to cover short positions and finance certain
firmactivities.
Collateralized agreements and financings are presented on a
net-by-counterparty basis when a legal right of setoff exists.
Interest on collateralized agreements and collateralized
financings is recognized over the life of the transaction and
included in “Interest income” and “Interest expense,”
respectively. See Note 23 for further information about
interest income and interest expense.
The table below presents the carrying value of resale and
repurchase agreements and securities borrowed and
loanedtransactions.
As of December
in millions 2012 2011
Securities purchased under agreements
to resell
1
$141,334 $187,789
Securities borrowed
2
136,893 153,341
Securities sold under agreements
to repurchase
1
171,807 164,502
Securities loaned
2
13,765 7,182
1. Substantially all resale and repurchase agreements are carried at fair value
under the fair value option. See Note 8 for further information about the
valuation techniques and significant inputs used to determine fair value.
2. As of December 2012 and December 2011, $38.40 billion and $47.62 billion
of securities borrowed, and $1.56 billion and $107 million of securities loaned
were at fair value, respectively.
Resale and Repurchase Agreements
A resale agreement is a transaction in which the firm
purchases financial instruments from a seller, typically in
exchange for cash, and simultaneously enters into an
agreement to resell the same or substantially the same
financial instruments to the seller at a stated price plus
accrued interest at a future date.
A repurchase agreement is a transaction in which the firm
sells financial instruments to a buyer, typically in exchange
for cash, and simultaneously enters into an agreement to
repurchase the same or substantially the same financial
instruments from the buyer at a stated price plus accrued
interest at a future date.
The financial instruments purchased or sold in resale and
repurchase agreements typically include U.S. government
and federal agency, and investment-grade
sovereignobligations.
The firm receives financial instruments purchased under
resale agreements, makes delivery of financial instruments
sold under repurchase agreements, monitors the market
value of these financial instruments on a daily basis, and
delivers or obtains additional collateral due to changes in
the market value of the financial instruments, as
appropriate. For resale agreements, the firm typically
requires delivery of collateral with a fair value
approximately equal to the carrying value of the relevant
assets in the consolidated statements of financial condition.
Even though repurchase and resale agreements involve the
legal transfer of ownership of financial instruments, they
are accounted for as financing arrangements because they
require the financial instruments to be repurchased or
resold at the maturity of the agreement. However, “repos to
maturity” are accounted for as sales. Arepo to maturity is a
transaction in which the firm transfers a security under an
agreement to repurchase the security where the maturity
date of the repurchase agreement matches the maturity date
of the underlying security. Therefore, the firmeffectively no
longer has a repurchase obligation and has relinquished
control over the underlying security and, accordingly,
accounts for the transaction as a sale. The firmhad no repos
to maturity outstanding as of December 2012 or
December 2011.
152 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Securities Borrowed and Loaned Transactions
In a securities borrowed transaction, the firm borrows
securities from a counterparty in exchange for cash. When
the firm returns the securities, the counterparty returns the
cash. Interest is generally paid periodically over the life of
the transaction.
In a securities loaned transaction, the firm lends securities
to a counterparty typically in exchange for cash or
securities, or a letter of credit. When the counterparty
returns the securities, the firm returns the cash or securities
posted as collateral. Interest is generally paid periodically
over the life of the transaction.
The firm receives securities borrowed, makes delivery of
securities loaned, monitors the market value of these
securities on a daily basis, and delivers or obtains additional
collateral due to changes in the market value of the
securities, as appropriate. For securities borrowed
transactions, the firmtypically requires collateral with a fair
value approximately equal to the carrying value of the
securities borrowed transaction.
Securities borrowed and loaned within Fixed Income,
Currency and Commodities Client Execution are recorded
at fair value under the fair value option. See Note 8 for
further information about securities borrowed and loaned
accounted for at fair value.
Securities borrowed and loaned within Securities Services
are recorded based on the amount of cash collateral
advanced or received plus accrued interest. As these
arrangements generally can be terminated on demand, they
exhibit little, if any, sensitivity to changes in interest rates.
Therefore, the carrying value of such arrangements
approximates fair value. While these arrangements are
carried at amounts that approximate fair value, they are not
accounted for at fair value under the fair value option or at
fair value in accordance with other U.S. GAAP and
therefore are not included in the firm’s fair value hierarchy
in Notes 6, 7 and 8. Had these arrangements been included
in the firm’s fair value hierarchy, they would have been
classified in level 2 as of December 2012.
As of December 2012 and December 2011, the firm had
$8.94 billion and $20.22 billion, respectively, of securities
received under resale agreements and securities borrowed
transactions that were segregated to satisfy certain
regulatory requirements. These securities are included in
“Cash and securities segregated for regulatory and
other purposes.”
Other Secured Financings
In addition to repurchase agreements and securities lending
transactions, the firmfunds certain assets through the use of
other secured financings and pledges financial instruments
and other assets as collateral in these transactions. These
other secured financings consist of:
‰ liabilities of consolidated VIEs;
‰ transfers of assets accounted for as financings rather than
sales (primarily collateralized central bank financings,
pledged commodities, bank loans and mortgage whole
loans); and
‰ other structured financing arrangements.
Other secured financings include arrangements that are
nonrecourse. As of December 2012 and December 2011,
nonrecourse other secured financings were $1.76 billion
and $3.14 billion, respectively.
The firm has elected to apply the fair value option to
substantially all other secured financings because the use of
fair value eliminates non-economic volatility in earnings
that would arise from using different measurement
attributes. See Note 8 for further information about other
secured financings that are accounted for at fair value.
Other secured financings that are not recorded at fair value
are recorded based on the amount of cash received plus
accrued interest, which generally approximates fair value.
While these financings are carried at amounts that
approximate fair value, they are not accounted for at fair
value under the fair value option or at fair value in
accordance with other U.S. GAAP and therefore are not
included in the firm’s fair value hierarchy in Notes 6, 7 and
8. Had these financings been included in the firm’s fair
value hierarchy, they would have primarily been classified
in level 3 as of December 2012.
Goldman Sachs 2012 Annual Report 153
Notes to Consolidated Financial Statements
The table below presents information about other secured
financings. In the table below:
‰ short-term secured financings include financings
maturing within one year of the financial statement date
and financings that are redeemable within one year of the
financial statement date at the option of the holder;
‰ long-term secured financings that are repayable prior to
maturity at the option of the firm are reflected at their
contractual maturity dates; and
‰ long-term secured financings that are redeemable prior to
maturity at the option of the holders are reflected at the
dates such options become exercisable.
As of December 2012 As of December 2011
$ in millions
U.S.
Dollar
Non-U.S.
Dollar Total
U.S.
Dollar
Non-U.S.
Dollar Total
Other secured financings (short-term):
At fair value $16,504 $6,181 $22,685 $18,519 $ 5,140 $23,659
At amortized cost 34 326 360 155 5,371 5,526
Interest rates
1
6.18% 0.10% 3.85% 0.22%
Other secured financings (long-term):
At fair value 6,134 1,518 7,652 4,305 2,055 6,360
At amortized cost 577 736 1,313 1,024 795 1,819
Interest rates
1
2.61% 2.55% 1.88% 3.28%
Total
2
$23,249 $8,761 $32,010 $24,003 $13,361 $37,364
Amount of other secured financings collateralized by:
Financial instruments
3
$22,323 $8,442 $30,765 $22,850 $12,274 $35,124
Other assets
4
926 319 1,245 1,153 1,087 2,240
1. The weighted average interest rates exclude secured financings at fair value and include the effect of hedging activities. See Note 7 for further information about
hedging activities.
2. Includes $8.68 billion and $9.36 billion related to transfers of financial assets accounted for as financings rather than sales as of December 2012 and
December 2011, respectively. Such financings were collateralized by financial assets included in “Financial instruments owned, at fair value” of $8.92 billion and
$9.51 billion as of December 2012 and December 2011, respectively.
3. Includes $17.24 billion and $14.33 billion of other secured financings collateralized by financial instruments owned, at fair value as of December 2012 and
December 2011, respectively, and includes $13.53 billion and $20.79 billion of other secured financings collateralized by financial instruments received as collateral
and repledged as of December 2012 and December 2011, respectively.
4. Primarily real estate and cash.
The table below presents other secured financings
by maturity.
in millions
As of
December 2012
Other secured financings (short-term) $23,045
Other secured financings (long-term):
2014 4,957
2015 1,446
2016 869
2017 271
2018-thereafter 1,422
Total other secured financings (long-term) 8,965
Total other secured financings $32,010
154 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Collateral Received and Pledged
The firm receives financial instruments (e.g., U.S.
government and federal agency, other sovereign and
corporate obligations, as well as equities and convertible
debentures) as collateral, primarily in connection with
resale agreements, securities borrowed, derivative
transactions and customer margin loans.
In many cases, the firm is permitted to deliver or repledge
these financial instruments when entering into repurchase
agreements and securities lending agreements, primarily in
connection with secured client financing activities. The firm
is also permitted to deliver or repledge these financial
instruments in connection with other secured financings,
collateralizing derivative transactions and meeting firm or
customer settlement requirements.
The table below presents financial instruments at fair value
received as collateral that were available to be delivered or
repledged and were delivered or repledged by the firm.
As of December
in millions 2012 2011
Collateral available to be delivered
or repledged $540,949 $622,926
Collateral that was delivered or repledged 397,652 454,604
The firm also pledges certain financial instruments owned,
at fair value in connection with repurchase agreements,
securities lending agreements and other secured financings,
and other assets (primarily real estate and cash) in
connection with other secured financings to counterparties
who may or may not have the right to deliver or repledge
them. The table below presents information about assets
pledged by the firm.
As of December
in millions 2012 2011
Financial instruments owned, at fair value
pledged to counterparties that:
Had the right to deliver or repledge $ 67,177 $ 53,989
Did not have the right to deliver or
repledge 120,980 110,949
Other assets pledged to counterparties that:
Did not have the right to deliver or
repledge 2,031 3,444
Note 10.
Securitization Activities
The firm securitizes residential and commercial mortgages,
corporate bonds, loans and other types of financial assets
by selling these assets to securitization vehicles (e.g., trusts,
corporate entities and limited liability companies) and acts
as underwriter of the beneficial interests that are sold to
investors. The firm’s residential mortgage securitizations
are substantially all in connection with government
agency securitizations.
Beneficial interests issued by securitization entities are debt
or equity securities that give the investors rights to receive
all or portions of specified cash inflows to a securitization
vehicle and include senior and subordinated shares of
principal, interest and/or other cash inflows. The proceeds
from the sale of beneficial interests are used to pay the
transferor for the financial assets sold to the securitization
vehicle or to purchase securities which serve as collateral.
The firm accounts for a securitization as a sale when it has
relinquished control over the transferred assets. Prior to
securitization, the firm accounts for assets pending transfer
at fair value and therefore does not typically recognize
significant gains or losses upon the transfer of assets. Net
revenues from underwriting activities are recognized in
connection with the sales of the underlying beneficial
interests to investors.
For transfers of assets that are not accounted for as sales,
the assets remain in “Financial instruments owned, at fair
value” and the transfer is accounted for as a collateralized
financing, with the related interest expense recognized over
the life of the transaction. See Notes 9 and 23 for further
information about collateralized financings and interest
expense, respectively.
The firm generally receives cash in exchange for the
transferred assets but may also have continuing
involvement with transferred assets, including ownership of
beneficial interests in securitized financial assets, primarily
in the form of senior or subordinated securities. The firm
may also purchase senior or subordinated securities issued
by securitization vehicles (which are typically VIEs) in
connection with secondary market-making activities.
Goldman Sachs 2012 Annual Report 155
Notes to Consolidated Financial Statements
The primary risks included in beneficial interests and other
interests from the firm’s continuing involvement with
securitization vehicles are the performance of the
underlying collateral, the position of the firm’s investment
in the capital structure of the securitization vehicle and the
market yield for the security. These interests are accounted
for at fair value and are included in “Financial instruments
owned, at fair value” and are generally classified in level 2
of the fair value hierarchy. See Notes 5 through 8 for
further information about fair value measurements.
The table below presents the amount of financial assets
securitized and the cash flows received on retained interests
in securitization entities in which the firm had
continuing involvement.
Year Ended December
in millions 2012 2011 2010
Residential mortgages $33,755 $40,131 $47,803
Commercial mortgages 300 — 1,451
Other financial assets — 269 12
Total $34,055 $40,400 $49,266
Cash flows on retained
interests $ 389 $ 569 $ 517
The table below presents the firm’s continuing involvement
in nonconsolidated securitization entities to which the firm
sold assets, as well as the total outstanding principal
amount of transferred assets in which the firm has
continuing involvement. In this table:
‰ the outstanding principal amount is presented for the
purpose of providing information about the size of the
securitization entities in which the firm has continuing
involvement and is not representative of the firm’s risk
of loss;
‰ for retained or purchased interests, the firm’s risk of loss
is limited to the fair value of these interests; and
‰ purchased interests represent senior and subordinated
interests, purchased in connection with secondary
market-making activities, in securitization entities in
which the firmalso holds retained interests.
As of December 2012 As of December 2011
in millions
Outstanding
Principal
Amount
Fair Value of
Retained
Interests
Fair Value of
Purchased
Interests
Outstanding
Principal
Amount
Fair Value of
Retained
Interests
Fair Value of
Purchased
Interests
U.S. government agency-issued collateralized
mortgage obligations
1
$57,685 $4,654 $ — $70,448 $5,038 $ —
Other residential mortgage-backed
2
3,656 106 — 4,459 101 3
Commercial mortgage-backed
3
1,253 1 56 3,398 606 331
CDOs, CLOs and other
4
8,866 51 331 9,972 32 211
Total
5
$71,460 $4,812 $387 $88,277 $5,777 $545
1. Outstanding principal amount and fair value of retained interests primarily relate to securitizations during 2012 and 2011 as of December 2012, and securitizations
during 2011 and 2010 as of December 2011.
2. Outstanding principal amount and fair value of retained interests as of both December 2012 and December 2011 primarily relate to prime and Alt-A securitizations
during 2007 and 2006.
3. As of December 2012, the outstanding principal amount primarily relates to securitizations during 2012 and 2007 and the fair value of retained interests primarily
relate to securitizations during 2012. As of December 2011, the outstanding principal amount primarily relates to securitizations during 2010, 2007 and 2006 and the
fair value of retained interests primarily relates to securitizations during 2010.
4. Outstanding principal amount and fair value of retained interests as of both December 2012 and December 2011 primarily relate to CDO and CLO securitizations
during 2007 and 2006.
5. Outstanding principal amount includes $835 million and $774 million as of December 2012 and December 2011, respectively, related to securitization entities in
which the firm’s only continuing involvement is retained servicing which is not a variable interest.
156 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
In addition to the interests in the table above, the firm had
other continuing involvement in the form of derivative
transactions and guarantees with certain nonconsolidated
VIEs. The carrying value of these derivatives and
guarantees was a net asset of $45 million and a net liability
of $52 million as of December 2012 and December 2011,
respectively. The notional amounts of these derivatives and
guarantees are included in maximumexposure to loss in the
nonconsolidated VIE tables in Note 11.
The table below presents the weighted average key
economic assumptions used in measuring the fair value of
retained interests and the sensitivity of this fair value to
immediate adverse changes of 10% and 20% in
those assumptions.
As of December 2012 As of December 2011
Type of Retained Interests Type of Retained Interests
$ in millions Mortgage-Backed Other
1
Mortgage-Backed Other
1
Fair value of retained interests $4,761 $ 51 $5,745 $ 32
Weighted average life (years) 8.2 2.0 7.1 4.7
Constant prepayment rate
2
10.9% N.M. 14.1% N.M.
Impact of 10% adverse change
2
$ (57) N.M. $ (55) N.M.
Impact of 20% adverse change
2
(110) N.M. (108) N.M.
Discount rate
3
4.6% N.M. 5.4% N.M.
Impact of 10% adverse change $ (96) N.M. $ (125) N.M.
Impact of 20% adverse change (180) N.M. (240) N.M.
1. Due to the nature and current fair value of certain of these retained interests, the weighted average assumptions for constant prepayment and discount rates and
the related sensitivity to adverse changes are not meaningful as of December 2012 and December 2011. The firm’s maximum exposure to adverse changes in the
value of these interests is the carrying value of $51 million and $32 million as of December 2012 and December 2011, respectively.
2. Constant prepayment rate is included only for positions for which constant prepayment rate is a key assumption in the determination of fair value.
3. The majority of mortgage-backed retained interests are U.S. government agency-issued collateralized mortgage obligations, for which there is no anticipated credit
loss. For the remainder of retained interests, the expected credit loss assumptions are reflected in the discount rate.
The preceding table does not give effect to the offsetting
benefit of other financial instruments that are held to
mitigate risks inherent in these retained interests. Changes
in fair value based on an adverse variation in assumptions
generally cannot be extrapolated because the relationship
of the change in assumptions to the change in fair value is
not usually linear. In addition, the impact of a change in a
particular assumption in the preceding table is calculated
independently of changes in any other assumption. In
practice, simultaneous changes in assumptions might
magnify or counteract the sensitivities disclosed above.
Goldman Sachs 2012 Annual Report 157
Notes to Consolidated Financial Statements
Note 11.
Variable Interest Entities
VIEs generally finance the purchase of assets by issuing debt
and equity securities that are either collateralized by or
indexed to the assets held by the VIE. The debt and equity
securities issued by a VIE may include tranches of varying
levels of subordination. The firm’s involvement with VIEs
includes securitization of financial assets, as described in
Note 10, and investments in and loans to other types of
VIEs, as described below. See Note 10 for additional
information about securitization activities, including the
definition of beneficial interests. See Note 3 for the firm’s
consolidation policies, including the definition of a VIE.
The firm is principally involved with VIEs through the
following business activities:
Mortgage-Backed VIEs and Corporate CDO and CLO
VIEs. The firm sells residential and commercial mortgage
loans and securities to mortgage-backed VIEs and
corporate bonds and loans to corporate CDO and CLO
VIEs and may retain beneficial interests in the assets sold to
these VIEs. The firm purchases and sells beneficial interests
issued by mortgage-backed and corporate CDO and CLO
VIEs in connection with market-making activities. In
addition, the firm may enter into derivatives with certain of
these VIEs, primarily interest rate swaps, which are
typically not variable interests. The firm generally enters
into derivatives with other counterparties to mitigate its
risk fromderivatives with these VIEs.
Certain mortgage-backed and corporate CDO and CLO
VIEs, usually referred to as synthetic CDOs or credit-linked
note VIEs, synthetically create the exposure for the
beneficial interests they issue by entering into credit
derivatives, rather than purchasing the underlying assets.
These credit derivatives may reference a single asset, an
index, or a portfolio/basket of assets or indices. See Note 7
for further information about credit derivatives. These VIEs
use the funds from the sale of beneficial interests and the
premiums received from credit derivative counterparties to
purchase securities which serve to collateralize the
beneficial interest holders and/or the credit derivative
counterparty. These VIEs may enter into other derivatives,
primarily interest rate swaps, which are typically not
variable interests. The firm may be a counterparty to
derivatives with these VIEs and generally enters into
derivatives with other counterparties to mitigate its risk.
Real Estate, Credit-Related and Other Investing VIEs.
The firm purchases equity and debt securities issued by and
makes loans to VIEs that hold real estate, performing and
nonperforming debt, distressed loans and equity securities.
The firm typically does not sell assets to, or enter into
derivatives with, these VIEs.
Other Asset-Backed VIEs. The firm structures VIEs that
issue notes to clients and purchases and sells beneficial
interests issued by other asset-backed VIEs in connection
with market-making activities. In addition, the firm may
enter into derivatives with certain other asset-backed VIEs,
primarily total return swaps on the collateral assets held by
these VIEs under which the firmpays the VIE the return due
to the note holders and receives the return on the collateral
assets owned by the VIE. The firm generally can be
removed as the total return swap counterparty. The firm
generally enters into derivatives with other counterparties
to mitigate its risk from derivatives with these VIEs. The
firm typically does not sell assets to the other asset-backed
VIEs it structures.
Power-Related VIEs. The firm purchases debt and equity
securities issued by, and may provide guarantees to, VIEs
that hold power-related assets. The firm typically does not
sell assets to, or enter into derivatives with, these VIEs.
Investment Funds. The firm purchases equity securities
issued by and may provide guarantees to certain of the
investment funds it manages. The firm typically does not
sell assets to, or enter into derivatives with, these VIEs.
Principal-Protected Note VIEs. The firm structures VIEs
that issue principal-protected notes to clients. These VIEs
own portfolios of assets, principally with exposure to hedge
funds. Substantially all of the principal protection on the
notes issued by these VIEs is provided by the asset portfolio
rebalancing that is required under the terms of the notes.
The firm enters into total return swaps with these VIEs
under which the firm pays the VIE the return due to the
principal-protected note holders and receives the return on
the assets owned by the VIE. The firm may enter into
derivatives with other counterparties to mitigate the risk it
has from the derivatives it enters into with these VIEs. The
firmalso obtains funding through these VIEs.
158 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
VIE Consolidation Analysis
A variable interest in a VIE is an investment (e.g., debt or
equity securities) or other interest (e.g., derivatives or loans
and lending commitments) in a VIE that will absorb
portions of the VIE’s expected losses and/or receive
portions of the VIE’s expected residual returns.
The firm’s variable interests in VIEs include senior and
subordinated debt in residential and commercial
mortgage-backed and other asset-backed securitization
entities, CDOs and CLOs; loans and lending commitments;
limited and general partnership interests; preferred and
common equity; derivatives that may include foreign
currency, equity and/or credit risk; guarantees; and certain
of the fees the firm receives from investment funds. Certain
interest rate, foreign currency and credit derivatives the firm
enters into with VIEs are not variable interests because they
create rather than absorb risk.
The enterprise with a controlling financial interest in a VIE
is known as the primary beneficiary and consolidates the
VIE. The firm determines whether it is the primary
beneficiary of a VIE by performing an analysis that
principally considers:
‰ which variable interest holder has the power to direct the
activities of the VIE that most significantly impact the
VIE’s economic performance;
‰ which variable interest holder has the obligation to
absorb losses or the right to receive benefits from the VIE
that could potentially be significant to the VIE;
‰ the VIE’s purpose and design, including the risks the VIE
was designed to create and pass through to its variable
interest holders;
‰ the VIE’s capital structure;
‰ the terms between the VIE and its variable interest holders
and other parties involved with the VIE; and
‰ related-party relationships.
The firm reassesses its initial evaluation of whether an
entity is a VIE when certain reconsideration events occur.
The firm reassesses its determination of whether it is the
primary beneficiary of a VIE on an ongoing basis based on
current facts and circumstances.
Nonconsolidated VIEs
The firm’s exposure to the obligations of VIEs is generally
limited to its interests in these entities. In certain instances,
the firm provides guarantees, including derivative
guarantees, to VIEs or holders of variable interests in VIEs.
The tables below present information about
nonconsolidated VIEs in which the firm holds variable
interests. Nonconsolidated VIEs are aggregated based on
principal business activity. The nature of the firm’s variable
interests can take different forms, as described in the rows
under maximumexposure to loss. In the tables below:
‰ The maximum exposure to loss excludes the benefit of
offsetting financial instruments that are held to mitigate
the risks associated with these variable interests.
‰ For retained and purchased interests and loans and
investments, the maximum exposure to loss is the
carrying value of these interests.
‰ For commitments and guarantees, and derivatives, the
maximum exposure to loss is the notional amount, which
does not represent anticipated losses and also has not
been reduced by unrealized losses already recorded. As a
result, the maximum exposure to loss exceeds liabilities
recorded for commitments and guarantees, and
derivatives provided to VIEs.
The carrying values of the firm’s variable interests in
nonconsolidated VIEs are included in the consolidated
statement of financial condition as follows:
‰ Substantially all assets held by the firm related to
mortgage-backed, corporate CDO and CLO and other
asset-backed VIEs and investment funds are included in
“Financial instruments owned, at fair value.”
Substantially all liabilities held by the firm related to
corporate CDO and CLO and other asset-backed VIEs
are included in “Financial instruments sold, but not yet
purchased, at fair value.”
Goldman Sachs 2012 Annual Report 159
Notes to Consolidated Financial Statements
‰ Assets and liabilities held by the firmrelated to real estate,
credit-related and other investing VIEs are primarily
included in “Financial instruments owned, at fair value”
and in “Financial instruments sold, but not yet purchased,
at fair value,” and “Other liabilities and accrued
expenses,” respectively.
‰ Assets and liabilities held by the firm related to
power-related VIEs are primarily included in “Financial
instruments owned, at fair value” and “Other assets” and
in “Other liabilities and accrued expenses,” respectively.
Nonconsolidated VIEs
As of December 2012
in millions
Mortgage-
backed
Corporate
CDOs and
CLOs
Real estate,
credit-related
and other
investing
Other
asset-
backed
Power-
related
Investment
funds Total
Assets in VIE $79,171
2
$23,842 $9,244 $3,510 $147 $1,898 $117,812
Carrying Value of the Firm’s Variable Interests
Assets 6,269 1,193 1,801 220 32 4 9,519
Liabilities — 12 — 30 — — 42
Maximum Exposure to Loss in Nonconsolidated VIEs
Retained interests 4,761 51 — — — — 4,812
Purchased interests 1,162 659 — 204 — — 2,025
Commitments and guarantees
1
— 1 438 — — 1 440
Derivatives
1
1,574 6,761 — 952 — — 9,287
Loans and investments 39 — 1,801 — 32 4 1,876
Total $ 7,536
2
$ 7,472 $2,239 $1,156 $ 32 $ 5 $ 18,440
Nonconsolidated VIEs
As of December 2011
in millions
Mortgage-
backed
Corporate
CDOs and
CLOs
Real estate,
credit-related
and other
investing
Other
asset-
backed
Power-
related
Investment
funds Total
Assets in VIE $94,047
2
$20,340 $8,974 $4,593 $519 $2,208 $130,681
Carrying Value of the Firm’s Variable Interests
Assets 7,004 911 1,495 352 289 5 10,056
Liabilities — 63 3 24 2 — 92
Maximum Exposure to Loss in Nonconsolidated VIEs
Retained interests 5,745 32 — — — — 5,777
Purchased interests 962 368 — 333 — — 1,663
Commitments and guarantees
1
— 1 373 — 46 — 420
Derivatives
1
2,469 7,529 — 1,221 — — 11,219
Loans and investments 82 — 1,495 — 288 5 1,870
Total $ 9,258
2
$ 7,930 $1,868 $1,554 $334 $ 5 $ 20,949
1. The aggregate amounts include $3.25 billion and $4.17 billion as of December 2012 and December 2011, respectively, related to guarantees and derivative
transactions with VIEs to which the firm transferred assets.
2. Assets in VIE and maximum exposure to loss include $3.57 billion and $1.72 billion, respectively, as of December 2012, and $6.15 billion and $2.62 billion,
respectively, as of December 2011, related to CDOs backed by mortgage obligations.
160 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Consolidated VIEs
The tables below present the carrying amount and
classification of assets and liabilities in consolidated VIEs,
excluding the benefit of offsetting financial instruments that
are held to mitigate the risks associated with the firm’s
variable interests. Consolidated VIEs are aggregated based
on principal business activity and their assets and liabilities
are presented net of intercompany eliminations. The
majority of the assets in principal-protected notes VIEs are
intercompany and are eliminated in consolidation.
Substantially all the assets in consolidated VIEs can only be
used to settle obligations of the VIE.
The tables below exclude VIEs in which the firm holds a
majority voting interest if (i) the VIE meets the definition of
a business and (ii) the VIE’s assets can be used for purposes
other than the settlement of its obligations.
The liabilities of real estate, credit-related and other
investing VIEs and CDOs, mortgage-backed and other
asset-backed VIEs do not have recourse to the general credit
of the firm.
Consolidated VIEs
As of December 2012
in millions
Real estate,
credit-related
and other
investing
CDOs,
mortgage-
backed and
other asset-
backed
Principal-
protected
notes Total
Assets
Cash and cash equivalents $ 236 $107 $ — $ 343
Cash and securities segregated for regulatory and other purposes 134 — 92 226
Receivables from brokers, dealers and clearing organizations 5 — — 5
Financial instruments owned, at fair value 2,958 763 124 3,845
Other assets 1,080 — — 1,080
Total $4,413 $870 $ 216 $5,499
Liabilities
Other secured financings $ 594 $699 $ 301 $1,594
Financial instruments sold, but not yet purchased, at fair value — 107 — 107
Unsecured short-term borrowings, including the current portion of
unsecured long-term borrowings — — 1,584 1,584
Unsecured long-term borrowings 4 — 334 338
Other liabilities and accrued expenses 1,478 — — 1,478
Total $2,076 $806 $2,219 $5,101
Goldman Sachs 2012 Annual Report 161
Notes to Consolidated Financial Statements
Consolidated VIEs
As of December 2011
in millions
Real estate,
credit-related
and other
investing
CDOs,
mortgage-backed
and other
asset-backed
Principal-
protected
notes Total
Assets
Cash and cash equivalents $ 660 $ 51 $ 1 $ 712
Cash and securities segregated for regulatory and other purposes 139 — — 139
Receivables from brokers, dealers and clearing organizations 4 — — 4
Receivables from customers and counterparties — 16 — 16
Financial instruments owned, at fair value 2,369 352 112 2,833
Other assets 1,552 437 — 1,989
Total $4,724 $856 $ 113 $5,693
Liabilities
Other secured financings $1,418 $298 $3,208 $4,924
Payables to customers and counterparties — 9 — 9
Financial instruments sold, but not yet purchased, at fair value — — 2 2
Unsecured short-term borrowings, including the current portion of
unsecured long-term borrowings 185 — 1,941 2,126
Unsecured long-term borrowings 4 — 269 273
Other liabilities and accrued expenses 2,046 40 — 2,086
Total $3,653 $347 $5,420 $9,420
162 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Note 12.
Other Assets
Other assets are generally less liquid, non-financial assets.
The table belowpresents other assets by type.
As of December
in millions 2012 2011
Property, leasehold improvements and
equipment
1
$ 8,217 $ 8,697
Goodwill and identifiable intangible assets
2
5,099 5,468
Income tax-related assets
3
5,620 5,017
Equity-method investments
4
453 664
Miscellaneous receivables and other
5
20,234 3,306
Total $39,623 $23,152
1. Net of accumulated depreciation and amortization of $9.05 billion and
$8.46 billion as of December 2012 and December 2011, respectively.
2. Includes $149 million of intangible assets classified as held for sale. See
Note 13 for further information about goodwill and identifiable
intangible assets.
3. See Note 24 for further information about income taxes.
4. Excludes investments accounted for at fair value under the fair value option
where the firm would otherwise apply the equity method of accounting of
$5.54 billion and $4.17 billion as of December 2012 and December 2011,
respectively, which are included in “Financial instruments owned, at fair
value.” The firm has generally elected the fair value option for such
investments acquired after the fair value option became available.
5. Includes $16.77 billion of assets related to the firm’s reinsurance business
which were classified as held for sale as of December 2012.
Assets Held for Sale
In the fourth quarter of 2012, the firm classified its
reinsurance business within its Institutional Client Services
segment as held for sale. Assets related to this business of
$16.92 billion, consisting primarily of available-for-sale
securities and separate account assets at fair value, are
included in “Other assets.” Liabilities related to the
business of $14.62 billion are included in “Other liabilities
and accrued expenses.” See Note 8 for further information
about insurance-related assets and liabilities held for sale at
fair value.
The firm expects to complete the sale of a majority stake in
its reinsurance business in 2013 and does not expect to
recognize a material gain or loss upon the sale. Upon
completion of the sale, the firm will no longer consolidate
this business.
Property, Leasehold Improvements and Equipment
Property, leasehold improvements and equipment included
$6.20 billion and $6.48 billion as of December 2012 and
December 2011, respectively, related to property, leasehold
improvements and equipment that the firm uses in
connection with its operations. The remainder is held by
investment entities, including VIEs, consolidated by
the firm.
Substantially all property and equipment are depreciated on
a straight-line basis over the useful life of the asset.
Leasehold improvements are amortized on a straight-line
basis over the useful life of the improvement or the term of
the lease, whichever is shorter. Certain costs of software
developed or obtained for internal use are capitalized and
amortized on a straight-line basis over the useful life of
the software.
Property, leasehold improvements and equipment are tested
for impairment whenever events or changes in
circumstances suggest that an asset’s or asset group’s
carrying value may not be fully recoverable. The firm’s
policy for impairment testing of property, leasehold
improvements and equipment is the same as is used for
identifiable intangible assets with finite lives. See Note 13
for further information.
Goldman Sachs 2012 Annual Report 163
Notes to Consolidated Financial Statements
Impairments
As a result of a decline in the market conditions in which
certain of the firm’s consolidated investments operate,
during 2012 and 2011, the firm tested certain property,
leasehold improvements and equipment, intangible assets
and other assets for impairment in accordance with ASC
360. The carrying value of these assets exceeded the
projected undiscounted cash flows over the estimated
remaining useful lives of these assets; as such, the firm
determined the assets were impaired and recorded
impairment losses. In addition, the firm sold assets during
2012 and 2011 and recognized impairment losses prior to
the sale of these assets. These impairment losses represented
the excess of the carrying values of these assets over their
estimated fair values, which are primarily level 3
measurements, using a combination of discounted cash
flow analyses and relative value analyses, including the
estimated cash flows expected to be received from the
disposition of certain of these assets.
The impairment losses were approximately $400 million
during the year ended December 2012, substantially all of
which were included in “Depreciation and amortization”
within the firm’s Investing &Lending segment. Impairment
losses related to property, leasehold improvements and
equipment were approximately $250 million, including
approximately $160 million attributable to commodity-
related assets. Impairment losses related to intangible and
other assets were approximately $150 million, including
approximately $80 million attributable to commodity-
related assets and approximately $40 million attributable
to the firm’s New York Stock Exchange (NYSE)
Designated Market Maker (DMM) rights.
The impairment losses were approximately $440 million
during the year ended December 2011 (approximately
$220 million related to assets classified as held for sale,
primarily related to Litton Loan Servicing LP (Litton),
approximately $120 million related to commodity-related
intangible assets and approximately $100 million related to
property, leasehold improvements and equipment), all of
which were included in “Depreciation and amortization.”
The impairment losses related to commodity-related
intangible assets and property, leasehold improvements and
equipment were included in the firm’s Investing & Lending
segment and the impairment losses related to assets
classified as held for sale were principally included in the
firm’s Institutional Client Services segment. Litton was sold
in the third quarter of 2011 and the firm received total
consideration that approximated the firm’s adjusted
carrying value for Litton. See Note 18 for further
information about the sale of Litton.
164 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Note 13.
Goodwill and Identifiable Intangible Assets
The tables below present the carrying values of goodwill
and identifiable intangible assets, which are included in
“Other assets.”
Goodwill
As of December
in millions 2012 2011
Investment Banking:
Financial Advisory $ 98 $ 104
Underwriting 183 186
Institutional Client Services:
Fixed Income, Currency and Commodities
Client Execution 269 284
Equities Client Execution 2,402 2,390
Securities Services 105 117
Investing & Lending 59 147
Investment Management 586 574
Total $3,702 $3,802
Identifiable Intangible
Assets
As of December
in millions 2012 2011
Investment Banking:
Financial Advisory $ 1 $ 4
Underwriting — 1
Institutional Client Services:
Fixed Income, Currency and Commodities
Client Execution 421 488
Equities Client Execution 565 677
Investing & Lending 281 369
Investment Management 129 127
Total $1,397 $1,666
Goodwill
Goodwill is the cost of acquired companies in excess of the
fair value of net assets, including identifiable intangible
assets, at the acquisition date.
Goodwill is assessed annually in the fourth quarter for
impairment or more frequently if events occur or
circumstances change that indicate an impairment may
exist. Qualitative factors are assessed to determine whether
it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. If results of the
qualitative assessment are not conclusive, a quantitative
goodwill impairment test is performed.
The quantitative goodwill impairment test consists of
twosteps.
‰ The first step compares the estimated fair value of each
reporting unit with its estimated net book value
(including goodwill and identified intangible assets). If the
reporting unit’s fair value exceeds its estimated net book
value, goodwill is not impaired.
‰ If the estimated fair value of a reporting unit is less than
its estimated net book value, the second step of the
goodwill impairment test is performed to measure the
amount of impairment loss, if any. An impairment loss is
equal to the excess of the carrying amount of goodwill
over its fair value.
Goodwill was tested for impairment, using a quantitative
test, during the fourth quarter of 2012 and goodwill was
not impaired.
To estimate the fair value of each reporting unit, both
relative value and residual income valuation techniques are
used because the firm believes market participants would
use these techniques to value the firm’s reporting units.
Relative value techniques apply average observable price-
to-earnings multiples of comparable competitors to certain
reporting units’ net earnings. For other reporting units, fair
value is estimated using price-to-book multiples based on
residual income techniques, which consider a reporting
unit’s return on equity in excess of the firm’s cost of equity
capital. The net book value of each reporting unit reflects
an allocation of total shareholders’ equity and represents
the estimated amount of shareholders’ equity required to
support the activities of the reporting unit under guidelines
issued by the Basel Committee on Banking Supervision
(Basel Committee) in December 2010.
Goldman Sachs 2012 Annual Report 165
Notes to Consolidated Financial Statements
Identifiable Intangible Assets
The table below presents the gross carrying amount,
accumulated amortization and net carrying amount of
identifiable intangible assets and their weighted average
remaining lives.
As of December
$ in millions 2012
Weighted Average
Remaining Lives
(years) 2011
Customer lists Gross carrying amount $ 1,099 $ 1,119
Accumulated amortization (643) (593)
Net carrying amount 456 8 526
Commodities-related intangibles
1
Gross carrying amount 513 595
Accumulated amortization (226) (237)
Net carrying amount 287 10 358
Television broadcast royalties Gross carrying amount 560 560
Accumulated amortization (186) (123)
Net carrying amount 374 6 437
Insurance-related intangibles
2
Gross carrying amount 380 292
Accumulated amortization (231) (146)
Net carrying amount 149 N/A
2
146
Other
3
Gross carrying amount 950 950
Accumulated amortization (819) (751)
Net carrying amount 131 12 199
Total Gross carrying amount 3,502 3,516
Accumulated amortization (2,105) (1,850)
Net carrying amount $ 1,397 8 $ 1,666
1. Primarily includes commodity-related customer contracts and relationships, permits and access rights.
2. Primarily related to the firm’s reinsurance business, which is classified as held for sale. See Note 12 for further information.
3. Primarily includes the firm’s exchange-traded fund lead market maker rights and NYSE DMM rights.
Substantially all of the firm’s identifiable intangible assets
are considered to have finite lives and are amortized (i) over
their estimated lives, (ii) based on economic usage for
certain commodity-related intangibles or (iii) in proportion
to estimated gross profits or premium revenues.
Amortization expense for identifiable intangible assets is
included in “Depreciation and amortization.”
166 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
The tables below present amortization expense for
identifiable intangible assets for the years ended
December 2012, December 2011 and December 2010, and
the estimated future amortization expense through 2017
for identifiable intangible assets as of December 2012.
Year Ended December
in millions 2012 2011 2010
Amortization expense $338 $389 $520
in millions
As of
December 2012
Estimated future amortization expense:
2013 $225
2014 189
2015 157
2016 155
2017 153
Identifiable intangible assets are tested for recoverability
whenever events or changes in circumstances indicate that
an asset’s or asset group’s carrying value may not
be recoverable.
If a recoverability test is necessary, the carrying value of an
asset or asset group is compared to the total of the
undiscounted cash flows expected to be received over the
remaining useful life and fromthe disposition of the asset or
asset group.
‰ If the total of the undiscounted cash flows exceeds the
carrying value, the asset or asset group is not impaired.
‰ If the total of the undiscounted cash flows is less than the
carrying value, the asset or asset group is not fully
recoverable and an impairment loss is recognized as the
difference between the carrying amount of the asset or
asset group and its estimated fair value.
See Note 12 for information about impairments of the
firm’s identifiable intangible assets.
Note 14.
Deposits
The table below presents deposits held in U.S. and non-U.S.
offices, substantially all of which were interest-bearing.
Substantially all U.S. deposits were held at Goldman Sachs
Bank USA (GS Bank USA) and substantially all non-U.S.
deposits were held at Goldman Sachs Bank (Europe) plc
(GS Bank Europe) and Goldman Sachs International Bank
(GSIB). On January 18, 2013, GS Bank Europe surrendered
its banking license to the Central Bank of Ireland after
transferring its deposits to GSIB.
As of December
in millions 2012 2011
U.S. offices $62,377 $38,477
Non-U.S. offices 7,747 7,632
Total $70,124
1
$46,109
1
The table below presents maturities of time deposits held
in U.S. and non-U.S. offices.
As of December 2012
in millions U.S. Non-U.S. Total
2013 $ 5,248 $2,083 $ 7,331
2014 3,866 — 3,866
2015 3,285 — 3,285
2016 1,687 — 1,687
2017 2,377 — 2,377
2018 - thereafter 5,069 — 5,069
Total $21,532
2
$2,083
3
$23,615
1
1. Includes $5.10 billion and $4.53 billion as of December 2012 and
December 2011, respectively, of time deposits accounted for at fair value
under the fair value option. See Note 8 for further information about deposits
accounted for at fair value.
2. Includes $44 million greater than $100,000, of which $7 million matures
within three months, $24 million matures within three to six months,
$8 million matures within six to twelve months, and $5 million matures after
twelve months.
3. Substantially all were greater than $100,000.
As of December 2012, savings and demand deposits, which
represent deposits with no stated maturity, were
$46.51 billion, which were recorded based on the amount
of cash received plus accrued interest, which approximates
fair value. In addition, the firm designates certain
derivatives as fair value hedges on substantially all of its
time deposits for which it has not elected the fair value
option. Accordingly, $18.52 billion of time deposits were
effectively converted from fixed-rate obligations to
floating-rate obligations and were recorded at amounts that
generally approximate fair value. While these savings and
demand deposits and time deposits are carried at amounts
that approximate fair value, they are not accounted for at
fair value under the fair value option or at fair value in
accordance with other U.S. GAAP and therefore are not
included in the firm’s fair value hierarchy in Notes 6, 7 and
8. Had these deposits been included in the firm’s fair value
hierarchy, they would have been classified in level 2.
Goldman Sachs 2012 Annual Report 167
Notes to Consolidated Financial Statements
Note 15.
Short-Term Borrowings
Short-termborrowings were comprised of the following:
As of December
in millions 2012 2011
Other secured financings (short-term) $23,045 $29,185
Unsecured short-term borrowings 44,304 49,038
Total $67,349 $78,223
See Note 9 for further information about other
securedfinancings.
Unsecured short-term borrowings include the portion of
unsecured long-term borrowings maturing within one year
of the financial statement date and unsecured long-term
borrowings that are redeemable within one year of the
financial statement date at the option of the holder.
The firm accounts for promissory notes, commercial paper
and certain hybrid financial instruments at fair value under
the fair value option. See Note 8 for further information
about unsecured short-term borrowings that are accounted
for at fair value. The carrying value of short-term
borrowings that are not recorded at fair value generally
approximates fair value due to the short-term nature of the
obligations. While these short-term borrowings are carried
at amounts that approximate fair value, they are not
accounted for at fair value under the fair value option or at
fair value in accordance with other U.S. GAAP and
therefore are not included in the firm’s fair value hierarchy
in Notes 6, 7 and 8. Had these borrowings been included in
the firm’s fair value hierarchy, substantially all would have
been classified in level 2 as of December 2012.
The table belowpresents unsecured short-termborrowings.
As of December
$ in millions 2012 2011
Current portion of unsecured long-term
borrowings
1, 2
$25,344 $28,836
Hybrid financial instruments 12,295 11,526
Promissory notes 260 1,328
Commercial paper 884 1,491
Other short-term borrowings 5,521 5,857
Total $44,304 $49,038
Weighted average interest rate
3
1.57% 1.89%
1. As of December 2012, no borrowings guaranteed by the Federal Deposit
Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee
Program (TLGP) were outstanding and the program had expired for new
issuances. Includes $8.53 billion as of December 2011, issued by Group Inc.
and guaranteed by the FDIC under the TLGP.
2. Includes $24.65 billion and $27.95 billion as of December 2012 and
December 2011, respectively, issued by Group Inc.
3. The weighted average interest rates for these borrowings include the effect
of hedging activities and exclude financial instruments accounted for at fair
value under the fair value option. See Note 7 for further information about
hedging activities.
168 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Note 16.
Long-Term Borrowings
Long-termborrowings were comprised of the following:
As of December
in millions 2012 2011
Other secured financings (long-term) $ 8,965 $ 8,179
Unsecured long-term borrowings 167,305 173,545
Total $176,270 $181,724
See Note 9 for further information about other secured
financings. The table below presents unsecured long-term
borrowings extending through 2061 and consisting
principally of senior borrowings.
As of December 2012 As of December 2011
in millions
U.S.
Dollar
Non-U.S.
Dollar Total
U.S.
Dollar
Non-U.S.
Dollar Total
Fixed-rate obligations
1
Group Inc. $ 86,170 $36,207 $122,377 $ 82,396 $38,012 $120,408
Subsidiaries 2,391 662 3,053 1,662 557 2,219
Floating-rate obligations
2
Group Inc. 17,075 19,227 36,302 19,936 25,878 45,814
Subsidiaries 3,719 1,854 5,573 3,500 1,604 5,104
Total $109,355 $57,950 $167,305 $107,494 $66,051 $173,545
1. Interest rates on U.S. dollar-denominated debt ranged from 0.20% to 10.04% (with a weighted average rate of 5.48%) and 0.10% to 10.04% (with a weighted
average rate of 5.62%) as of December 2012 and December 2011, respectively. Interest rates on non-U.S. dollar-denominated debt ranged from 0.10% to 14.85%
(with a weighted average rate of 4.66%) and 0.85% to 14.85% (with a weighted average rate of 4.75%) as of December 2012 and December 2011, respectively.
2. Floating interest rates generally are based on LIBOR or the federal funds target rate. Equity-linked and indexed instruments are included in floating-rate obligations.
Goldman Sachs 2012 Annual Report 169
Notes to Consolidated Financial Statements
The table below presents unsecured long-term borrowings
by maturity date. In the table below:
‰ unsecured long-term borrowings maturing within one
year of the financial statement date and unsecured long-
term borrowings that are redeemable within one year of
the financial statement date at the option of the holders
are included as unsecured short-termborrowings;
‰ unsecured long-term borrowings that are repayable prior
to maturity at the option of the firm are reflected at their
contractual maturity dates; and
‰ unsecured long-term borrowings that are redeemable
prior to maturity at the option of the holders are reflected
at the dates such options become exercisable.
As of December 2012
in millions Group Inc. Subsidiaries Total
2014 $ 22,279 $ 496 $ 22,775
2015 20,734 411 21,145
2016 21,717 172 21,889
2017 20,218 494 20,712
2018 - thereafter 73,731 7,053 80,784
Total
1
$158,679 $8,626 $167,305
1. Includes $10.51 billion related to interest rate hedges on certain unsecured
long-term borrowings, by year of maturity as follows: $564 million in 2014,
$536 million in 2015, $1.15 billion in 2016, $1.44 billion in 2017 and
$6.82 billion in 2018 and thereafter.
The firm designates certain derivatives as fair value hedges
to effectively convert a substantial portion of its fixed-rate
unsecured long-term borrowings which are not accounted
for at fair value into floating-rate obligations. Accordingly,
excluding the cumulative impact of changes in the firm’s
credit spreads, the carrying value of unsecured long-term
borrowings approximated fair value as of December 2012
and December 2011. See Note 7 for further information
about hedging activities. For unsecured long-term
borrowings for which the firm did not elect the fair value
option, the cumulative impact due to changes in the firm’s
own credit spreads would be an increase of less than 2%
and a reduction of less than 4% in the carrying value of
total unsecured long-termborrowings as of December 2012
and December 2011, respectively. As these borrowings are
not accounted for at fair value under the fair value option
or at fair value in accordance with other U.S. GAAP, their
fair value is not included in the firm’s fair value hierarchy in
Notes 6, 7 and 8. Had these borrowings been included in
the firm’s fair value hierarchy, substantially all would have
been classified in level 2 as of December 2012.
The table below presents unsecured long-term borrowings,
after giving effect to hedging activities that converted a
substantial portion of fixed-rate obligations to floating-
rate obligations.
As of December 2012 As of December 2011
in millions Group Inc. Subsidiaries Total Group Inc. Subsidiaries Total
Fixed-rate obligations
At fair value $ 28 $ 94 $ 122 $ 10 $ 66 $ 76
At amortized cost
1
22,500 2,047 24,547 26,839 1,934 28,773
Floating-rate obligations
At fair value 8,166 4,305 12,471 12,903 4,183 17,086
At amortized cost
1
127,985 2,180 130,165 126,470 1,140 127,610
Total $158,679 $8,626 $167,305 $166,222 $7,323 $173,545
1. The weighted average interest rates on the aggregate amounts were 2.47% (5.26% related to fixed-rate obligations and 1.98% related to floating-rate obligations)
and 2.59% (5.18% related to fixed-rate obligations and 2.03% related to floating-rate obligations) as of December 2012 and December 2011, respectively. These
rates exclude financial instruments accounted for at fair value under the fair value option.
170 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Subordinated Borrowings
Unsecured long-termborrowings include subordinated debt
and junior subordinated debt. Junior subordinated debt is
junior in right of payment to other subordinated
borrowings, which are junior to senior borrowings. As of
December 2012 and December 2011, subordinated
debt had maturities ranging from 2015 to 2038 and
2017 to 2038, respectively. The table below presents
subordinated borrowings.
As of December 2012 As of December 2011
$ in millions
Par
Amount
Carrying
Amount Rate
1
Par
Amount
Carrying
Amount Rate
1
Subordinated debt
2
$14,409 $17,358 4.24% $14,310 $17,362 4.39%
Junior subordinated debt 2,835 4,228 3.16% 5,085 6,533 2.43%
Total subordinated borrowings $17,244 $21,586 4.06% $19,395 $23,895 3.87%
1. Weighted average interest rate after giving effect to fair value hedges used to convert these fixed-rate obligations into floating-rate obligations. See Note 7 for
further information about hedging activities. See below for information about interest rates on junior subordinated debt.
2. Par amount and carrying amount of subordinated debt issued by Group Inc. was $13.85 billion and $16.80 billion, respectively, as of December 2012, and
$13.75 billion and $16.80 billion, respectively, as of December 2011.
Junior Subordinated Debt
Junior Subordinated Debt Issued to APEX Trusts. In
2007, Group Inc. issued a total of $2.25 billion of
remarketable junior subordinated debt to Goldman Sachs
Capital II and Goldman Sachs Capital III (APEX Trusts),
Delaware statutory trusts. The APEX Trusts issued
$2.25 billion of guaranteed perpetual Normal Automatic
Preferred Enhanced Capital Securities (APEX) to third
parties and a de minimis amount of common securities to
Group Inc. Group Inc. also entered into contracts with the
APEX Trusts to sell $2.25 billion of Group Inc. perpetual
non-cumulative preferred stock (the stock purchase
contracts). See Note 19 for more information about the
preferred stock that Group Inc. has issued in connection
with the stock purchase contracts.
The firm accounted for the stock purchase contracts as
equity instruments and, accordingly, recorded the cost of
the stock purchase contracts as a reduction to additional
paid-in capital.
During the first quarter of 2012, pursuant to a remarketing
provided for by the initial terms of the junior subordinated
debt, Goldman Sachs Capital II sold all of its $1.75 billion
of junior subordinated debt to Murray Street Investment
Trust I (Murray Street Trust), a new trust sponsored by the
firm. On June 1, 2012, pursuant to the stock purchase
contracts, Goldman Sachs Capital II used the proceeds
of this sale to purchase shares of Group Inc.’s Perpetual
Non-Cumulative Preferred Stock, Series E (Series E
Preferred Stock).
During the third quarter of 2012, pursuant to a
remarketing provided for by the initial terms of the junior
subordinated debt, Goldman Sachs Capital III sold all of its
$500 million of junior subordinated debt to Vesey Street
Investment Trust I (Vesey Street Trust), a new trust
sponsored by the firm. On September 4, 2012, pursuant to
the stock purchase contracts, Goldman Sachs Capital III
used the proceeds of this sale to purchase shares of Group
Inc.’s Perpetual Non-Cumulative Preferred Stock, Series F
(Series F Preferred Stock).
In connection with the remarketing of the junior
subordinated debt to the Murray Street Trust and Vesey
Street Trust (together, the 2012 Trusts), pursuant to the
terms of the junior subordinated debt, the interest rate and
other terms were modified. Following such sales, the firm
pays interest semi-annually on the $1.75 billion of junior
subordinated debt held by the Murray Street Trust at a
fixed annual rate of 4.647% and the debt matures on
March 9, 2017 and on the $500 million of junior
subordinated debt held by the Vesey Street Trust at a fixed
annual rate of 4.404% and the debt matures on
September 1, 2016. To fund the purchase of the junior
subordinated debt, the 2012 Trusts issued an aggregate of
$2.25 billion of senior guaranteed trust securities. The 2012
Trusts are required to pay distributions on their senior
guaranteed trust securities in the same amounts and on the
same dates that they are scheduled to receive interest on the
junior subordinated debt they hold, and are required to
redeem their respective senior guaranteed trust securities
upon the maturity or earlier redemption of the junior
subordinated debt they hold. Group Inc. fully and
unconditionally guarantees the payment of these
distribution and redemption amounts when due on a senior
basis and, as such, the $2.25 billion of junior subordinated
debt held by the 2012 Trusts for the benefit of investors is
no longer classified as junior subordinated debt.
Goldman Sachs 2012 Annual Report 171
Notes to Consolidated Financial Statements
The firm has the right to defer payments on the junior
subordinated debt, subject to limitations. During any such
extension period, the firm will not be permitted to, among
other things, pay dividends on or make certain repurchases
of its common or preferred stock. If the firm were to defer
payment of interest on the junior subordinated debt and the
2012 Trusts were therefore unable to make scheduled
distributions to the holders of the senior guaranteed trust
securities, under the guarantee, Group Inc. would be
obligated to make those payments to the holders of the
senior guaranteed trust securities.
The APEX Trusts and the 2012 Trusts are wholly-owned
finance subsidiaries of the firm for regulatory and legal
purposes but are not consolidated for accounting purposes.
In connection with the APEX issuance, the firm covenanted
in favor of certain of its debtholders, who were initially and
are currently the holders of Group Inc.’s 6.345% Junior
Subordinated Debentures due February 15, 2034, that,
subject to certain exceptions, the firm would not redeem or
purchase APEX or shares of Group Inc.’s Series E Preferred
Stock or Series F Preferred Stock prior to the date that is ten
years after the applicable stock purchase date, unless the
applicable redemption or purchase price does not exceed a
maximumamount determined by reference to the aggregate
amount of net cash proceeds that the firmhas received from
the sale of qualifying securities.
Junior Subordinated Debt Issued in Connection with
Trust Preferred Securities. Group Inc. issued
$2.84 billion of junior subordinated debentures in 2004 to
Goldman Sachs Capital I (Trust), a Delaware statutory
trust. The Trust issued $2.75 billion of guaranteed
preferred beneficial interests to third parties and
$85 million of common beneficial interests to Group Inc.
and used the proceeds from the issuances to purchase the
junior subordinated debentures from Group Inc. The Trust
is a wholly-owned finance subsidiary of the firm for
regulatory and legal purposes but is not consolidated for
accounting purposes.
The firm pays interest semi-annually on the debentures at
an annual rate of 6.345% and the debentures mature on
February 15, 2034. The coupon rate and the payment dates
applicable to the beneficial interests are the same as the
interest rate and payment dates for the debentures. The firm
has the right, fromtime to time, to defer payment of interest
on the debentures, and therefore cause payment on the
Trust’s preferred beneficial interests to be deferred, in each
case up to ten consecutive semi-annual periods. During any
such extension period, the firm will not be permitted to,
among other things, pay dividends on or make certain
repurchases of its common stock. The Trust is not
permitted to pay any distributions on the common
beneficial interests held by Group Inc. unless all dividends
payable on the preferred beneficial interests have been paid
in full.
172 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Note 17.
Other Liabilities and Accrued Expenses
The table below presents other liabilities and accrued
expenses by type.
As of December
in millions 2012 2011
Compensation and benefits $ 8,292 $ 5,701
Insurance-related liabilities
1
10,274 18,614
Noncontrolling interests
2
508 1,450
Income tax-related liabilities
3
2,724 533
Employee interests in consolidated funds 246 305
Subordinated liabilities issued
by consolidated VIEs 1,360 1,090
Accrued expenses and other
4
18,991 4,108
Total $42,395 $31,801
1. As of December 2012, certain insurance-related liabilities were classified as
held for sale and included within “Accrued expenses and other.” See
Note 12 for further information.
2. Includes $419 million and $1.17 billion related to consolidated investment
funds as of December 2012 and December 2011, respectively.
3. See Note 24 for further information about income taxes.
4. Includes $14.62 billion of liabilities related to the firm’s reinsurance business
which were classified as held for sale as of December 2012. See Note 12 for
further information.
The table belowpresents insurance-related liabilities by type.
As of December
in millions 2012 2011
Separate account liabilities $ — $ 3,296
Liabilities for future benefits
and unpaid claims 10,274 14,213
Contract holder account balances — 835
Reserves for guaranteed minimum death
and income benefits — 270
Total
1
$10,274 $18,614
1. As of December 2012, certain insurance-related liabilities were classified as
held for sale and included within “Accrued expenses and other.” See
Note 12 for further information.
Separate account liabilities are supported by separate
account assets, representing segregated contract holder
funds under variable annuity and life insurance contracts.
As of December 2011, separate account assets were
included in “Cash and securities segregated for regulatory
and other purposes.”
Liabilities for future benefits and unpaid claims include
liabilities arising from reinsurance provided by the firm to
other insurers. The firm had a receivable of $1.30 billion as
of December 2011 related to such reinsurance contracts,
which was reported in “Receivables from customers and
counterparties.” In addition, the firm has ceded risks to
reinsurers related to certain of its liabilities for future
benefits and unpaid claims and had a receivable of
$648 million as of December 2011 related to such
reinsurance contracts, which was reported in “Receivables
from customers and counterparties.” Contracts to cede
risks to reinsurers do not relieve the firm of its obligations
to contract holders. Liabilities for future benefits and
unpaid claims include $10.27 billion and $8.75 billion
carried at fair value under the fair value option as of
December 2012 and December 2011, respectively.
Contract holder account balances primarily include fixed
annuities under reinsurance contracts.
Reserves for guaranteed minimum death and income
benefits represent a liability for the expected value of
guaranteed benefits in excess of projected annuity account
balances. These reserves are based on total payments
expected to be made less total fees expected to be assessed
over the life of the contract. As of December 2011, such
reserves were related to $5.52 billion of contract holder
account balances. The net amount at risk, representing
guaranteed minimum death and income benefits in excess
of contract holder account balances, was $1.51 billion as of
December 2011. The weighted average attained age of these
contract holders was 69 years as of December 2011.
Goldman Sachs 2012 Annual Report 173
Notes to Consolidated Financial Statements
Note 18.
Commitments, Contingencies and Guarantees
Commitments
The table belowpresents the firm’s commitments.
Commitment Amount by Period
of Expiration as of December 2012
Total Commitments
as of December
in millions 2013
2014-
2015
2016-
2017
2018-
Thereafter 2012 2011
Commitments to extend credit
1
Commercial lending:
2
Investment-grade $ 7,765 $11,632 $33,620 $ 719 $ 53,736 $ 51,281
Non-investment-grade 2,114 4,462 9,833 4,693 21,102 14,217
Warehouse financing 556 228 — — 784 247
Total commitments to extend credit 10,435 16,322 43,453 5,412 75,622 65,745
Contingent and forward starting resale and securities borrowing
agreements
3
47,599 — — — 47,599 54,522
Forward starting repurchase and secured lending agreements
3
6,144 — — — 6,144 17,964
Letters of credit
4
614 160 — 15 789 1,353
Investment commitments 1,378 2,174 258 3,529 7,339 9,118
Other 4,471 53 31 69 4,624 5,342
Total commitments $70,641 $18,709 $43,742 $9,025 $142,117 $154,044
1. Commitments to extend credit are presented net of amounts syndicated to third parties.
2. Includes commitments associated with the former William Street credit extension program.
3. These agreements generally settle within three business days.
4. Consists of commitments under letters of credit issued by various banks which the firm provides to counterparties in lieu of securities or cash to satisfy various
collateral and margin deposit requirements.
Commitments to Extend Credit
The firm’s commitments to extend credit are agreements to
lend with fixed termination dates and depend on the
satisfaction of all contractual conditions to borrowing. The
total commitment amount does not necessarily reflect
actual future cash flows because the firm may syndicate all
or substantial portions of these commitments and
commitments can expire unused or be reduced or cancelled
at the counterparty’s request.
The firm generally accounts for commitments to extend
credit at fair value. Losses, if any, are generally recorded,
net of any fees in “Other principal transactions.”
As of December 2012, approximately $16.09 billion of the
firm’s lending commitments were held for investment and
were accounted for on an accrual basis. As of
December 2012, the carrying value and the estimated fair
value of such lending commitments were liabilities of
$63 million and $523 million, respectively. As these lending
commitments are not accounted for at fair value under the
fair value option or at fair value in accordance with other
U.S. GAAP, their fair value is not included in the firm’s fair
value hierarchy in Notes 6, 7 and 8. Had these
commitments been included in the firm’s fair value
hierarchy, they would have primarily been classified in
level 3 as of December 2012.
Commercial Lending. The firm’s commercial lending
commitments are extended to investment-grade and non-
investment-grade corporate borrowers. Commitments to
investment-grade corporate borrowers are principally used
for operating liquidity and general corporate purposes. The
firm also extends lending commitments in connection with
contingent acquisition financing and other types of
corporate lending as well as commercial real estate
financing. Commitments that are extended for contingent
acquisition financing are often intended to be short-term in
nature, as borrowers often seek to replace them with other
funding sources.
174 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Sumitomo Mitsui Financial Group, Inc. (SMFG) provides
the firm with credit loss protection on certain approved
loan commitments (primarily investment-grade commercial
lending commitments). The notional amount of such loan
commitments was $32.41 billion and $31.94 billion as of
December 2012 and December 2011, respectively. The
credit loss protection on loan commitments provided by
SMFG is generally limited to 95% of the first loss the firm
realizes on such commitments, up to a maximum of
approximately $950 million. In addition, subject to the
satisfaction of certain conditions, upon the firm’s request,
SMFG will provide protection for 70% of additional losses
on such commitments, up to a maximum of $1.13 billion,
of which $300 million of protection had been provided as
of both December 2012 and December 2011. The firm also
uses other financial instruments to mitigate credit risks
related to certain commitments not covered by SMFG.
These instruments primarily include credit default swaps
that reference the same or similar underlying instrument or
entity or credit default swaps that reference a market index.
Warehouse Financing. The firm provides financing to
clients who warehouse financial assets. These arrangements
are secured by the warehoused assets, primarily consisting
of commercial mortgage loans.
Contingent and Forward Starting Resale and
Securities Borrowing Agreements/Forward Starting
Repurchase and Secured Lending Agreements
The firm enters into resale and securities borrowing
agreements and repurchase and secured lending agreements
that settle at a future date. The firm also enters into
commitments to provide contingent financing to its clients
and counterparties through resale agreements. The firm’s
funding of these commitments depends on the satisfaction
of all contractual conditions to the resale agreement and
these commitments can expire unused.
Investment Commitments
The firm’s investment commitments consist of
commitments to invest in private equity, real estate and
other assets directly and through funds that the firm raises
and manages. These commitments include $872 million
and $1.62 billion as of December 2012 and
December 2011, respectively, related to real estate private
investments and $6.47 billion and $7.50 billion as of
December 2012 and December 2011, respectively, related
to corporate and other private investments. Of these
amounts, $6.21 billion and $8.38 billion as of
December 2012 and December 2011, respectively, relate to
commitments to invest in funds managed by the firm, which
will be funded at market value on the date of investment.
Leases
The firm has contractual obligations under long-term
noncancelable lease agreements, principally for office
space, expiring on various dates through 2069. Certain
agreements are subject to periodic escalation provisions for
increases in real estate taxes and other charges. The table
below presents future minimum rental payments, net of
minimumsublease rentals.
in millions
As of
December 2012
2013 $ 439
2014 407
2015 345
2016 317
2017 306
2018 - thereafter 1,375
Total $3,189
Rent charged to operating expense for the years ended
December 2012, December 2011 and December 2010 was
$374 million, $475 million and $508 million, respectively.
Operating leases include office space held in excess of
current requirements. Rent expense relating to space held
for growth is included in “Occupancy.” The firm records a
liability, based on the fair value of the remaining lease
rentals reduced by any potential or existing sublease
rentals, for leases where the firm has ceased using the space
and management has concluded that the firm will not
derive any future economic benefits. Costs to terminate a
lease before the end of its termare recognized and measured
at fair value on termination.
Goldman Sachs 2012 Annual Report 175
Notes to Consolidated Financial Statements
Contingencies
Legal Proceedings. See Note 27 for information about
legal proceedings, including certain mortgage-
relatedmatters.
Certain Mortgage-Related Contingencies. There are
multiple areas of focus by regulators, governmental
agencies and others within the mortgage market that may
impact originators, issuers, servicers and investors. There
remains significant uncertainty surrounding the nature and
extent of any potential exposure for participants in
this market.
‰ Representations and Warranties. The firm has not
been a significant originator of residential mortgage
loans. The firm did purchase loans originated by others
and generally received loan-level representations of the
type described below from the originators. During the
period 2005 through 2008, the firm sold approximately
$10 billion of loans to government-sponsored enterprises
and approximately $11 billion of loans to other third
parties. In addition, the firm transferred loans to trusts
and other mortgage securitization vehicles. As of
December 2012 and December 2011, the outstanding
balance of the loans transferred to trusts and other
mortgage securitization vehicles during the period 2005
through 2008 was approximately $35 billion and
$42 billion, respectively. This amount reflects paydowns
and cumulative losses of approximately $90 billion
($20 billion of which are cumulative losses) as of
December 2012 and approximately $83 billion
($17 billion of which are cumulative losses) as of
December 2011. A small number of these Goldman
Sachs-issued securitizations with an outstanding principal
balance of $540 million and total paydowns and
cumulative losses of $1.52 billion ($508 million of which
are cumulative losses) as of December 2012, and an
outstanding principal balance of $635 million and total
paydowns and cumulative losses of $1.42 billion
($465 million of which are cumulative losses) as of
December 2011, were structured with credit protection
obtained from monoline insurers. In connection with
both sales of loans and securitizations, the firm provided
loan level representations of the type described below
and/or assigned the loan level representations from the
party fromwhomthe firmpurchased the loans.
The loan level representations made in connection with
the sale or securitization of mortgage loans varied among
transactions but were generally detailed representations
applicable to each loan in the portfolio and addressed
matters relating to the property, the borrower and the
note. These representations generally included, but were
not limited to, the following: (i) certain attributes of the
borrower’s financial status; (ii) loan-to-value ratios,
owner occupancy status and certain other characteristics
of the property; (iii) the lien position; (iv) the fact that the
loan was originated in compliance with law; and
(v) completeness of the loan documentation.
The firm has received repurchase claims for residential
mortgage loans based on alleged breaches of
representations, from government-sponsored enterprises,
other third parties, trusts and other mortgage
securitization vehicles, which have not been significant.
During the years ended December 2012 and
December 2011, the firm repurchased loans with an
unpaid principal balance of less than $10 million. The
loss related to the repurchase of these loans was not
material for the years ended December 2012 and
December 2011.
Ultimately, the firm’s exposure to claims for repurchase
of residential mortgage loans based on alleged breaches of
representations will depend on a number of factors
including the following: (i) the extent to which these
claims are actually made; (ii) the extent to which there are
underlying breaches of representations that give rise to
valid claims for repurchase; (iii) in the case of loans
originated by others, the extent to which the firmcould be
held liable and, if it is, the firm’s ability to pursue and
collect on any claims against the parties who made
representations to the firm; (iv) macro-economic factors,
including developments in the residential real estate
market; and (v) legal and regulatory developments.
Based upon the large number of defaults in residential
mortgages, including those sold or securitized by the firm,
there is a potential for increasing claims for repurchases.
However, the firm is not in a position to make a
meaningful estimate of that exposure at this time.
176 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
‰ Foreclosure and Other Mortgage Loan Servicing
Practices and Procedures. The firm had received a
number of requests for information from regulators and
other agencies, including state attorneys general and
banking regulators, as part of an industry-wide focus on
the practices of lenders and servicers in connection with
foreclosure proceedings and other aspects of mortgage
loan servicing practices and procedures. The requests
sought information about the foreclosure and servicing
protocols and activities of Litton, a residential mortgage
servicing subsidiary sold by the firm to Ocwen Financial
Corporation (Ocwen) in the third quarter of 2011. The
firm is cooperating with the requests and these inquiries
may result in the imposition of fines or other regulatory
action. In the third quarter of 2010, prior to the firm’s
sale of Litton, Litton had temporarily suspended evictions
and foreclosure and real estate owned sales in a number
of states, including those with judicial foreclosure
procedures. Litton resumed these activities beginning in
the fourth quarter of 2010.
In connection with the sale of Litton, the firm provided
customary representations and warranties, and
indemnities for breaches of these representations and
warranties, to Ocwen. These indemnities are subject to
various limitations, and are capped at approximately
$50 million. The firm has not yet received any claims
relating to these indemnities. The firm also agreed to
provide specific indemnities to Ocwen related to claims
made by third parties with respect to servicing activities
during the period that Litton was owned by the firm and
which are in excess of the related reserves accrued for
such matters by Litton at the time of the sale. These
indemnities are capped at approximately $125 million.
The firm has recorded a reserve for the portion of these
potential losses that it believes is probable and can be
reasonably estimated. As of December 2012, the firm had
not received material claims with respect to these
indemnities and had not made material payments in
connection with these claims.
The firm further agreed to provide indemnities to Ocwen
not subject to a cap, which primarily relate to potential
liabilities constituting fines or civil monetary penalties
which could be imposed in settlements with certain terms
with U.S. states’ attorneys general or in consent orders
with certain terms with the Federal Reserve, the Office of
Thrift Supervision, the Office of the Comptroller of the
Currency, the FDIC or the New York State Department
of Financial Services, in each case relating to Litton’s
foreclosure and servicing practices while it was owned by
the firm. The firm has entered into a settlement in
principle with the Board of Governors of the Federal
Reserve System (Federal Reserve Board) relating to
foreclosure and servicing matters as described below.
Under the Litton sale agreement the firm also retained
liabilities associated with claims related to Litton’s failure
to maintain lender-placed mortgage insurance,
obligations to repurchase certain loans from government-
sponsored enterprises, subpoenas from one of Litton’s
regulators, and fines or civil penalties imposed by the
Federal Reserve or the New York State Department of
Financial Services in connection with certain compliance
matters. Management is unable to develop an estimate of
the maximumpotential amount of future payments under
these indemnities because the firm has received no claims
under these indemnities other than an immaterial amount
with respect to government-sponsored enterprises.
However, management does not believe, based on
currently available information, that any payments under
these indemnities will have a material adverse effect on
the firm’s financial condition.
On September 1, 2011, Group Inc. and GS Bank USA
entered into a Consent Order (the Order) with the Federal
Reserve Board relating to the servicing of residential
mortgage loans. The terms of the Order were
substantially similar and, in many respects, identical to
the orders entered into with the Federal Reserve Board by
other large U.S. financial institutions. The Order set forth
various allegations of improper conduct in servicing by
Litton, requires that Group Inc. and GS Bank USA cease
and desist such conduct, and required that Group Inc. and
GS Bank USA, and their boards of directors, take various
affirmative steps. The Order required (i) Group Inc. and
GS Bank USA to engage a third-party consultant to
conduct a review of certain foreclosure actions or
proceedings that occurred or were pending between
January 1, 2009 and December 31, 2010; (ii) the
adoption of policies and procedures related to
management of third parties used to outsource residential
mortgage servicing, loss mitigation or foreclosure; (iii) a
“validation report” from an independent third-party
consultant regarding compliance with the Order for the
first year; and (iv) submission of quarterly progress
reports as to compliance with the Order by the boards of
directors (or committees thereof) of Group Inc. and
GS Bank USA.
Goldman Sachs 2012 Annual Report 177
Notes to Consolidated Financial Statements
On January 16, 2013, Group Inc. and GS Bank USA
entered into a settlement in principle with the Federal
Reserve Board relating to the servicing of residential
mortgage loans and foreclosure processing. This
settlement in principle, amends the Order which is
described above, provides for the termination of the
independent foreclosure review under the Order and calls
for Group Inc. and GS Bank USA collectively to: (i) make
cash payments into a settlement fund for distribution to
eligible borrowers; and (ii) provide other assistance for
foreclosure prevention and loss mitigation over the next
two years. The other provisions of the Order will remain
in effect. The firm’s reserves for legal and regulatory
matters as of December 2012 include provisions relating
to this settlement.
In addition, on September 1, 2011, GS Bank USA entered
into an Agreement on Mortgage Servicing Practices with
the New York State Department of Financial Services,
Litton and Ocwen relating to the servicing of residential
mortgage loans, and, in a related agreement with the New
York State Department of Financial Services, Group Inc.
agreed to forgive 25% of the unpaid principal balance on
certain delinquent first lien residential mortgage loans
owned by Group Inc. or a subsidiary, totaling
approximately $13 million in principal forgiveness.
Guarantees
The firm enters into various derivatives that meet the
definition of a guarantee under U.S. GAAP, including
written equity and commodity put options, written
currency contracts and interest rate caps, floors and
swaptions. Disclosures about derivatives are not required if
they may be cash settled and the firm has no basis to
conclude it is probable that the counterparties held the
underlying instruments at inception of the contract. The
firm has concluded that these conditions have been met for
certain large, internationally active commercial and
investment bank counterparties and certain other
counterparties. Accordingly, the firm has not included such
contracts in the table below.
The firm, in its capacity as an agency lender, indemnifies
most of its securities lending customers against losses
incurred in the event that borrowers do not return securities
and the collateral held is insufficient to cover the market
value of the securities borrowed.
In the ordinary course of business, the firm provides other
financial guarantees of the obligations of third parties (e.g.,
standby letters of credit and other guarantees to enable
clients to complete transactions and fund-related
guarantees). These guarantees represent obligations to
make payments to beneficiaries if the guaranteed party fails
to fulfill its obligation under a contractual arrangement
with that beneficiary.
178 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
The table below presents certain information about
derivatives that meet the definition of a guarantee and
certain other guarantees. The maximum payout in the table
below is based on the notional amount of the contract and
therefore does not represent anticipated losses. See Note 7
for further information about credit derivatives that meet
the definition of a guarantee which are not included below.
Because derivatives are accounted for at fair value, the
carrying value is considered the best indication of payment/
performance risk for individual contracts. However, the
carrying values below exclude the effect of a legal right of
setoff that may exist under an enforceable netting
agreement and the effect of netting of cash collateral posted
under credit support agreements.
As of December 2012
Maximum Payout/Notional Amount by Period of Expiration
in millions
Carrying
Value of
Net Liability 2013
2014-
2015
2016-
2017
2018-
Thereafter Total
Derivatives
1
$8,581 $339,460 $213,012 $49,413 $61,264 $663,149
Securities lending indemnifications
2
— 27,123 — — — 27,123
Other financial guarantees
3
152 904 442 1,195 938 3,479
1. These derivatives are risk managed together with derivatives that do not meet the definition of a guarantee, and therefore these amounts do not reflect the firm’s
overall risk related to its derivative activities. As of December 2011, the carrying value of the net liability related to derivative guarantees was $11.88 billion.
2. Collateral held by the lenders in connection with securities lending indemnifications was $27.89 billion as of December 2012. Because the contractual nature of
these arrangements requires the firm to obtain collateral with a market value that exceeds the value of the securities lent to the borrower, there is minimal
performance risk associated with these guarantees.
3. Other financial guarantees excludes certain commitments to issue standby letters of credit that are included in “Commitments to extend credit.” See table in
“Commitments” above for a summary of the firm’s commitments. As of December 2011, the carrying value of the net liability related to other financial guarantees
was $205 million.
Goldman Sachs 2012 Annual Report 179
Notes to Consolidated Financial Statements
Guarantees of Securities Issued by Trusts. The firmhas
established trusts, including Goldman Sachs Capital I, the
APEX Trusts, the 2012 Trusts, and other entities for the
limited purpose of issuing securities to third parties, lending
the proceeds to the firm and entering into contractual
arrangements with the firm and third parties related to this
purpose. The firm does not consolidate these entities. See
Note 16 for further information about the transactions
involving Goldman Sachs Capital I, the APEX Trusts, and
the 2012 Trusts.
The firm effectively provides for the full and unconditional
guarantee of the securities issued by these entities. Timely
payment by the firm of amounts due to these entities under
the guarantee, borrowing, preferred stock and related
contractual arrangements will be sufficient to cover
payments due on the securities issued by these entities.
Management believes that it is unlikely that any
circumstances will occur, such as nonperformance on the
part of paying agents or other service providers, that would
make it necessary for the firm to make payments related to
these entities other than those required under the terms of
the guarantee, borrowing, preferred stock and related
contractual arrangements and in connection with certain
expenses incurred by these entities.
Indemnities and Guarantees of Service Providers. In
the ordinary course of business, the firm indemnifies and
guarantees certain service providers, such as clearing and
custody agents, trustees and administrators, against
specified potential losses in connection with their acting as
an agent of, or providing services to, the firm or
its affiliates.
The firmmay also be liable to some clients for losses caused
by acts or omissions of third-party service providers,
including sub-custodians and third-party brokers. In
addition, the firm is a member of payment, clearing and
settlement networks as well as securities exchanges around
the world that may require the firm to meet the obligations
of such networks and exchanges in the event of
member defaults.
In connection with its prime brokerage and clearing
businesses, the firmagrees to clear and settle on behalf of its
clients the transactions entered into by them with other
brokerage firms. The firm’s obligations in respect of such
transactions are secured by the assets in the client’s account
as well as any proceeds received from the transactions
cleared and settled by the firm on behalf of the client. In
connection with joint venture investments, the firm may
issue loan guarantees under which it may be liable in the
event of fraud, misappropriation, environmental liabilities
and certain other matters involving the borrower.
The firm is unable to develop an estimate of the maximum
payout under these guarantees and indemnifications.
However, management believes that it is unlikely the firm
will have to make any material payments under these
arrangements, and no material liabilities related to these
guarantees and indemnifications have been recognized in
the consolidated statements of financial condition as of
December 2012 and December 2011.
Other Representations, Warranties andIndemnifications.
The firm provides representations and warranties to
counterparties in connection with a variety of commercial
transactions and occasionally indemnifies them against
potential losses caused by the breach of those representations
and warranties. The firm may also provide indemnifications
protecting against changes in or adverse application of certain
U.S. tax laws in connection with ordinary-course transactions
suchas securities issuances, borrowings or derivatives.
In addition, the firm may provide indemnifications to some
counterparties to protect them in the event additional taxes
are owed or payments are withheld, due either to a change
in or an adverse application of certain non-U.S. tax laws.
These indemnifications generally are standard contractual
terms and are entered into in the ordinary course of
business. Generally, there are no stated or notional
amounts included in these indemnifications, and the
contingencies triggering the obligation to indemnify are not
expected to occur. The firmis unable to develop an estimate
of the maximum payout under these guarantees and
indemnifications. However, management believes that it is
unlikely the firm will have to make any material payments
under these arrangements, and no material liabilities related
to these arrangements have been recognized in the
consolidated statements of financial condition as of
December 2012 and December 2011.
180 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Guarantees of Subsidiaries. Group Inc. fully and
unconditionally guarantees the securities issued by GS
Finance Corp., a wholly-owned finance subsidiary of
the firm.
Group Inc. has guaranteed the payment obligations of
Goldman, Sachs & Co. (GS&Co.), GS Bank USA and
Goldman Sachs Execution & Clearing, L.P. (GSEC),
subject to certain exceptions.
In November 2008, the firm contributed subsidiaries into
GS Bank USA, and Group Inc. agreed to guarantee the
reimbursement of certain losses, including credit-related
losses, relating to assets held by the contributed entities. In
connection with this guarantee, Group Inc. also agreed to
pledge to GS Bank USA certain collateral, including
interests in subsidiaries and other illiquid assets.
In addition, Group Inc. guarantees many of the obligations
of its other consolidated subsidiaries on a transaction-by-
transaction basis, as negotiated with counterparties. Group
Inc. is unable to develop an estimate of the maximum
payout under its subsidiary guarantees; however, because
these guaranteed obligations are also obligations of
consolidated subsidiaries included in the table above,
Group Inc.’s liabilities as guarantor are not
separately disclosed.
Note 19.
Shareholders’ Equity
Common Equity
Dividends declared per common share were $1.77 in 2012,
$1.40 in 2011 and $1.40 in 2010. On January 15, 2013,
Group Inc. declared a dividend of $0.50 per common share
to be paid on March 28, 2013 to common shareholders of
record on February 28, 2013.
The firm’s share repurchase program is intended to help
maintain the appropriate level of common equity. The
repurchase program is effected primarily through regular
open-market purchases, the amounts and timing of which
are determined primarily by the firm’s current and
projected capital positions (i.e., comparisons of the firm’s
desired level and composition of capital to its actual level
and composition of capital), but which may also be
influenced by general market conditions and the prevailing
price and trading volumes of the firm’s common stock. Any
repurchase of the firm’s common stock requires approval
by the Federal Reserve Board.
During 2012, 2011 and 2010, the firm repurchased
42.0 million shares, 47.0 million shares and 25.3 million
shares of its common stock at an average cost per share of
$110.31, $128.33 and $164.48, for a total cost of
$4.64 billion, $6.04 billion and $4.16 billion, respectively,
under the share repurchase program. In addition, pursuant
to the terms of certain share-based compensation plans,
employees may remit shares to the firm or the firm may
cancel restricted stock units (RSUs) to satisfy minimum
statutory employee tax withholding requirements. Under
these plans, during 2012, 2011 and 2010, employees
remitted 33,477 shares, 75,517 shares and 164,172 shares
with a total value of $3 million, $12 million and
$25 million, and the firm cancelled 12.7 million,
12.0 million and 6.2 million of RSUs with a total value of
$1.44 billion, $1.91 billion and $972 million, respectively.
Goldman Sachs 2012 Annual Report 181
Notes to Consolidated Financial Statements
Preferred Equity
The table below presents perpetual preferred stock issued and outstanding as of December 2012.
Series
Shares
Authorized
Shares
Issued
Shares
Outstanding Dividend Rate
Redemption
Value
(in millions)
A 50,000 30,000 29,999 3 month LIBOR + 0.75%,
with floor of 3.75% per annum
$ 750
B 50,000 32,000 32,000 6.20% per annum 800
C 25,000 8,000 8,000 3 month LIBOR + 0.75%,
with floor of 4.00% per annum
200
D 60,000 54,000 53,999 3 month LIBOR + 0.67%,
with floor of 4.00% per annum
1,350
E 17,500 17,500 17,500 3 month LIBOR + 0.77%,
with floor of 4.00% per annum
1,750
F 5,000 5,000 5,000 3 month LIBOR + 0.77%,
with floor of 4.00% per annum
500
I 34,500 34,000 34,000 5.95% per annum 850
242,000 180,500 180,498 $6,200
Each share of non-cumulative Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock issued and outstanding has a par
value of $0.01, has a liquidation preference of $25,000, is
represented by 1,000 depositary shares and is redeemable at
the firm’s option, subject to the approval of the Federal
Reserve Board, at a redemption price equal to $25,000 plus
declared and unpaid dividends. On October 24, 2012,
Group Inc. issued 34,000 shares of non-cumulative Series I
Preferred Stock, par value $0.01 per share. Each share of
Series I Preferred Stock issued and outstanding has a
liquidation preference of $25,000, is represented by 1,000
depositary shares and is redeemable at the firm’s option
beginning November 10, 2017, subject to the approval of
the Federal Reserve Board, at a redemption price equal to
$25,000 plus accrued and unpaid dividends.
In 2007, the Board of Directors of Group Inc. (Board)
authorized 17,500 shares of Series E Preferred Stock, and
5,000 shares of Series F Preferred Stock, in connection with
the APEX Trusts. On June 1, 2012, Group Inc. issued
17,500 shares of Series E Preferred Stock to Goldman Sachs
Capital II pursuant to the stock purchase contracts held by
Goldman Sachs Capital II. On September 4, 2012, Group
Inc. issued 5,000 shares of Series F Preferred Stock to
Goldman Sachs Capital III pursuant to the stock purchase
contracts held by Goldman Sachs Capital III. Each share of
Series E and Series F Preferred Stock issued and outstanding
has a par value of $0.01, has a liquidation preference of
$100,000 and is redeemable at the option of the firm at any
time subject to approval from the Federal Reserve Board
and to certain covenant restrictions governing the firm’s
ability to redeem or purchase the preferred stock without
issuing common stock or other instruments with equity-like
characteristics, at a redemption price equal to $100,000
plus declared and unpaid dividends. See Note 16 for further
information about the APEXTrusts.
All series of preferred stock are pari passu and have a
preference over the firm’s common stock on liquidation.
Dividends on each series of preferred stock, if declared, are
payable quarterly in arrears. The firm’s ability to declare or
pay dividends on, or purchase, redeem or otherwise
acquire, its common stock is subject to certain restrictions
in the event that the firm fails to pay or set aside full
dividends on the preferred stock for the latest completed
dividend period.
182 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
In March 2011, the firm provided notice to Berkshire
Hathaway Inc. and certain of its subsidiaries (collectively,
Berkshire Hathaway) that it would redeem in full the
50,000 shares of the firm’s 10% Cumulative Perpetual
Preferred Stock, Series G (Series G Preferred Stock) held by
Berkshire Hathaway for the stated redemption price of
$5.50 billion ($110,000 per share), plus accrued and
unpaid dividends. In connection with this notice, the firm
recognized a preferred dividend of $1.64 billion (calculated
as the difference between the carrying value and the
redemption value of the preferred stock), which was
recorded as a reduction to earnings applicable to common
shareholders for the first quarter of 2011. The redemption
also resulted in the acceleration of $24 million of preferred
dividends related to the period from April 1, 2011 to the
redemption date, which was included in the firm’s results
during the three months ended March 2011. The Series G
Preferred Stock was redeemed on April 18, 2011. Berkshire
Hathaway continues to hold a five-year warrant, issued in
October 2008, to purchase up to 43.5 million shares of
common stock at an exercise price of $115.00 per share.
On January 9, 2013, Group Inc. declared dividends of
$234.38, $387.50, $250.00, $250.00 and $437.99 per
share of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and
Series I Preferred Stock, respectively, to be paid on
February 11, 2013 to preferred shareholders of record on
January 27, 2013. In addition, the firm declared dividends
of $977.78 per each share of Series E Preferred Stock and
Series F Preferred Stock, to be paid on March 1, 2013 to
preferred shareholders of record on February 14, 2013.
The table below presents preferred dividends declared on
preferred stock.
Year Ended December
2012 2011 2010
per share in millions per share in millions per share in millions
Series A $ 960.94 $ 29 $ 950.51 $ 28 $ 950.51 $ 28
Series B 1,550.00 50 1,550.00 50 1,550.00 50
Series C 1,025.01 8 1,013.90 8 1,013.90 8
Series D 1,025.01 55 1,013.90 55 1,013.90 55
Series E 2,055.56 36 — — — —
Series F 1,000.00 5 — — — —
Series G
1
— — 2,500.00 125 10,000.00 500
Total $183 $266 $641
1. Amount for the year ended December 2011 excludes preferred dividends related to the redemption of the firm’s Series G Preferred Stock.
Accumulated Other Comprehensive Income/(Loss)
The tables belowpresent accumulated other comprehensive income/(loss) by type.
As of December 2012
in millions
Currency
translation
adjustment,
net of tax
Pension and
postretirement
liability adjustments,
net of tax
Net unrealized
gains/(losses) on
available-for-sale
securities, net of tax
Accumulated other
comprehensive
income/(loss),
net of tax
Balance, beginning of year $(225) $(374) $ 83 $(516)
Other comprehensive income/(loss) (89) 168 244 323
Balance, end of year $(314) $(206) $327
1
$(193)
As of December 2011
in millions
Currency
translation
adjustment,
net of tax
Pension and
postretirement
liability adjustments,
net of tax
Net unrealized
gains/(losses) on
available-for-sale
securities, net of tax
Accumulated other
comprehensive
income/(loss),
net of tax
Balance, beginning of year $(170) $(229) $113 $(286)
Other comprehensive loss (55) (145) (30) (230)
Balance, end of year $(225) $(374) $ 83
1
$(516)
1. Substantially all consists of net unrealized gains on securities held by the firm’s insurance subsidiaries as of both December 2012 and December 2011.
Goldman Sachs 2012 Annual Report 183
Notes to Consolidated Financial Statements
Note 20.
Regulation and Capital Adequacy
The Federal Reserve Board is the primary regulator of
Group Inc., a bank holding company under the Bank
Holding Company Act of 1956 (BHC Act) and a financial
holding company under amendments to the BHC Act
effected by the U.S. Gramm-Leach-Bliley Act of 1999. As a
bank holding company, the firm is subject to consolidated
regulatory capital requirements that are computed in
accordance with the Federal Reserve Board’s risk-based
capital requirements (which are based on the ‘Basel 1’
Capital Accord of the Basel Committee). These capital
requirements are expressed as capital ratios that compare
measures of capital to risk-weighted assets (RWAs). The
firm’s U.S. bank depository institution subsidiaries,
including GS Bank USA, are subject to similar capital
requirements.
Under the Federal Reserve Board’s capital adequacy
requirements and the regulatory framework for prompt
corrective action that is applicable to GS Bank USA, the
firm and its U.S. bank depository institution subsidiaries
must meet specific capital requirements that involve
quantitative measures of assets, liabilities and certain off-
balance-sheet items as calculated under regulatory
reporting practices. The firm and its U.S. bank depository
institution subsidiaries’ capital amounts, as well as GS Bank
USA’s prompt corrective action classification, are also
subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Many of the firm’s subsidiaries, including GS&Co. and the
firm’s other broker-dealer subsidiaries, are subject to
separate regulation and capital requirements as described
below.
Group Inc.
Federal Reserve Board regulations require bank holding
companies to maintain a minimumTier 1 capital ratio of 4%
and a minimum total capital ratio of 8%. The required
minimum Tier 1 capital ratio and total capital ratio in order
to be considered a “well-capitalized” bank holding company
under the Federal Reserve Board guidelines are 6% and
10%, respectively. Bank holding companies may be expected
to maintain ratios well above the minimumlevels, depending
on their particular condition, risk profile and growth plans.
The minimum Tier 1 leverage ratio is 3% for bank holding
companies that have received the highest supervisory rating
under Federal Reserve Board guidelines or that have
implemented the Federal Reserve Board’s risk-based capital
measure for market risk. Other bank holding companies
must have a minimumTier 1 leverage ratio of 4%.
The table below presents information regarding Group
Inc.’s regulatory capital ratios.
As of December
$ in millions 2012 2011
Tier 1 capital $ 66,977 $ 63,262
Tier 2 capital $ 13,429 $ 13,881
Total capital $ 80,406 $ 77,143
Risk-weighted assets $399,928 $457,027
Tier 1 capital ratio 16.7% 13.8%
Total capital ratio 20.1% 16.9%
Tier 1 leverage ratio 7.3% 7.0%
RWAs under the Federal Reserve Board’s risk-based capital
requirements are calculated based on the amount of market
risk and credit risk. RWAs for market risk are determined
by reference to the firm’s Value-at-Risk (VaR) model,
supplemented by other measures to capture risks not
reflected in the firm’s VaR model. Credit risk for on-
balance sheet assets is based on the balance sheet value. For
off-balance sheet exposures, including OTC derivatives and
commitments, a credit equivalent amount is calculated
based on the notional amount of each trade. All such assets
and exposures are then assigned a risk weight depending
on, among other things, whether the counterparty is a
sovereign, bank or a qualifying securities firm or other
entity (or if collateral is held, depending on the nature of the
collateral).
Tier 1 leverage ratio is defined as Tier 1 capital under
Basel 1 divided by average adjusted total assets (which
includes adjustments for disallowed goodwill and
intangible assets, and the carrying value of equity
investments in non-financial companies that are subject to
deductions fromTier 1 capital).
184 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Regulatory Reform
Changes to the market risk capital rules of the U.S. federal
bank regulatory agencies (the Agencies) became effective on
January 1, 2013. These changes require the addition of
several newmodel-based capital requirements, as well as an
increase in capital requirements for securitization positions,
and are designed to implement the new market risk
framework of the Basel Committee, as well as the
prohibition on the use of external credit ratings, as required
by the Dodd-Frank Act. This revised market risk
framework is a significant part of the regulatory capital
changes that will ultimately be included in the firm’s capital
ratios under the guidelines issued by the Basel Committee in
December 2010 (Basel 3). These changes resulted in
increased regulatory capital requirements for market risk,
and will be reflected in all of the firm’s Basel-based capital
ratios for periods beginning on or after January 1, 2013.
The firm is currently working to implement the
requirements set out in the Agencies’ Risk-Based Capital
Standards: Advanced Capital Adequacy Framework —
Basel 2, as applicable to Group Inc. as a bank holding
company and as an advanced approach banking
organization (Basel 2). These requirements are based on the
advanced approaches under the Revised Framework for the
International Convergence of Capital Measurement and
Capital Standards issued by the Basel Committee. Basel 2,
among other things, revises the regulatory capital
framework for credit risk, equity investments, and
introduces a new operational risk capital requirement. The
firm will adopt Basel 2 once approved to do so by
regulators. The firm’s capital adequacy ratio will also be
impacted by the further changes outlined below under
Basel 3 and provisions of the Dodd-Frank Act.
The “Collins Amendment” of the Dodd-Frank Act requires
advanced approach banking organizations to continue,
upon adoption of Basel 2, to calculate risk-based capital
ratios under both Basel 2 and Basel 1. For each of the Tier 1
and Total capital ratios, the lower of the Basel 1 and Basel 2
ratios calculated will be used to determine whether such
advanced approach banking organizations meet their
minimum risk-based capital requirements. Furthermore,
the June 2012 proposals described belowinclude provisions
which, if enacted as proposed, would modify these
minimumrisk-based capital requirements.
In June 2012, the Agencies proposed further modifications
to their capital adequacy regulations to address aspects of
both the Dodd-Frank Act and Basel 3. If enacted as
proposed, the most significant changes that would impact
the firm include (i) revisions to the definition of Tier 1
capital, including new deductions from Tier 1 capital,
(ii) higher minimum capital and leverage ratios, (iii) a new
minimumratio of Tier 1 common equity to RWAs, (iv) new
capital conservation and counter-cyclical capital buffers,
(v) an additional leverage ratio that includes measures of
off-balance sheet exposures, (vi) revisions to the
methodology for calculating RWAs, particularly for credit
risk capital requirements for derivatives and (vii) a new
“standardized approach” to the calculation of RWAs that
would replace the Federal Reserve’s current Basel 1 risk-
based capital framework in 2015, including for purposes of
calculating the requisite capital floor under the Collins
Amendment. In November 2012, the Agencies announced
that the proposed effective date of January 1, 2013 for these
modifications would be deferred, but have not indicated a
revised effective date. These proposals incorporate the
phase-out of Tier 1 capital treatment for the firm’s junior
subordinated debt issued to trusts; such capital would
instead be eligible as Tier 2 capital under the proposals.
Under the Collins Amendment, this phase-out was
scheduled to begin on January 1, 2013. Due to the
aforementioned deferral of the effective date of the
proposed capital rules, however, the application of this
phase-out remains uncertain at this time.
Goldman Sachs 2012 Annual Report 185
Notes to Consolidated Financial Statements
In November 2011, the Basel Committee published its final
provisions for assessing the global systemic importance of
banking institutions and the range of additional Tier 1
common equity that should be maintained by banking
institutions deemed to be globally systemically important.
The additional capital for these institutions would initially
range from1%to 2.5%of Tier 1 common equity and could
be as much as 3.5% for a banking institution that increases
its systemic footprint (e.g., by increasing total assets). In
November 2012, the Financial Stability Board (established
at the direction of the leaders of the Group of 20) indicated
that the firm, based on its 2011 financial data, would be
required to hold an additional 1.5% of Tier 1 common
equity as a globally systemically important banking
institution under the Basel Committee’s methodology. The
final determination of the amount of additional Tier 1
common equity that the firmwill be required to hold will be
based on the firm’s 2013 financial data and the manner and
timing of the U.S. banking regulators’ implementation of
the Basel Committee’s methodology. The Basel Committee
indicated that globally systemically important banking
institutions will be required to meet the capital surcharges
on a phased-in basis from2016 through 2019.
In October 2012, the Basel Committee published its final
provisions for calculating incremental capital requirements
for domestic systemically important banking institutions.
The provisions are complementary to the framework
outlined above for global systemically important banking
institutions, but are more principles-based in order to
provide an appropriate degree of national discretion. The
impact of these provisions on the regulatory capital
requirements of GS Bank USA and the firm’s other
subsidiaries, including Goldman Sachs International (GSI),
will depend on how they are implemented by the banking
and non-banking regulators in the United States and
other jurisdictions.
The Basel Committee has released other consultation
papers that may result in further changes to the regulatory
capital requirements, including a “Fundamental Review of
the Trading Book.” and “Revisions to the Basel
Securitization Framework.” The full impact of these
developments on the firm will not be known with certainty
until after any resulting rules are finalized.
The Dodd-Frank Act contains provisions that require the
registration of all swap dealers, major swap participants,
security-based swap dealers and major security-based swap
participants. The firm has registered certain subsidiaries as
“swap dealers” under the U.S. Commodity Futures Trading
Commission (CFTC) rules, including GS&Co., GS Bank
USA, GSI and J. Aron &Company. These entities and other
entities that would require registration under the CFTC or
SECrules will be subject to regulatory capital requirements,
which have not yet been finalized by the CFTCand SEC.
The interaction among the Dodd-Frank Act, other reform
initiatives contemplated by the Agencies, the Basel
Committee’s proposed and announced changes and other
proposed or announced changes from other governmental
entities and regulators (including the European Union (EU)
and the U.K.’s Financial Services Authority (FSA)) adds
further uncertainty to the firm’s future capital and liquidity
requirements and those of the firm’s subsidiaries.
186 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Bank Subsidiaries
GS Bank USA, an FDIC-insured, NewYork State-chartered
bank and a member of the Federal Reserve System, is
supervised and regulated by the Federal Reserve Board, the
FDIC, the New York State Department of Financial
Services and the Consumer Financial Protection Bureau,
and is subject to minimum capital requirements (described
below) that are calculated in a manner similar to those
applicable to bank holding companies. GS Bank USA
computes its capital ratios in accordance with the
regulatory capital requirements currently applicable to state
member banks, which are based on Basel 1 as implemented
by the Federal Reserve Board, for purposes of assessing the
adequacy of its capital. Under the regulatory framework for
prompt corrective action that is applicable to GS Bank
USA, in order to be considered a “well-capitalized”
depository institution, GS Bank USA must maintain a
Tier 1 capital ratio of at least 6%, a total capital ratio of at
least 10% and a Tier 1 leverage ratio of at least 5%.
GS Bank USA has agreed with the Federal Reserve Board to
maintain minimum capital ratios in excess of these “well-
capitalized” levels. Accordingly, for a period of time,
GS Bank USA is expected to maintain a Tier 1 capital ratio
of at least 8%, a total capital ratio of at least 11% and a
Tier 1 leverage ratio of at least 6%. As noted in the table
below, GS Bank USA was in compliance with these
minimum capital requirements as of December 2012 and
December 2011.
The table below presents information regarding GS Bank
USA’s regulatory capital ratios under Basel 1 as
implemented by the Federal Reserve Board.
As of December
$ in millions 2012 2011
Tier 1 capital $ 20,704 $ 19,251
Tier 2 capital $ 39 $ 6
Total capital $ 20,743 $ 19,257
Risk-weighted assets $109,669 $112,824
Tier 1 capital ratio 18.9% 17.1%
Total capital ratio 18.9% 17.1%
Tier 1 leverage ratio 17.6% 18.5%
Effective January 1, 2013, GS Bank USA implemented the
revised market risk regulatory framework outlined above.
These changes resulted in increased regulatory capital
requirements for market risk, and will be reflected in all of
GS Bank USA’s Basel-based capital ratios for periods
beginning on or after January 1, 2013.
GS Bank USA is also currently working to implement the
Basel 2 framework, as implemented by the Federal Reserve
Board. GS Bank USA will adopt Basel 2 once approved to
do so by regulators.
In addition, the capital requirements for GS Bank USA are
expected to be impacted by the June 2012 proposed
modifications to the Agencies’ capital adequacy regulations
outlined above, including the requirements of a floor to the
advanced risk-based capital ratios. If enacted as proposed,
these proposals would also change the regulatory
framework for prompt corrective action that is applicable
to GS Bank USA by, among other things, introducing a
common equity Tier 1 ratio requirement, increasing the
minimum Tier 1 capital ratio requirement and introducing
a supplementary leverage ratio as a component of the
prompt corrective action analysis. GS Bank USA will also
be impacted by aspects of the Dodd-Frank Act, including
newstress tests.
The deposits of GS Bank USA are insured by the FDIC to
the extent provided by law. The Federal Reserve Board
requires depository institutions to maintain cash reserves
with a Federal Reserve Bank. The amount deposited by the
firm’s depository institution held at the Federal Reserve
Bank was approximately $58.67 billion and $40.06 billion
as of December 2012 and December 2011, respectively,
which exceeded required reserve amounts by $58.59 billion
and $39.51 billion as of December 2012 and
December 2011, respectively.
Transactions between GS Bank USA and its subsidiaries
and Group Inc. and its subsidiaries and affiliates (other
than, generally, subsidiaries of GS Bank USA) are regulated
by the Federal Reserve Board. These regulations generally
limit the types and amounts of transactions (including
credit extensions from GS Bank USA) that may take place
and generally require those transactions to be on market
terms or better to GS Bank USA.
The firm’s principal non-U.S. bank subsidiaries include
GSIB, a wholly-owned credit institution, regulated by the
FSA, and GS Bank Europe, a wholly-owned credit
institution, regulated by the Central Bank of Ireland, which
are both subject to minimum capital requirements. As of
December 2012 and December 2011, GSIB and GS Bank
Europe were both in compliance with all regulatory capital
requirements. On January 18, 2013, GS Bank Europe
surrendered its banking license to the Central Bank of
Ireland after transferring its deposits to GSIB.
Goldman Sachs 2012 Annual Report 187
Notes to Consolidated Financial Statements
Broker-Dealer Subsidiaries
The firm’s U.S. regulated broker-dealer subsidiaries include
GS&Co. and GSEC. GS&Co. and GSECare registered U.S.
broker-dealers and futures commission merchants, and are
subject to regulatory capital requirements, including those
imposed by the SEC, the CFTC, Chicago Mercantile
Exchange, the Financial Industry Regulatory Authority,
Inc. (FINRA) and the National Futures Association.
Rule 15c3-1 of the SEC and Rule 1.17 of the CFTC specify
uniform minimum net capital requirements, as defined, for
their registrants, and also effectively require that a
significant part of the registrants’ assets be kept in relatively
liquid form. GS&Co. and GSEC have elected to compute
their minimum capital requirements in accordance with the
“Alternative Net Capital Requirement” as permitted by
Rule 15c3-1.
As of December 2012 and December 2011, GS&Co. had
regulatory net capital, as defined by Rule 15c3-1, of
$14.12 billion and $11.24 billion, respectively, which
exceeded the amount required by $12.42 billion and
$9.34 billion, respectively. As of December 2012 and
December 2011, GSEC had regulatory net capital, as
defined by Rule 15c3-1, of $2.02 billion and $2.10 billion,
respectively, which exceeded the amount required by
$1.92billion and $2.00 billion, respectively.
In addition to its alternative minimum net capital
requirements, GS&Co. is also required to hold tentative net
capital in excess of $1 billion and net capital in excess of
$500 million in accordance with the market and credit risk
standards of Appendix E of Rule 15c3-1. GS&Co. is also
required to notify the SEC in the event that its tentative net
capital is less than $5 billion. As of December 2012 and
December 2011, GS&Co. had tentative net capital and net
capital in excess of both the minimum and the
notificationrequirements.
Insurance Subsidiaries
The firm has U.S. insurance subsidiaries that are subject to
state insurance regulation and oversight in the states in
which they are domiciled and in the other states in which
they are licensed. In addition, certain of the firm’s insurance
subsidiaries outside of the U.S. are regulated by the FSAand
certain are regulated by the Bermuda Monetary Authority.
The firm’s insurance subsidiaries were in compliance with
all regulatory capital requirements as of December 2012
and December 2011.
Other Non-U.S. Regulated Subsidiaries
The firm’s principal non-U.S. regulated subsidiaries include
GSI and Goldman Sachs Japan Co., Ltd. (GSJCL). GSI, the
firm’s regulated U.K. broker-dealer, is subject to the capital
requirements imposed by the FSA. GSJCL, the firm’s
regulated Japanese broker-dealer, is subject to the capital
requirements imposed by Japan’s Financial Services
Agency. As of December 2012 and December 2011, GSI
and GSJCL were in compliance with their local capital
adequacy requirements. Certain other non-U.S. subsidiaries
of the firm are also subject to capital adequacy
requirements promulgated by authorities of the countries in
which they operate. As of December 2012 and
December 2011, these subsidiaries were in compliance with
their local capital adequacy requirements.
Restrictions on Payments
The regulatory requirements referred to above restrict
Group Inc.’s ability to withdraw capital from its regulated
subsidiaries. As of December 2012 and December 2011,
Group Inc. was required to maintain approximately
$31.01 billion and $25.53 billion, respectively, of minimum
equity capital in these regulated subsidiaries. This minimum
equity capital requirement includes certain restrictions
imposed by federal and state laws as to the payment of
dividends to Group Inc. by its regulated subsidiaries. In
addition to limitations on the payment of dividends
imposed by federal and state laws, the Federal Reserve
Board, the FDIC and the New York State Department of
Financial Services have authority to prohibit or to limit the
payment of dividends by the banking organizations they
supervise (including GS Bank USA) if, in the relevant
regulator’s opinion, payment of a dividend would
constitute an unsafe or unsound practice in the light of the
financial condition of the banking organization.
188 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Note 21.
Earnings Per Common Share
Basic earnings per common share (EPS) is calculated by
dividing net earnings applicable to common shareholders
by the weighted average number of common shares
outstanding. Common shares outstanding includes
common stock and RSUs for which no future service is
required as a condition to the delivery of the underlying
common stock. Diluted EPS includes the determinants of
basic EPS and, in addition, reflects the dilutive effect of the
common stock deliverable for stock warrants and options
and for RSUs for which future service is required as a
condition to the delivery of the underlying common stock.
The table below presents the computations of basic and
diluted EPS.
Year Ended December
in millions, except per share amounts 2012 2011 2010
Numerator for basic and diluted EPS — net earnings applicable to common shareholders $7,292 $2,510 $7,713
Denominator for basic EPS — weighted average number of common shares 496.2 524.6 542.0
Effect of dilutive securities:
RSUs 11.3 14.6 15.0
Stock options and warrants 8.6 17.7 28.3
Dilutive potential common shares 19.9 32.3 43.3
Denominator for diluted EPS — weighted average number of common shares and dilutive
potential common shares 516.1 556.9 585.3
Basic EPS $14.63 $ 4.71 $14.15
Diluted EPS 14.13 4.51 13.18
In the table above, unvested share-based payment awards
that have non-forfeitable rights to dividends or dividend
equivalents are treated as a separate class of securities in
calculating EPS. The impact of applying this methodology
was a reduction in basic EPS of $0.07 for both the years
ended December 2012 and December 2011, and $0.08 for
the year ended December 2010.
The diluted EPS computations in the table above do not
include the following:
Year Ended December
in millions 2012 2011 2010
Number of antidilutive RSUs and common shares underlying antidilutive stock options and warrants 52.4 9.2 6.2
Goldman Sachs 2012 Annual Report 189
Notes to Consolidated Financial Statements
Note 22.
Transactions with Affiliated Funds
The firmhas formed numerous nonconsolidated investment
funds with third-party investors. As the firm generally acts
as the investment manager for these funds, it is entitled to
receive management fees and, in certain cases, advisory fees
or incentive fees from these funds. Additionally, the firm
invests alongside the third-party investors in certain funds.
The tables below present fees earned from affiliated funds,
fees receivable from affiliated funds and the aggregate
carrying value of the firm’s interests in affiliated funds.
Year Ended December
in millions 2012 2011 2010
Fees earned from affiliated funds $2,935 $2,789 $2,882
As of December
in millions 2012 2011
Fees receivable from funds $ 704 $ 721
Aggregate carrying value of interests in funds 14,725 14,960
As of December 2012 and December 2011, the firm had
outstanding loans and guarantees to certain of its funds of
$582 million and $289 million, respectively, which are
collateralized by certain fund assets. These amounts relate
primarily to certain real estate funds for which the firm
voluntarily provided financial support to alleviate liquidity
constraints during the financial crisis and, more recently, to
enable them to fund investment opportunities. As of
December 2012 and December 2011, the firm had no
outstanding commitments to extend credit to these funds.
The Volcker Rule, as currently drafted, would restrict the
firm from providing additional voluntary financial support
to these funds after July 2014 (subject to extension by the
Federal Reserve Board). As a general matter, in the ordinary
course of business, the firm does not expect to provide
additional voluntary financial support to these funds;
however, in the event that such support is provided, the
amount of any such support is not expected to be
material. In addition, in the ordinary course of business, the
firm may also engage in other activities with these funds,
including, among others, securities lending, trade
execution, market making, custody, and acquisition and
bridge financing. See Note 18 for the firm’s investment
commitments related to these funds.
190 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Note 23.
Interest Income and Interest Expense
Interest income is recorded on an accrual basis based on
contractual interest rates. The table below presents the
sources of interest income and interest expense.
Year Ended December
in millions 2012 2011 2010
Interest income
Deposits with banks $ 156 $ 125 $ 86
Securities borrowed, securities purchased under agreements to resell and federal funds sold
1
(77) 666 540
Financial instruments owned, at fair value 9,817 10,718 10,346
Other interest
2
1,485 1,665 1,337
Total interest income 11,381 13,174 12,309
Interest expense
Deposits 399 280 304
Securities loaned and securities sold under agreements to repurchase 822 905 708
Financial instruments sold, but not yet purchased, at fair value 2,438 2,464 1,859
Short-term borrowings
3
581 526 453
Long-term borrowings
3
3,736 3,439 3,155
Other interest
4
(475) 368 327
Total interest expense 7,501 7,982 6,806
Net interest income $ 3,880 $ 5,192 $ 5,503
1. Includes rebates paid and interest income on securities borrowed.
2. Includes interest income on customer debit balances and other interest-earning assets.
3. Includes interest on unsecured borrowings and other secured financings.
4. Includes rebates received on other interest-bearing liabilities and interest expense on customer credit balances.
Goldman Sachs 2012 Annual Report 191
Notes to Consolidated Financial Statements
Note 24.
Income Taxes
Provision for Income Taxes
Income taxes are provided for using the asset and liability
method under which deferred tax assets and liabilities are
recognized for temporary differences between the financial
reporting and tax bases of assets and liabilities. The firm
reports interest expense related to income tax matters in
“Provision for taxes” and income tax penalties in
“Other expenses.”
The tables below present the components of the
provision/(benefit) for taxes and a reconciliation of the
U.S. federal statutory income tax rate to the firm’s
effective income tax rate.
Year Ended December
in millions 2012 2011 2010
Current taxes
U.S. federal $3,013 $ 405 $1,791
State and local 628 392 325
Non-U.S. 447 204 1,083
Total current tax expense 4,088 1,001 3,199
Deferred taxes
U.S. federal (643) 683 1,516
State and local 38 24 162
Non-U.S. 249 19 (339)
Total deferred tax (benefit)/expense (356) 726 1,339
Provision for taxes $3,732 $1,727 $4,538
Year Ended December
2012 2011 2010
U.S. federal statutory income tax rate 35.0% 35.0% 35.0%
State and local taxes, net of U.S. federal income tax effects 3.8 4.4 2.5
Tax credits (1.0) (1.6) (0.7)
Non-U.S. operations (4.8) (6.7) (2.3)
Tax-exempt income, including dividends (0.5) (2.4) (1.0)
Other 0.8 (0.7) 1.7
1
Effective income tax rate 33.3% 28.0% 35.2%
1. Primarily includes the effect of the SEC settlement of $550 million, substantially all of which is non-deductible.
192 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of
temporary differences between the financial reporting and
tax bases of assets and liabilities. These temporary
differences result in taxable or deductible amounts in future
years and are measured using the tax rates and laws that
will be in effect when such differences are expected to
reverse. Valuation allowances are established to reduce
deferred tax assets to the amount that more likely than not
will be realized. Tax assets and liabilities are presented as a
component of “Other assets” and “Other liabilities and
accrued expenses,” respectively.
The table below presents the significant components of
deferred tax assets and liabilities.
As of December
in millions 2012 2011
Deferred tax assets
Compensation and benefits $2,447 $3,126
Unrealized losses 1,477 849
ASC 740 asset related to unrecognized tax benefits 685 569
Non-U.S. operations 965 662
Foreign tax credits — 12
Net operating losses 222 213
Occupancy-related 119 110
Other comprehensive income-related 114 168
Other, net 435 581
6,464 6,290
Valuation allowance
1
(168) (65)
Total deferred tax assets
2
$6,296 $6,225
Depreciation and amortization 1,230 1,959
Other comprehensive income-related 85 36
Total deferred tax liabilities
2
$1,315 $1,995
1. Relates primarily to the ability to utilize losses in various tax jurisdictions.
2. Before netting within tax jurisdictions.
The firm has recorded deferred tax assets of $222 million
and $213 million as of December 2012 and
December 2011, respectively, in connection with U.S.
federal, state and local and foreign net operating loss
carryforwards. The firm also recorded a valuation
allowance of $60 million and $59 million as of
December 2012 and December 2011, respectively, related
to these net operating loss carryforwards. As of
December 2012, the U.S. federal and foreign net operating
loss carryforwards were $39 million and $640 million,
respectively. If not utilized, the U.S. federal net operating
loss carryforward will begin to expire in 2026. The foreign
net operating loss carryforwards can be carried forward
indefinitely. State and local net operating loss
carryforwards of $1.19 billion will begin to expire in 2013.
If these carryforwards expire, they will not have a material
impact on the firm’s results of operations. The firm
had foreign tax credit carryforwards of $0 and $12 million
as of December 2012 and December 2011, respectively.
The firm recorded a related net deferred income tax asset of
$0 and $6 million as of December 2012 and
December 2011, respectively.
The firm had capital loss carryforwards of $0 and
$6 million as of December 2012 and December 2011,
respectively. The firm recorded a related net deferred
income tax asset of $0 and $2 million as of December 2012
and December 2011, respectively.
The valuation allowance increased by $103 million and
$15 million during 2012 and 2011, respectively. The
increase in 2012 was primarily due to the acquisition of
deferred tax assets considered more likely than not to be
unrealizable. The increase in 2011 was due to losses
considered more likely than not to expire unused.
Goldman Sachs 2012 Annual Report 193
Notes to Consolidated Financial Statements
The firm permanently reinvests eligible earnings of certain
foreign subsidiaries and, accordingly, does not accrue any
U.S. income taxes that would arise if such earnings were
repatriated. As of December 2012 and December 2011, this
policy resulted in an unrecognized net deferred tax liability
of $3.75 billion and $3.32 billion, respectively, attributable
to reinvested earnings of $21.69 billion and $20.63 billion,
respectively.
Unrecognized Tax Benefits
The firmrecognizes tax positions in the financial statements
only when it is more likely than not that the position will be
sustained on examination by the relevant taxing authority
based on the technical merits of the position. A position
that meets this standard is measured at the largest amount
of benefit that will more likely than not be realized on
settlement. A liability is established for differences between
positions taken in a tax return and amounts recognized in
the financial statements.
As of December 2012 and December 2011, the accrued
liability for interest expense related to income tax matters
and income tax penalties was $374 million and
$233 million, respectively. The firmrecognized $95 million,
$21 million and $28 million of interest and income tax
penalties for the years ended December 2012,
December 2011 and December 2010, respectively. It is
reasonably possible that unrecognized tax benefits could
change significantly during the twelve months subsequent
to December 2012 due to potential audit settlements,
however, at this time it is not possible to estimate any
potential change.
The table below presents the changes in the liability for
unrecognized tax benefits. This liability is included in
“Other liabilities and accrued expenses.” See Note 17 for
further information.
As of December
in millions 2012 2011 2010
Balance, beginning of year $1,887 $2,081 $1,925
Increases based on tax positions related to the current year 190 171 171
Increases based on tax positions related to prior years 336 278 162
Decreases related to tax positions of prior years (109) (41) (104)
Decreases related to settlements (35) (638) (128)
Acquisitions/(dispositions) (47) 47 56
Exchange rate fluctuations 15 (11) (1)
Balance, end of year $2,237 $1,887 $2,081
Related deferred income tax asset
1
685 569 972
Net unrecognized tax benefit
2
$1,552 $1,318 $1,109
1. Included in “Other assets.” See Note 12.
2. If recognized, the net tax benefit would reduce the firm’s effective income tax rate.
194 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Regulatory Tax Examinations
The firm is subject to examination by the U.S. Internal
Revenue Service (IRS) and other taxing authorities in
jurisdictions where the firm has significant business
operations, such as the United Kingdom, Japan, Hong
Kong, Korea and various states, such as NewYork. The tax
years under examination vary by jurisdiction. The firm
believes that during 2013, certain audits have a reasonable
possibility of being completed. The firm does not expect
completion of these audits to have a material impact on the
firm’s financial condition but it may be material to
operating results for a particular period, depending, in part,
on the operating results for that period.
The table below presents the earliest tax years that remain
subject to examination by major jurisdiction.
Jurisdiction
As of
December 2012
U.S. Federal
1
2005
New York State and City
2
2004
United Kingdom 2007
Japan
3
2008
Hong Kong 2005
Korea 2008
1. IRS examination of fiscal 2008 through calendar 2010 began during 2011. IRS
examination of fiscal 2005, 2006 and 2007 began during 2008. IRS
examination of fiscal 2003 and 2004 has been completed, but the liabilities
for those years are not yet final. The firm anticipates that the audits of fiscal
2005 through calendar 2010 should be completed during 2013, and the
audits of 2011 through 2012 should begin in 2013.
2. New York State and City examination of fiscal 2004, 2005 and 2006 began
in 2008.
3. Japan National Tax Agency examination of fiscal 2005 through 2009 began in
2010. The examinations have been completed, but the liabilities for 2008 and
2009 are not yet final.
All years subsequent to the above remain open to
examination by the taxing authorities. The firm believes
that the liability for unrecognized tax benefits it has
established is adequate in relation to the potential for
additional assessments.
In January 2013, the firm was accepted into the
Compliance Assurance Process program by the IRS. This
program will allow the firm to work with the IRS to
identify and resolve potential U.S. federal tax issues before
the filing of tax returns. The 2013 tax year will be the first
year examined under the program.
Note 25.
Business Segments
The firm reports its activities in the following four business
segments: Investment Banking, Institutional Client Services,
Investing &Lending and Investment Management.
Basis of Presentation
In reporting segments, certain of the firm’s business lines
have been aggregated where they have similar economic
characteristics and are similar in each of the following
areas: (i) the nature of the services they provide, (ii) their
methods of distribution, (iii) the types of clients they serve
and (iv) the regulatory environments in which they operate.
The cost drivers of the firm taken as a whole —
compensation, headcount and levels of business activity —
are broadly similar in each of the firm’s business segments.
Compensation and benefits expenses in the firm’s segments
reflect, among other factors, the overall performance of the
firm as well as the performance of individual businesses.
Consequently, pre-tax margins in one segment of the firm’s
business may be significantly affected by the performance
of the firm’s other business segments.
The firm allocates assets (including allocations of excess
liquidity and cash, secured client financing and other
assets), revenues and expenses among the four reportable
business segments. Due to the integrated nature of these
segments, estimates and judgments are made in allocating
certain assets, revenues and expenses. Transactions
between segments are based on specific criteria or
approximate third-party rates. Total operating expenses
include corporate items that have not been allocated to
individual business segments. The allocation process is
based on the manner in which management currently views
the performance of the segments.
Goldman Sachs 2012 Annual Report 195
Notes to Consolidated Financial Statements
The segment information presented in the table below is
prepared according to the following methodologies:
‰ Revenues and expenses directly associated with each
segment are included in determining pre-tax earnings.
‰ Net revenues in the firm’s segments include allocations of
interest income and interest expense to specific securities,
commodities and other positions in relation to the cash
generated by, or funding requirements of, such
underlying positions. Net interest is included in segment
net revenues as it is consistent with the way in which
management assesses segment performance.
‰ Overhead expenses not directly allocable to specific
segments are allocated ratably based on direct
segment expenses.
Management believes that the following information
provides a reasonable representation of each segment’s
contribution to consolidated pre-tax earnings and
total assets.
For the Years Ended or as of December
in millions 2012 2011 2010
Investment Banking Net revenues $ 4,926 $ 4,355 $ 4,810
Operating expenses 3,330 2,995 3,459
Pre-tax earnings $ 1,596 $ 1,360 $ 1,351
Segment assets $ 1,712 $ 1,983 $ 1,870
Institutional Client Services Net revenues
1
$ 18,124 $ 17,280 $ 21,796
Operating expenses 12,480 12,837 14,994
Pre-tax earnings $ 5,644 $ 4,443 $ 6,802
Segment assets $825,496 $813,660 $799,775
Investing & Lending Net revenues $ 5,891 $ 2,142 $ 7,541
Operating expenses 2,666 2,673 3,361
Pre-tax earnings/(loss) $ 3,225 $ (531) $ 4,180
Segment assets $ 98,600 $ 94,330 $ 95,373
Investment Management Net revenues $ 5,222 $ 5,034 $ 5,014
Operating expenses 4,294 4,020 4,082
Pre-tax earnings $ 928 $ 1,014 $ 932
Segment assets $ 12,747 $ 13,252 $ 14,314
Total Net revenues $ 34,163 $ 28,811 $ 39,161
Operating expenses 22,956 22,642 26,269
Pre-tax earnings $ 11,207 $ 6,169 $ 12,892
Total assets $938,555 $923,225 $911,332
1. Includes $121 million, $115 million and $111 million for the years ended December 2012, December 2011 and December 2010, respectively, of realized gains on
available-for-sale securities held in the firm’s reinsurance subsidiaries.
Total operating expenses in the table above include the
following expenses that have not been allocated to the
firm’s segments:
‰ charitable contributions of $169 million, $103 million
and $345 million for the years ended December 2012,
December 2011 and December 2010, respectively; and
‰ real estate-related exit costs of $17 million, $14 million
and $28 million for the years ended December 2012,
December 2011 and December 2010, respectively. Real
estate-related exit costs are included in “Depreciation and
amortization” and “Occupancy” in the consolidated
statements of earnings.
Operating expenses related to net provisions for litigation
and regulatory proceedings, previously not allocated to the
firm’s segments, have now been allocated. This allocation is
consistent with the manner in which management currently
views the performance of the firm’s segments.
Reclassifications have been made to previously reported
segment amounts to conformto the current presentation.
196 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
The tables belowpresent the amounts of net interest income
or interest expense included in net revenues, and the
amounts of depreciation and amortization expense
included in pre-tax earnings.
Year Ended December
in millions 2012 2011 2010
Investment Banking $ (15) $ (6) $ —
Institutional Client Services 3,723 4,360 4,692
Investing & Lending 26 635 609
Investment Management 146 203 202
Total net interest income $3,880 $5,192 $5,503
Year Ended December
in millions 2012 2011 2010
Investment Banking $ 164 $ 174 $ 172
Institutional Client Services 796 944 1,109
Investing & Lending 564 563 422
Investment Management 204 188 200
Total depreciation and
amortization
1
$1,738 $1,869 $1,904
1. Includes real estate-related exit costs of $10 million and $1 million for the
years ended December 2012 and December 2010, respectively, that have
not been allocated to the firm’s segments.
Geographic Information
Due to the highly integrated nature of international
financial markets, the firm manages its businesses based on
the profitability of the enterprise as a whole. The
methodology for allocating profitability to geographic
regions is dependent on estimates and management
judgment because a significant portion of the firm’s
activities require cross-border coordination in order to
facilitate the needs of the firm’s clients.
Geographic results are generally allocated as follows:
‰ Investment Banking: location of the client and investment
banking team.
‰ Institutional Client Services: Fixed Income, Currency and
Commodities Client Execution, and Equities (excluding
Securities Services): location of the market-making desk;
Securities Services: location of the primary market for the
underlying security.
‰ Investing & Lending: Investing: location of the
investment; Lending: location of the client.
‰ Investment Management: location of the sales team.
Goldman Sachs 2012 Annual Report 197
Notes to Consolidated Financial Statements
The table below presents the total net revenues, pre-tax
earnings and net earnings of the firm by geographic region
allocated based on the methodology referred to above, as
well as the percentage of total net revenues, pre-tax
earnings and net earnings (excluding Corporate) for each
geographic region.
Year Ended December
$ in millions 2012 2011 2010
Net revenues
Americas
1
$20,159 59% $17,873 62% $21,564 55%
EMEA
2
8,612 25 7,074 25 10,449 27
Asia
3, 4
5,392 16 3,864 13 7,148 18
Total net revenues $34,163 100% $28,811 100% $39,161 100%
Pre-tax earnings
Americas
1
$ 6,960 61% $ 5,307 85% $ 7,303 55%
EMEA
2
2,943 26 1,210 19 3,029 23
Asia
3
1,490 13 (231) (4) 2,933 22
Subtotal 11,393 100% 6,286 100% 13,265 100%
Corporate
5
(186) (117) (373)
Total pre-tax earnings $11,207 $ 6,169 $12,892
Net earnings
Americas
1
$ 4,259 56% $ 3,522 78% $ 4,322 50%
EMEA
2
2,369 31 1,103 24 2,200 26
Asia
3
972 13 (103) (2) 2,083 24
Subtotal 7,600 100% 4,522 100% 8,605 100%
Corporate (125) (80) (251)
Total net earnings $ 7,475 $ 4,442 $ 8,354
1. Substantially all relates to the U.S.
2. EMEA (Europe, Middle East and Africa).
3. Asia also includes Australia and New Zealand.
4. Net revenues in Asia in 2011 primarily reflect lower net revenues in Investing & Lending, principally due to losses from public equities, reflecting a significant decline
in equity markets in Asia during 2011.
5. Consists of charitable contributions of $169 million, $103 million and $345 million for the years ended December 2012, December 2011 and December 2010,
respectively, and real estate-related exit costs of $17 million, $14 million and $28 million for the years ended December 2012, December 2011 and
December 2010, respectively. Net provisions for litigation and regulatory proceedings, previously included in Corporate, have now been allocated to the geographic
regions. Reclassifications have been made to previously reported geographic region amounts to conform to the current presentation.
198 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Note 26.
Credit Concentrations
Credit concentrations may arise from market making,
client facilitation, investing, underwriting, lending and
collateralized transactions and may be impacted by
changes in economic, industry or political factors. The
firm seeks to mitigate credit risk by actively monitoring
exposures and obtaining collateral from counterparties as
deemed appropriate.
While the firm’s activities expose it to many different
industries and counterparties, the firm routinely executes a
high volume of transactions with asset managers,
investment funds, commercial banks, brokers and dealers,
clearing houses and exchanges, which results in significant
credit concentrations.
In the ordinary course of business, the firm may also be
subject to a concentration of credit risk to a particular
counterparty, borrower or issuer, including sovereign
issuers, or to a particular clearing house or exchange.
The table below presents the credit concentrations in assets
held by the firm. As of December 2012 and
December 2011, the firm did not have credit exposure to
any other counterparty that exceeded 2%of total assets.
As of December
$ in millions 2012 2011
U.S. government and federal agency
obligations
1
$114,418 $103,468
% of total assets 12.2% 11.2%
Non-U.S. government and agency
obligations
1, 2
$ 62,252 $ 49,025
% of total assets 6.6% 5.3%
1. Substantially all included in “Financial instruments owned, at fair value” and
“Cash and securities segregated for regulatory and other purposes.”
2. Principally related to Germany, Japan and the United Kingdom as of both
December 2012 and December 2011.
To reduce credit exposures, the firm may enter into
agreements with counterparties that permit the firm to
offset receivables and payables with such counterparties
and/or enable the firm to obtain collateral on an upfront or
contingent basis. Collateral obtained by the firm related to
derivative assets is principally cash and is held by the firm
or a third-party custodian. Collateral obtained by the firm
related to resale agreements and securities borrowed
transactions is primarily U.S. government and federal
agency obligations and non-U.S. government and agency
obligations. See Note 9 for further information about
collateralized agreements and financings.
The table below presents U.S. government and federal
agency obligations, and non-U.S. government and agency
obligations that collateralize resale agreements and
securities borrowed transactions (including those in “Cash
and securities segregated for regulatory and other
purposes”). Because the firm’s primary credit exposure on
such transactions is to the counterparty to the transaction,
the firm would be exposed to the collateral issuer only in
the event of counterparty default.
As of December
in millions 2012 2011
U.S. government and federal agency
obligations $73,477 $ 94,603
Non-U.S. government and agency
obligations
1
64,724 110,178
1. Principally consisting of securities issued by the governments of Germany
and France.
Goldman Sachs 2012 Annual Report 199
Notes to Consolidated Financial Statements
Note 27.
Legal Proceedings
The firm is involved in a number of judicial, regulatory and
arbitration proceedings (including those described below)
concerning matters arising in connection with the conduct
of the firm’s businesses. Many of these proceedings are in
early stages, and many of these cases seek an indeterminate
amount of damages.
Under ASC 450, an event is “reasonably possible” if “the
chance of the future event or events occurring is more than
remote but less than likely” and an event is “remote” if “the
chance of the future event or events occurring is slight.”
Thus, references to the upper end of the range of reasonably
possible loss for cases in which the firm is able to estimate a
range of reasonably possible loss mean the upper end of the
range of loss for cases for which the firm believes the risk of
loss is more than slight. The amounts reserved against such
matters are not significant as compared to the upper end of
the range of reasonably possible loss.
With respect to proceedings described below for which
management has been able to estimate a range of
reasonably possible loss where (i) plaintiffs have claimed an
amount of money damages, (ii) the firm is being sued by
purchasers in an underwriting and is not being indemnified
by a party that the firm believes will pay any judgment, or
(iii) the purchasers are demanding that the firm repurchase
securities, management has estimated the upper end of the
range of reasonably possible loss as being equal to (a) in the
case of (i), the amount of money damages claimed, (b) in the
case of (ii), the amount of securities that the firm sold in the
underwritings and (c) in the case of (iii), the price that
purchasers paid for the securities less the estimated value, if
any, as of December 2012 of the relevant securities, in each
of cases (i), (ii) and (iii), taking into account any factors
believed to be relevant to the particular proceeding or
proceedings of that type. As of the date hereof, the firm has
estimated the upper end of the range of reasonably possible
aggregate loss for such proceedings and for any other
proceedings described below where management has been
able to estimate a range of reasonably possible aggregate
loss to be approximately $3.5 billion.
Management is generally unable to estimate a range of
reasonably possible loss for proceedings other than those
included in the estimate above, including where (i) plaintiffs
have not claimed an amount of money damages, unless
management can otherwise determine an appropriate
amount, (ii) the proceedings are in early stages, (iii) there is
uncertainty as to the likelihood of a class being certified or
the ultimate size of the class, (iv) there is uncertainty as to
the outcome of pending appeals or motions, (v) there are
significant factual issues to be resolved, and/or (vi) there are
novel legal issues presented. However, for these cases,
management does not believe, based on currently available
information, that the outcomes of such proceedings will
have a material adverse effect on the firm’s financial
condition, though the outcomes could be material to the
firm’s operating results for any particular period,
depending, in part, upon the operating results for
suchperiod.
IPO Process Matters. Group Inc. and GS&Co. are among
the numerous financial services companies that have been
named as defendants in a variety of lawsuits alleging
improprieties in the process by which those companies
participated in the underwriting of public offerings.
GS&Co. has been named as a defendant in an action
commenced on May 15, 2002 in New York Supreme
Court, New York County, by an official committee of
unsecured creditors on behalf of eToys, Inc., alleging that
the firm intentionally underpriced eToys, Inc.’s initial
public offering. The action seeks, among other things,
unspecified compensatory damages resulting from the
alleged lower amount of offering proceeds. On appeal from
rulings on GS&Co.’s motion to dismiss, the New York
Court of Appeals dismissed claims for breach of contract,
professional malpractice and unjust enrichment, but
permitted claims for breach of fiduciary duty and fraud to
continue. On remand, the lower court granted GS&Co.’s
motion for summary judgment and, on December 8, 2011,
the appellate court affirmed the lower court’s decision. On
September 6, 2012, the New York Court of Appeals
granted the creditors’ motion for leave to appeal.
Group Inc. and certain of its affiliates have, together with
various underwriters in certain offerings, received
subpoenas and requests for documents and information
from various governmental agencies and self-regulatory
organizations in connection with investigations relating to
the public offering process. Goldman Sachs has cooperated
with these investigations.
200 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
World Online Litigation. In March 2001, a Dutch
shareholders’ association initiated legal proceedings for an
unspecified amount of damages against GSI and others in
Amsterdam District Court in connection with the initial
public offering of World Online in March 2000, alleging
misstatements and omissions in the offering materials and
that the market was artificially inflated by improper public
statements and stabilization activities. Goldman Sachs and
ABN AMRO Rothschild served as joint global
coordinators of the approximately €2.9 billion offering.
GSI underwrote 20,268,846 shares and GS&Co.
underwrote 6,756,282 shares for a total offering price of
approximately €1.16 billion.
The district court rejected the claims against GSI and ABN
AMRO, but found World Online liable in an amount to be
determined. On appeal, the Netherlands Court of Appeals
affirmed in part and reversed in part the decision of the
district court, holding that certain of the alleged disclosure
deficiencies were actionable as to GSI and ABN AMRO.
On further appeal, the Netherlands Supreme Court
affirmed the rulings of the Court of Appeals, except that it
found certain additional aspects of the offering materials
actionable and held that individual investors could
potentially hold GSI and ABN AMRO responsible for
certain public statements and press releases by World
Online and its former CEO. The parties entered into a
definitive settlement agreement, dated July 15, 2011, and
GSI has paid the full amount of its contribution. In the first
quarter of 2012, GSI and ABN AMRO, on behalf of the
underwriting syndicate, entered into a settlement agreement
with respect to a claim filed by another shareholders’
association, and has paid the settlement amount in full.
Other shareholders have made demands for compensation
of alleged damages, and GSI and other syndicate members
are discussing the possibility of settlement with certain of
these shareholders.
Adelphia Communications Fraudulent Conveyance
Litigation. GS&Co. is named as a defendant in two
proceedings commenced in the U.S. Bankruptcy Court for
the Southern District of New York, one on July 6, 2003 by
a creditors committee, and the second on or about
July 31, 2003 by an equity committee of Adelphia
Communications, Inc. Those proceedings were
consolidated in a single amended complaint filed by the
Adelphia Recovery Trust on October 31, 2007. The
complaint seeks, among other things, to recover, as
fraudulent conveyances, approximately $62.9 million
allegedly paid to GS&Co. by Adelphia Communications,
Inc. and its affiliates in respect of margin calls made in the
ordinary course of business on accounts owned by members
of the family that formerly controlled Adelphia
Communications, Inc. The district court assumed
jurisdiction over the action and, on April 8, 2011, granted
GS&Co.’s motion for summary judgment. The plaintiff
appealed on May 6, 2011.
Specialist Matters. Spear, Leeds & Kellogg Specialists
LLC, Spear, Leeds & Kellogg, L.P. and Group Inc. are
among numerous defendants named in purported class
actions brought beginning in October 2003 on behalf of
investors in the U.S. District Court for the Southern District
of New York alleging violations of the federal securities
laws and state common law in connection with NYSE floor
specialist activities. On October 24, 2012, the parties
entered into a definitive settlement agreement, subject to
court approval. The firm has reserved the full amount of its
proposed contribution to the settlement.
Goldman Sachs 2012 Annual Report 201
Notes to Consolidated Financial Statements
Fannie Mae Litigation. GS&Co. was added as a
defendant in an amended complaint filed on
August 14, 2006 in a purported class action pending in the
U.S. District Court for the District of Columbia. The
complaint asserts violations of the federal securities laws
generally arising from allegations concerning Fannie Mae’s
accounting practices in connection with certain Fannie
Mae-sponsored REMIC transactions that were allegedly
arranged by GS&Co. The complaint does not specify a
dollar amount of damages. The other defendants include
Fannie Mae, certain of its past and present officers and
directors, and accountants. By a decision dated
May 8, 2007, the district court granted GS&Co.’s motion
to dismiss the claim against it. The time for an appeal will
not begin to run until disposition of the claims against other
defendants. A motion to stay the action filed by the Federal
Housing Finance Agency (FHFA), which took control of
the foregoing action following Fannie Mae’s
conservatorship, was denied on November 14, 2011.
Compensation-Related Litigation. On January 17, 2008,
Group Inc., its Board, executive officers and members of its
management committee were named as defendants in a
purported shareholder derivative action in the U.S. District
Court for the Eastern District of New York predicting that
the firm’s 2008 Proxy Statement would violate the federal
securities laws by undervaluing certain stock option awards
and alleging that senior management received excessive
compensation for 2007. The complaint seeks, among other
things, an equitable accounting for the allegedly excessive
compensation. Plaintiff’s motion for a preliminary injunction
to prevent the 2008 Proxy Statement from using options
valuations that the plaintiff alleges are incorrect and to
require the amendment of SECForms 4 filed by certain of the
executive officers named in the complaint to reflect the stock
option valuations alleged by the plaintiff was denied, and
plaintiff’s appeal from this denial was dismissed. On
February 13, 2009, the plaintiff filed an amended complaint,
which added purported direct (i.e., non-derivative) claims
based on substantially the same theory. The plaintiff filed a
further amended complaint on March 24, 2010, and the
defendants’ motion to dismiss this further amended
complaint was granted on the ground that dismissal of the
shareholder plaintiff’s prior action relating to the firm’s 2007
Proxy Statement based on the failure to make a demand to
the Board precluded relitigation of demand futility. On
December 19, 2011, the appellate court vacated the order of
dismissal, holding only that preclusion principles did not
mandate dismissal and remanding for consideration of the
alternative grounds for dismissal. On April 18, 2012,
plaintiff disclosed that he no longer is a Group Inc.
shareholder and thus lacks standing to continue to prosecute
the action. On January 7, 2013, the district court dismissed
the claimdue to the plaintiff’s lack of standing and the lack of
any intervening shareholder.
On March 24, 2009, the same plaintiff filed an action in
New York Supreme Court, New York County, against
Group Inc., its directors and certain senior executives
alleging violation of Delaware statutory and common law
in connection with substantively similar allegations
regarding stock option awards. On January 4, 2013,
another purported shareholder moved to intervene as
plaintiff, which defendants have opposed. On
January 15, 2013, the court dismissed the action only as to
the original plaintiff with prejudice due to his lack
of standing.
Mortgage-Related Matters. On April 16, 2010, the SEC
brought an action (SEC Action) under the U.S. federal
securities laws in the U.S. District Court for the Southern
District of New York against GS&Co. and Fabrice Tourre,
a former employee, in connection with a CDO offering
made in early 2007 (ABACUS 2007-AC1 transaction),
alleging that the defendants made materially false and
misleading statements to investors and seeking, among
other things, unspecified monetary penalties. Investigations
of GS&Co. by FINRA and of GSI by the FSA were
subsequently initiated, and Group Inc. and certain of its
affiliates have received subpoenas and requests for
information from other regulators, regarding CDO
offerings, including the ABACUS 2007-AC1 transaction,
and related matters.
On July 14, 2010, GS&Co. entered into a consent agreement
with the SEC, settling all claims made against GS&Co. in the
SEC Action, pursuant to which GS&Co. paid $550 million
of disgorgement and civil penalties, and which was approved
by the U.S. District Court for the Southern District of New
York on July 20, 2010.
202 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
On January 6, 2011, ACA Financial Guaranty Corp. filed
an action against GS&Co. in respect of the
ABACUS 2007-AC1 transaction in New York Supreme
Court, New York County. The complaint includes
allegations of fraudulent inducement, fraudulent
concealment and unjust enrichment and seeks at least
$30 million in compensatory damages, at least $90 million
in punitive damages and unspecified disgorgement. On
April 25, 2011, the plaintiff filed an amended complaint
and, on June 3, 2011, GS&Co. moved to dismiss the
amended complaint. By a decision dated April 23, 2012, the
court granted the motion to dismiss as to the unjust
enrichment claim and denied the motion as to the other
claims, and on May 29, 2012, GS&Co. appealed the
decision to the extent that its motion was denied and filed
counterclaims for breach of contract and fraudulent
inducement, and third-party claims against ACA
Management, LLC for breach of contract, unjust
enrichment and indemnification. ACA Financial Guaranty
Corp. and ACA Management, LLC moved to dismiss
GS&Co.’s counterclaims and third-party claims on
August 31, 2012. On January 30, 2013, the court granted
ACA’s motion for leave to file an amended complaint
naming a third party to the ABACUS 2007-AC1
transaction as an additional defendant.
Since April 23, 2010, the Board has received letters from
shareholders demanding that the Board take action to
address alleged misconduct by GS&Co., the Board and
certain officers and employees of Group Inc. and its
affiliates. These demands, which the Board has rejected,
generally alleged misconduct in connection with the firm’s
securitization practices, including the ABACUS 2007-AC1
transaction, the alleged failure by Group Inc. to adequately
disclose the SEC investigation that led to the SEC Action,
and Group Inc.’s 2009 compensation practices. In addition,
the Board has received books and records demands from
several shareholders for materials relating to, among other
subjects, the firm’s mortgage servicing and foreclosure
activities, participation in federal programs providing
assistance to financial institutions and homeowners, loan
sales to Fannie Mae and Freddie Mac, mortgage-related
activities and conflicts management.
Beginning April 26, 2010, a number of purported securities
law class actions have been filed in the U.S. District Court
for the Southern District of New York challenging the
adequacy of Group Inc.’s public disclosure of, among other
things, the firm’s activities in the CDO market and the SEC
investigation that led to the SEC Action. The purported
class action complaints, which name as defendants Group
Inc. and certain officers and employees of Group Inc. and
its affiliates, have been consolidated, generally allege
violations of Sections 10(b) and 20(a) of the Exchange Act
and seek unspecified damages. Plaintiffs filed a
consolidated amended complaint on July 25, 2011. On
October 6, 2011, the defendants moved to dismiss, and by a
decision dated June 21, 2012, the district court dismissed
the claims based on Group Inc.’s not disclosing that it had
received a “Wells” notice from the staff of the SEC related
to the ABACUS 2007-AC1 transaction, but permitted the
plaintiffs’ other claims to proceed.
On February 1, 2013, a putative shareholder derivative
action was filed in the U.S. District Court for the Southern
District of New York against Group Inc. and certain of its
officers and directors in connection with mortgage-related
activities during 2006 and 2007, including three CDO
offerings. The derivative complaint, which is based on
similar allegations to those at issue in the consolidated class
action discussed above and purported shareholder
derivative actions that were previously dismissed, includes
allegations of breach of fiduciary duty, challenges the
accuracy and adequacy of Group Inc.’s disclosure and
seeks, among other things, declaratory relief, unspecified
compensatory and punitive damages and restitution from
the individual defendants and certain corporate
governance reforms.
In June 2012, the Board received a demand from a
shareholder that the Board investigate and take action
relating to the firm’s mortgage-related activities and to
stock sales by certain directors and executives of the firm.
On February 15, 2013, this shareholder filed a putative
shareholder derivative action in the New York Supreme
Court, New York County, against Group Inc. and certain
current or former directors and employees, based on these
activities and stock sales. The derivative complaint includes
allegations of breach of fiduciary duty, unjust enrichment,
abuse of control, gross mismanagement and corporate
waste, and seeks, among other things, unspecified monetary
damages, disgorgement of profits and certain corporate
governance and disclosure reforms.
Goldman Sachs 2012 Annual Report 203
Notes to Consolidated Financial Statements
GS&Co., Goldman Sachs Mortgage Company (GSMC)
and GS Mortgage Securities Corp. (GSMSC) and three
current or former Goldman Sachs employees are defendants
in a putative class action commenced on
December 11, 2008 in the U.S. District Court for the
Southern District of New York brought on behalf of
purchasers of various mortgage pass-through certificates
and asset-backed certificates issued by various
securitization trusts established by the firm and
underwritten by GS&Co. in 2007. The complaint generally
alleges that the registration statement and prospectus
supplements for the certificates violated the federal
securities laws, and seeks unspecified compensatory
damages and rescission or rescissionary damages.
Following dismissals of certain of the plaintiff’s claims
under the initial and three amended complaints, on
May 5, 2011, the court granted plaintiff’s motion for entry
of a final judgment dismissing all its claims, thereby
allowing plaintiff to appeal. The plaintiff appealed fromthe
dismissal with respect to all 17 of the offerings included in
its original complaint. By a decision dated
September 6, 2012, the U.S. Court of Appeals for the
Second Circuit affirmed the district court’s dismissal of
plaintiff’s claims with respect to 10 of the offerings included
in plaintiff’s original complaint but vacated the dismissal
and remanded the case to the district court with
instructions to reinstate the plaintiff’s claims with respect to
the other seven offerings. On October 26, 2012, the
defendants filed a petition for certiorari with the U.S.
Supreme Court seeking review of the Second Circuit
decision. On October 31, 2012, the plaintiff served
defendants with a fourth amended complaint relating to
those seven offerings, plus seven additional offerings. On
June 3, 2010, another investor (who had unsuccessfully
sought to intervene in the action) filed a separate putative
class action asserting substantively similar allegations
relating to one of the offerings included in the initial
plaintiff’s complaint. The district court twice granted
defendants’ motions to dismiss this separate action, both
times with leave to replead. On July 9, 2012, that separate
plaintiff filed a second amended complaint, and the
defendants moved to dismiss on September 21, 2012. On
December 26, 2012, that separate plaintiff filed a motion to
amend the second amended complaint to add claims with
respect to two additional offerings included in the initial
plaintiff’s complaint. The securitization trusts issued, and
GS&Co. underwrote, approximately $11 billion principal
amount of certificates to all purchasers in the fourteen
offerings at issue in the complaints.
Group Inc., GS&Co., GSMC and GSMSC are among the
defendants in a separate putative class action commenced
on February 6, 2009 in the U.S. District Court for the
Southern District of New York brought on behalf of
purchasers of various mortgage pass-through certificates
and asset-backed certificates issued by various
securitization trusts established by the firm and
underwritten by GS&Co. in 2006. The other original
defendants include three current or former Goldman Sachs
employees and various rating agencies. The second
amended complaint generally alleges that the registration
statement and prospectus supplements for the certificates
violated the federal securities laws, and seeks unspecified
compensatory and rescissionary damages. Defendants
moved to dismiss the second amended complaint. On
January 12, 2011, the district court granted the motion to
dismiss with respect to offerings in which plaintiff had not
purchased securities as well as all claims against the rating
agencies, but denied the motion to dismiss with respect to a
single offering in which the plaintiff allegedly purchased
securities. These trusts issued, and GS&Co. underwrote,
approximately $698 million principal amount of
certificates to all purchasers in the offerings at issue in the
complaint (excluding those offerings for which the claims
have been dismissed). On February 2, 2012, the district
court granted the plaintiff’s motion for class certification
and on June 13, 2012, the U.S. Court of Appeals for the
Second Circuit granted defendants’ petition to review that
ruling. On November 8, 2012, the court approved a
settlement between the parties, and GS&Co. has paid the
full amount of the settlement into an escrow account. The
time for any appeal from the approval of the settlement
has expired.
204 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
On September 30, 2010, a putative class action was filed in
the U.S. District Court for the Southern District of New
York against GS&Co., Group Inc. and two former
GS&Co. employees on behalf of investors in $821 million
of notes issued in 2006 and 2007 by two synthetic CDOs
(Hudson Mezzanine 2006-1 and 2006-2). The complaint,
which was amended on February 4, 2011, asserts federal
securities law and common law claims, and seeks
unspecified compensatory, punitive and other damages.
The defendants moved to dismiss on April 5, 2011, and the
motion was granted as to plaintiff’s claim of market
manipulation and denied as to the remainder of plaintiff’s
claims by a decision dated March 21, 2012. On
May 21, 2012, the defendants counterclaimed for breach of
contract and fraud. On December 17, 2012, the plaintiff
moved for class certification.
GS&Co., GSMC and GSMSC are among the defendants in
a lawsuit filed in August 2011 by CIFG Assurance of North
America, Inc. (CIFG) in New York Supreme Court, New
York County. The complaint alleges that CIFG was
fraudulently induced to provide credit enhancement for a
2007 securitization sponsored by GSMC, and seeks, among
other things, the repurchase of $24.7 million in aggregate
principal amount of mortgages that CIFG had previously
stated to be non-conforming, an accounting for any
proceeds associated with mortgages discharged from the
securitization and unspecified compensatory damages. On
October 17, 2011, the Goldman Sachs defendants moved to
dismiss. By a decision dated May 1, 2012, the court
dismissed the fraud and accounting claims but denied the
motion as to certain breach of contract claims that were
also alleged. On June 6, 2012, the Goldman Sachs
defendants filed counterclaims for breach of contract. In
addition, the parties have each appealed the court’s
May 1, 2012 decision to the extent adverse. The parties
have been ordered to mediate, and proceedings in the trial
court have been stayed pending mediation.
In addition, on January 15, 2013, CIFG filed a complaint
against GS&Co. in New York Supreme Court, New York
County, alleging that GS&Co. falsely represented that a
third party would independently select the collateral for a
2006 CDO. CIFG seeks unspecified compensatory and
punitive damages, including approximately $10 million in
connection with its purchase of notes and over $30 million
for payments to discharge alleged liabilities arising from its
issuance of a financial guaranty insurance policy
guaranteeing payment on a credit default swap referencing
the CDO.
Various alleged purchasers of, and counterparties involved
in transactions relating to, mortgage pass-through
certificates, CDOs and other mortgage-related products
(including certain Allstate affiliates, Bank Hapoalim B.M.,
Basis Yield Alpha Fund (Master), Bayerische Landesbank,
Cambridge Place Investment Management Inc., the
Charles Schwab Corporation, Deutsche Zentral-
Genossenschaftbank, the FDIC (as receiver for Guaranty
Bank), the Federal Home Loan Banks of Boston, Chicago,
Indianapolis and Seattle, the FHFA (as conservator for
Fannie Mae and Freddie Mac), HSH Nordbank, IKB
Deutsche Industriebank AG, Landesbank Baden-
Württemberg, Joel I. Sher (Chapter 11 Trustee) on behalf of
TMST, Inc. (TMST), f/k/a Thornburg Mortgage, Inc. and
certain TMST affiliates, John Hancock and related parties,
Massachusetts Mutual Life Insurance Company,
MoneyGram Payment Systems, Inc., National Australia
Bank, the National Credit Union Administration, Phoenix
Light SF Limited and related parties, Prudential Insurance
Company of America and related parties, Royal Park
Investments SA/NV, Sealink Funding Limited, Stichting
Pensioenfonds ABP, The Union Central Life Insurance
Company, Ameritas Life Insurance Corp., Acacia Life
Insurance Company, Watertown Savings Bank, and The
Western and Southern Life Insurance Co.) have filed
complaints or summonses with notice in state and federal
court or initiated arbitration proceedings against firm
affiliates, generally alleging that the offering documents for
the securities that they purchased contained untrue
statements of material fact and material omissions and
generally seeking rescission and/or damages. Certain of
these complaints allege fraud and seek punitive damages.
Certain of these complaints also name other firms
as defendants.
A number of other entities (including American
International Group, Inc. (AIG), Deutsche Bank National
Trust Company, John Hancock and related parties, M&T
Bank, Norges Bank Investment Management and Selective
Insurance Company) have threatened to assert claims of
various types against the firm in connection with various
mortgage-related transactions, and the firm has entered
into agreements with a number of these entities to toll the
relevant statute of limitations.
Goldman Sachs 2012 Annual Report 205
Notes to Consolidated Financial Statements
As of the date hereof, the aggregate notional amount of
mortgage-related securities sold to plaintiffs in active cases
brought against the firm where those plaintiffs are seeking
rescission of such securities was approximately
$20.7 billion (which does not reflect adjustment for any
subsequent paydowns or distributions or any residual value
of such securities, statutory interest or any other
adjustments that may be claimed). This amount does not
include the threatened claims noted above, potential claims
by these or other purchasers in the same or other mortgage-
related offerings that have not actually been brought
against the firm, or claims that have been dismissed.
In June 2011, Heungkuk Life Insurance Co. Limited
(Heungkuk) filed a criminal complaint against certain past
and present employees of the firm in South Korea relating
to its purchase of a CDO securitization from Goldman
Sachs. Heungkuk had earlier initiated civil litigation against
the firm relating to this matter. This civil litigation has now
been settled and, on January 23, 2013, Heungkuk
withdrewthe criminal complaint in its entirety.
Group Inc. and GS Bank USA have entered into a Consent
Order and a settlement in principle with the Federal
Reserve Board relating to the servicing of residential
mortgage loans and foreclosure practices. In addition, GS
Bank USA has entered into an Agreement on Mortgage
Servicing Practices with the New York State Department of
Financial Services, Litton and Ocwen. See Note 18 for
information about these settlements.
Group Inc., GS&Co. and GSMC are among the numerous
financial services firms named as defendants in a qui tam
action originally filed by a relator on April 7, 2010
purportedly on behalf of the City of Chicago and State of
Illinois in Cook County, Illinois Circuit Court asserting
claims under the Illinois Whistleblower Reward and
Protection Act and Chicago False Claims Act, based on
allegations that defendants had falsely certified compliance
with various Illinois laws, which were purportedly violated
in connection with mortgage origination and servicing
activities. The complaint, which was originally filed under
seal, seeks treble damages and civil penalties. Plaintiff filed
an amended complaint on December 28, 2011, naming
GS&Co. and GSMC, among others, as additional
defendants and a second amended complaint on
February 8, 2012. On March 12, 2012, the action was
removed to the U.S. District Court for the Northern District
of Illinois, and on September 17, 2012 the district court
granted the plaintiff’s motion to remand the action to state
court. On November 16, 2012, the defendants moved to
dismiss and to stay discovery.
Group Inc., Litton and Ocwen are defendants in a putative
class action filed on January 23, 2013 in the U.S. District
Court for the Southern District of New York generally
challenging the procurement manner and scope of “force-
placed” hazard insurance arranged by Litton when
homeowners failed to arrange for insurance as required by
their mortgages. The complaint asserts claims for breach of
contract, breach of fiduciary duty, misappropriation,
conversion, unjust enrichment and violation of Florida
unfair practices law, and seeks unspecified compensatory
and punitive damages as well as declaratory and
injunctive relief.
The firm has also received, and continues to receive,
requests for information and/or subpoenas from federal,
state and local regulators and law enforcement authorities,
relating to the mortgage-related securitization process,
subprime mortgages, CDOs, synthetic mortgage-related
products, particular transactions involving these products,
and servicing and foreclosure activities, and is cooperating
with these regulators and other authorities, including in
some cases agreeing to the tolling of the relevant statute
of limitations. See also “Financial Crisis-Related
Matters”below.
The firm expects to be the subject of additional putative
shareholder derivative actions, purported class actions,
rescission and “put back” claims and other litigation,
additional investor and shareholder demands, and additional
regulatory and other investigations and actions with respect
to mortgage-related offerings, loan sales, CDOs, and
servicing and foreclosure activities. See Note 18 for further
information regarding mortgage-related contingencies.
206 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Private Equity-Sponsored Acquisitions Litigation.
Group Inc. and “GS Capital Partners” are among
numerous private equity firms and investment banks named
as defendants in a federal antitrust action filed in the U.S.
District Court for the District of Massachusetts in
December 2007. As amended, the complaint generally
alleges that the defendants have colluded to limit
competition in bidding for private equity-sponsored
acquisitions of public companies, thereby resulting in lower
prevailing bids and, by extension, less consideration for
shareholders of those companies in violation of Section 1 of
the U.S. Sherman Antitrust Act and common law. The
complaint seeks, among other things, treble damages in an
unspecified amount. Defendants moved to dismiss on
August 27, 2008. The district court dismissed claims
relating to certain transactions that were the subject of
releases as part of the settlement of shareholder actions
challenging such transactions, and by an order dated
December 15, 2008 otherwise denied the motion to dismiss.
On April 26, 2010, the plaintiffs moved for leave to
proceed with a second phase of discovery encompassing
additional transactions. On August 18, 2010, the court
permitted discovery on eight additional transactions, and
the plaintiffs filed a fourth amended complaint on
October 7, 2010. On January 13, 2011, the court granted
defendants’ motion to dismiss certain aspects of the fourth
amended complaint. On March 1, 2011, the court granted
the motion filed by certain defendants, including Group
Inc., to dismiss another claim of the fourth amended
complaint on the grounds that the transaction was the
subject of a release as part of the settlement of a shareholder
action challenging the transaction. On June 14, 2012, the
plaintiffs filed a fifth amended complaint encompassing
additional transactions. On July 18, 2012, the court
granted defendants’ motion to dismiss certain newly
asserted claims on the grounds that certain transactions are
subject to releases as part of settlements of shareholder
actions challenging those transactions, and denied
defendants’ motion to dismiss certain additional claims as
time-barred. On July 23, 2012, the defendants filed
motions for summary judgment.
IndyMac Pass-Through Certificates Litigation.
GS&Co. is among numerous underwriters named as
defendants in a putative securities class action filed on
May 14, 2009 in the U.S. District Court for the Southern
District of New York. As to the underwriters, plaintiffs
allege that the offering documents in connection with
various securitizations of mortgage-related assets violated
the disclosure requirements of the federal securities laws.
The defendants include IndyMac-related entities formed in
connection with the securitizations, the underwriters of the
offerings, certain ratings agencies which evaluated the
credit quality of the securities, and certain former officers
and directors of IndyMac affiliates. On November 2, 2009,
the underwriters moved to dismiss the complaint. The
motion was granted in part on February 17, 2010 to the
extent of dismissing claims based on offerings in which no
plaintiff purchased, and the court reserved judgment as to
the other aspects of the motion. By a decision dated
June 21, 2010, the district court formally dismissed all
claims relating to offerings in which no named plaintiff
purchased certificates (including all offerings underwritten
by GS&Co.), and both granted and denied the defendants’
motions to dismiss in various other respects. On
November 16, 2012 the district court denied the plaintiffs’
motion seeking reinstatement of claims relating to 42
offerings previously dismissed for lack of standing (one of
which was co-underwritten by GS&Co.) without prejudice
to renewal depending on the outcome of the petition for a
writ of certiorari to the U.S. Supreme Court with respect to
the Second Circuit’s decision described above. On
May 17, 2010, four additional investors filed a motion
seeking to intervene in order to assert claims based on
additional offerings (including two underwritten by
GS&Co.). The defendants opposed the motion on the
ground that the putative intervenors’ claims were time-
barred and, on June 21, 2011, the court denied the motion
to intervene with respect to, among others, the claims based
on the offerings underwritten by GS&Co. Certain of the
putative intervenors (including those seeking to assert
claims based on two offerings underwritten by GS&Co.)
have appealed. GS&Co. underwrote approximately
$751 million principal amount of securities to all
purchasers in the offerings at issue in the May 2010 motion
to intervene.
On July 11, 2008, IndyMac Bank was placed under an
FDIC receivership, and on July 31, 2008, IndyMac
Bancorp, Inc. filed for Chapter 7 bankruptcy in the U.S.
Bankruptcy Court in Los Angeles, California.
Goldman Sachs 2012 Annual Report 207
Notes to Consolidated Financial Statements
RALI Pass-Through Certificates Litigation. GS&Co. is
among numerous underwriters named as defendants in a
putative securities class action initially filed in
September 2008 in New York Supreme Court, and
subsequently removed to the U.S. District Court for the
Southern District of New York. As to the underwriters,
plaintiffs allege that the offering documents in connection
with various offerings of mortgage-backed pass-through
certificates violated the disclosure requirements of the
federal securities laws. In addition to the underwriters, the
defendants include Residential Capital, LLC (ResCap),
Residential Accredit Loans, Inc. (RALI), Residential
Funding Corporation (RFC), Residential Funding Securities
Corporation (RFSC), and certain of their officers and
directors. On March 31, 2010, the defendants’ motion to
dismiss was granted in part and denied in part by the
district court, resulting in dismissal on the basis of standing
of all claims relating to offerings in which no plaintiff
purchased securities and, by an order dated
January 3, 2013, the district court denied, without
prejudice, plaintiffs’ motion for reconsideration. In
June and July 2010, the lead plaintiff and five additional
investors moved to intervene in order to assert claims based
on additional offerings (including two underwritten by
GS&Co.). On April 28, 2011, the court granted
defendants’ motion to dismiss as to certain of these claims
(including those relating to one offering underwritten by
GS&Co. based on a release in an unrelated settlement), but
otherwise permitted the intervenor case to proceed. By an
order dated January 3, 2013, the district court denied the
defendants’ motions to dismiss certain of the intervenors’
remaining claims as time barred. Class certification of the
claims based on the pre-intervention offerings was initially
denied by the district court, and that denial was upheld on
appeal; however, following remand, on October 15, 2012,
the district court certified a class in connection with the pre-
intervention offerings. On November 5, 2012, the
defendants filed a petition seeking leave from the U.S.
Court of Appeals to appeal the certification order. By an
order dated January 3, 2013, the district court granted the
plaintiffs’ application to modify the class definition to
include initial purchasers who bought the securities directly
from the underwriters or their agents no later than ten
trading days after the offering date (rather than just on the
offering date). On January 18, 2013, the defendants filed a
supplemental petition seeking leave from the U.S. Court of
Appeals to appeal the order modifying the class definition.
GS&Co. underwrote approximately $1.28 billion principal
amount of securities to all purchasers in the offerings for
which claims have not been dismissed. On May 14, 2012,
ResCap, RALI and RFC filed for Chapter 11 bankruptcy in
the U.S. Bankruptcy Court for the Southern District of New
York and the action has been stayed with respect to them,
RFSCand certain of their officers and directors.
MF Global Securities Litigation. GS&Co. is among
numerous underwriters named as defendants in class action
complaints filed in the U.S. District Court for the Southern
District of New York commencing November 18, 2011.
These complaints generally allege that the offering
materials for two offerings of MF Global Holdings Ltd.
convertible notes (aggregating approximately $575 million
in principal amount) in February 2011 and July 2011,
among other things, failed to describe adequately the
nature, scope and risks of MF Global’s exposure to
European sovereign debt, in violation of the disclosure
requirements of the federal securities laws. On
August 20, 2012, the plaintiffs filed a consolidated
amended complaint and on October 19, 2012, the
defendants filed motions to dismiss the amended complaint.
GS&Co. underwrote an aggregate principal amount of
approximately $214 million of the notes. On
October 31, 2011, MF Global Holdings Ltd. filed for
Chapter 11 bankruptcy in the U.S. Bankruptcy Court in
Manhattan, NewYork.
GS&Co. has also received inquiries from various
governmental and regulatory bodies and self-regulatory
organizations concerning certain transactions with MF
Global prior to its bankruptcy filing. Goldman Sachs is
cooperating with all such inquiries.
208 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Employment-Related Matters. On September 15, 2010,
a putative class action was filed in the U.S. District for the
Southern District of New York by three former female
employees alleging that Group Inc. and GS&Co. have
systematically discriminated against female employees in
respect of compensation, promotion, assignments,
mentoring and performance evaluations. The complaint
alleges a class consisting of all female employees employed
at specified levels by Group Inc. and GS&Co. since
July 2002, and asserts claims under federal and New York
City discrimination laws. The complaint seeks class action
status, injunctive relief and unspecified amounts of
compensatory, punitive and other damages. Group Inc. and
GS&Co. filed a motion to stay the claims of one of the
named plaintiffs and to compel individual arbitration with
that individual, based on an arbitration provision contained
in an employment agreement between Group Inc. and the
individual. On April 28, 2011, the magistrate judge to
whom the district judge assigned the motion denied the
motion, and the district court affirmed the magistrate
judge’s decision on November 15, 2011. Group Inc. and
GS&Co. have appealed that decision to the U.S. Court of
Appeals for the Second Circuit. On June 13, 2011, Group
Inc. and GS&Co. moved to strike the class allegations of
one of the three named plaintiffs based on her failure to
exhaust administrative remedies. On September 29, 2011,
the magistrate judge recommended denial of the motion to
strike and, on January 10, 2012, the district court denied
the motion to strike. On July 22, 2011, Group Inc. and
GS&Co. moved to strike all of the plaintiffs’ class
allegations, and for partial summary judgment as to
plaintiffs’ disparate impact claims. By a decision dated
January 19, 2012, the magistrate judge recommended that
defendants’ motion be denied as premature. The defendants
filed objections to that recommendation with the district
judge and on July 17, 2012, the district court issued a
decision granting in part Group Inc.’s and GS&Co.’s
motion to strike plaintiffs’ class allegations on the ground
that plaintiffs lacked standing to pursue certain equitable
remedies and denying in part Group Inc.’s and GS&Co.’s
motion to strike plaintiffs’ class allegations in their entirety
as premature.
Investment Management Services. Group Inc. and
certain of its affiliates are parties to various civil litigation
and arbitration proceedings and other disputes with clients
relating to losses allegedly sustained as a result of the firm’s
investment management services. These claims generally
seek, among other things, restitution or other
compensatory damages and, in some cases, punitive
damages. In addition, Group Inc. and its affiliates are
subject from time to time to investigations and reviews by
various governmental and regulatory bodies and self-
regulatory organizations in connection with the firm’s
investment management services. Goldman Sachs is
cooperating with all such investigations and reviews.
Goldman Sachs Asset Management International (GSAMI)
is the defendant in an action filed on July 9, 2012 with the
High Court of Justice in London by certain entities
representing Vervoer, a Dutch pension fund, alleging that
GSAMI was negligent in performing its duties as investment
manager in connection with the allocation of the plaintiffs’
funds among asset managers in accordance with asset
allocations provided by plaintiffs and that GSAMI
breached its contractual and common law duties to the
plaintiffs. Specifically, plaintiffs allege that GSAMI caused
their assets to be invested in unsuitable products for an
extended period, thereby causing in excess of €67 million in
losses, and caused themto be under-exposed for a period of
time to certain other investments that performed well,
thereby resulting in foregone potential gains. The plaintiffs
are seeking unspecified monetary damages. On
November 2, 2012, GSAMI served its defense to the
allegations and on December 21, 2012, the plaintiffs served
their reply to the defense.
Goldman Sachs 2012 Annual Report 209
Notes to Consolidated Financial Statements
Financial Advisory Services. Group Inc. and certain of its
affiliates are parties to various civil litigation and
arbitration proceedings and other disputes with clients and
third parties relating to the firm’s financial advisory
activities. These claims generally seek, among other things,
compensatory damages and, in some cases, punitive
damages, and in certain cases allege that the firm did not
appropriately disclose or deal with conflicts of interest. In
addition, Group Inc. and its affiliates are subject from time
to time to investigations and reviews by various
governmental and regulatory bodies and self-regulatory
organizations in connection with conflicts of interest.
Goldman Sachs is cooperating with all such investigations
and reviews.
Group Inc., GS&Co. and The Goldman, Sachs & Co.
L.L.C. are defendants in an action brought by the founders
and former majority shareholders of Dragon Systems, Inc.
(Dragon) on November 18, 2008, alleging that the
plaintiffs incurred losses due to GS&Co.’s financial
advisory services provided in connection with the plaintiffs’
exchange of their purported $300 million interest in
Dragon for stock of Lernout & Hauspie Speech Products,
N.V. (L&H) in 2000. L&H filed for Chapter 11
bankruptcy in the U.S. Bankruptcy Court in Wilmington,
Delaware on November 29, 2000. The action is pending in
the United States District Court for the District of
Massachusetts. The complaint, which was amended in
November 2011 following the 2009 dismissal of certain of
the plaintiffs’ initial claims, seeks unspecified
compensatory, punitive and other damages, and alleges
breach of fiduciary duty, violation of Massachusetts unfair
trade practices laws, negligence, negligent and intentional
misrepresentation, gross negligence, willful misconduct and
bad faith. Former minority shareholders of Dragon have
brought a similar action against GS&Co. with respect to
their purported $49 million interest in Dragon, and this
action has been consolidated with the action described
above. All parties moved for summary judgment. By an
order dated October 31, 2012, the court granted summary
judgment with respect to certain counterclaims and an
indemnification claim brought by the Goldman Sachs
defendants against one of the shareholders, but denied
summary judgment with respect to all other claims. On
January 23, 2013, a jury found in favor of the Goldman
Sachs defendants on the plaintiffs’ claims for negligence,
negligent and intentional misrepresentation, gross
negligence, and breach of fiduciary duty. The plaintiffs’
claims for violation of Massachusetts unfair trade practices
laws will be addressed by the district court and have not yet
been decided.
Sales, Trading and Clearance Practices. Group Inc. and
certain of its affiliates are subject to a number of
investigations and reviews, certain of which are industry-
wide, by various governmental and regulatory bodies and
self-regulatory organizations relating to the sales, trading
and clearance of corporate and government securities and
other financial products, including compliance with the
SEC’s short sale rule, algorithmic and quantitative trading,
futures trading, transaction reporting, securities lending
practices, trading and clearance of credit derivative
instruments, commodities trading, private placement
practices and compliance with the U.S. Foreign Corrupt
Practices Act.
The European Commission announced in April 2011 that it
was initiating proceedings to investigate further numerous
financial services companies, including Group Inc., in
connection with the supply of data related to credit default
swaps and in connection with profit sharing and fee
arrangements for clearing of credit default swaps, including
potential anti-competitive practices. The proceedings in
connection with the supply of data related to credit default
swaps are ongoing. Group Inc.’s current understanding is
that the proceedings related to profit sharing and fee
arrangements for clearing of credit default swaps have been
suspended indefinitely. The firm has received civil
investigative demands from the U.S. Department of Justice
(DOJ) for information on similar matters. Goldman Sachs
is cooperating with the investigations and reviews.
Insider Trading Investigations. From time to time, the
firm and its employees are the subject of or otherwise
involved in regulatory investigations relating to insider
trading, the potential misuse of material nonpublic
information and the effectiveness of the firm’s insider
trading controls and information barriers. It is the firm’s
practice to cooperate fully with any such investigations.
210 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Research Investigations. From time to time, the firm is
the subject of or otherwise involved in regulatory
investigations relating to research practices, including
research independence and interactions between research
analysts and other firm personnel, including investment
banking personnel. It is the firm’s practice to cooperate
fully with any such investigations.
EU Price-Fixing Matter. On July 5, 2011, the European
Commission issued a Statement of Objections to Group Inc.
raising allegations of an industry-wide conspiracy to fix
prices for power cables, including by an Italian cable
company in which certain Goldman Sachs-affiliated
investment funds held ownership interests from 2005 to
2009. The Statement of Objections proposes to hold Group
Inc. jointly and severally liable for some or all of any fine
levied against the cable company under the concept of
parental liability under EUcompetition law.
Municipal Securities Matters. Group Inc. and certain of
its affiliates are subject to a number of investigations and
reviews by various governmental and regulatory bodies and
self-regulatory organizations relating to transactions
involving municipal securities, including wall-cross
procedures and conflict of interest disclosure with respect
to state and municipal clients, the trading and structuring of
municipal derivative instruments in connection with
municipal offerings, political contribution rules,
underwriting of Build America Bonds and the possible
impact of credit default swap transactions on municipal
issuers. Goldman Sachs is cooperating with the
investigations and reviews.
Group Inc., Goldman Sachs Mitsui Marine Derivative
Products, L.P. (GSMMDP) and GS Bank USA are among
numerous financial services firms that have been named as
defendants in numerous substantially identical individual
antitrust actions filed beginning on November 12, 2009
that have been coordinated with related antitrust class
action litigation and individual actions, in which no
Goldman Sachs affiliate is named, for pre-trial proceedings
in the U.S. District Court for the Southern District of New
York. The plaintiffs include individual California municipal
entities and three New York non-profit entities. All of these
complaints against Group Inc., GSMMDP and GS Bank
USA generally allege that the Goldman Sachs defendants
participated in a conspiracy to arrange bids, fix prices and
divide up the market for derivatives used by municipalities
in refinancing and hedging transactions from1992 to 2008.
The complaints assert claims under the federal antitrust
laws and either California’s Cartwright Act or New York’s
Donnelly Act, and seek, among other things, treble
damages under the antitrust laws in an unspecified amount
and injunctive relief. On April 26, 2010, the Goldman
Sachs defendants’ motion to dismiss complaints filed by
several individual California municipal plaintiffs was
denied. On August 19, 2011, Group Inc., GSMMDP and
GS Bank USA were voluntarily dismissed without prejudice
from all actions except one brought by a California
municipal entity.
On August 21, 2008, GS&Co. entered into a settlement in
principle with the Office of the Attorney General of the
State of New York and the Illinois Securities Department
(on behalf of the North American Securities Administrators
Association) regarding auction rate securities. Under the
agreement, Goldman Sachs agreed, among other things,
(i) to offer to repurchase at par the outstanding auction rate
securities that its private wealth management clients
purchased through the firm prior to February 11, 2008,
with the exception of those auction rate securities where
auctions were clearing, (ii) to continue to work with issuers
and other interested parties, including regulatory and
governmental entities, to expeditiously provide liquidity
solutions for institutional investors, and (iii) to pay a
$22.5 million fine. The settlement is subject to approval by
the various states. GS&Co. has entered into consent orders
with New York, Illinois and most other states and is in the
process of doing so with the remaining states.
On September 4, 2008, Group Inc. was named as a
defendant, together with numerous other financial services
firms, in two complaints filed in the U.S. District Court for
the Southern District of New York alleging that the
defendants engaged in a conspiracy to manipulate the
auction securities market in violation of federal antitrust
laws. The actions were filed, respectively, on behalf of
putative classes of issuers of and investors in auction rate
securities and seek, among other things, treble damages in
an unspecified amount. Defendants’ motion to dismiss was
granted on January 26, 2010. On March 1, 2010, the
plaintiffs appealed fromthe dismissal of their complaints.
Goldman Sachs 2012 Annual Report 211
Notes to Consolidated Financial Statements
Beginning in February 2012, GS&Co. was named as
respondent in four FINRA arbitrations filed, respectively,
by the cities of Houston, Texas and Reno, Nevada, a
California school district and a North Carolina municipal
power authority, based on GS&Co.’s role as underwriter
and broker-dealer of the claimants’ issuances of an
aggregate of over $1.8 billion of auction rate securities from
2003 through 2007 (in the Houston arbitration, two other
financial services firms were named as respondents, and in
the North Carolina arbitration, one other financial services
firmwas named). Each claimant alleges that GS&Co. failed
to disclose that it had a practice of placing cover bids on
auctions, and failed to offer the claimant the option of a
formulaic maximum rate (rather than a fixed maximum
rate), and that, as a result, the claimant was forced to
engage in a series of expensive refinancing and conversion
transactions after the failure of the auction market (at an
estimated cost, in the case of Houston, of approximately
$90 million). Houston and Reno also allege that GS&Co.
advised them to enter into interest rate swaps in connection
with their auction rate securities issuances, causing them to
incur additional losses (including, in the case of Reno, a
swap termination obligation of over $8 million). The
claimants assert claims for breach of fiduciary duty,
fraudulent concealment, negligent misrepresentation,
breach of contract, violations of the Exchange Act and state
securities laws, and breach of duties under the rules of the
Municipal Securities Rulemaking Board and the NASD,
and seek unspecified damages. GS&Co. has moved in
federal court to enjoin the Reno and California school
district arbitrations pursuant to an exclusive forum
selection clause in the transaction documents. On
November 26, 2012, this motion was denied with regard
to the Reno arbitration and, on February 8, 2013, this
motion was granted with regard to the California school
district arbitration.
Financial Crisis-Related Matters. Group Inc. and certain
of its affiliates are subject to a number of investigations and
reviews by various governmental and regulatory bodies and
self-regulatory organizations and litigation relating to the
2008 financial crisis. Goldman Sachs is cooperating with
the investigations and reviews.
212 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Note 28.
Employee Benefit Plans
The firm sponsors various pension plans and certain other
postretirement benefit plans, primarily healthcare and life
insurance. The firm also provides certain benefits to former
or inactive employees prior to retirement.
Defined Benefit Pension Plans and Postretirement
Plans
Employees of certain non-U.S. subsidiaries participate in
various defined benefit pension plans. These plans generally
provide benefits based on years of credited service and a
percentage of the employee’s eligible compensation. The
firm maintains a defined benefit pension plan for certain
U.K. employees. As of April 2008, the U.K. defined benefit
plan was closed to new participants, but will continue to
accrue benefits for existing participants. These plans do not
have a material impact on the firm’s consolidated results
of operations.
The firm also maintains a defined benefit pension plan for
substantially all U.S. employees hired prior to
November 1, 2003. As of November 2004, this plan was
closed to new participants and frozen such that existing
participants would not accrue any additional benefits. In
addition, the firm maintains unfunded postretirement
benefit plans that provide medical and life insurance for
eligible retirees and their dependents covered under these
programs. These plans do not have a material impact on the
firm’s consolidated results of operations.
The firm recognizes the funded status of its defined benefit
pension and postretirement plans, measured as the
difference between the fair value of the plan assets and the
benefit obligation, in the consolidated statements of
financial condition. As of December 2012, “Other assets”
and “Other liabilities and accrued expenses” included
$225 million (related to an overfunded pension plan) and
$645 million, respectively, related to these plans. As of
December 2011, “Other assets” and “Other liabilities and
accrued expenses” included $135 million (related to an
overfunded pension plan) and $858 million, respectively,
related to these plans.
Defined Contribution Plans
The firm contributes to employer-sponsored U.S. and non-
U.S. defined contribution plans. The firm’s contribution to
these plans was $221 million, $225 million and
$193 million for the years ended December 2012,
December 2011 and December 2010, respectively.
Goldman Sachs 2012 Annual Report 213
Notes to Consolidated Financial Statements
Note 29.
Employee Incentive Plans
The cost of employee services received in exchange for a
share-based award is generally measured based on the
grant-date fair value of the award. Share-based awards that
do not require future service (i.e., vested awards, including
awards granted to retirement-eligible employees) are
expensed immediately. Share-based awards that require
future service are amortized over the relevant service
period. Expected forfeitures are included in determining
share-based employee compensation expense.
The firm pays cash dividend equivalents on outstanding
RSUs. Dividend equivalents paid on RSUs are generally
charged to retained earnings. Dividend equivalents paid on
RSUs expected to be forfeited are included in compensation
expense. The firm accounts for the tax benefit related to
dividend equivalents paid on RSUs as an increase to
additional paid-in capital.
In certain cases, primarily related to conflicted employment
(as outlined in the applicable award agreements), the firm
may cash settle share-based compensation awards
accounted for as equity instruments. For these awards,
whose terms allow for cash settlement, additional paid-in
capital is adjusted to the extent of the difference between
the value of the award at the time of cash settlement and the
grant-date value of the award.
Stock Incentive Plan
The firm sponsors a stock incentive plan, The Goldman
Sachs Amended and Restated Stock Incentive Plan (SIP),
which provides for grants of incentive stock options,
nonqualified stock options, stock appreciation rights,
dividend equivalent rights, restricted stock, RSUs, awards
with performance conditions and other share-based
awards. In the second quarter of 2003, the SIP was
approved by the firm’s shareholders, effective for grants
after April 1, 2003. The SIP was amended and restated,
effective December 31, 2008 and further amended on
December 20, 2012 to extend its term until Group Inc.’s
2013 Annual Meeting of Shareholders, at which meeting
approval of a new equity compensation plan will be voted
upon by shareholders.
The total number of shares of common stock that may be
delivered pursuant to awards granted under the SIP through
the end of the 2008 fiscal year could not exceed 250 million
shares. The total number of shares of common stock that
may be delivered for awards granted under the SIP in the
2009 fiscal year and each fiscal year thereafter cannot
exceed 5%of the issued and outstanding shares of common
stock, determined as of the last day of the immediately
preceding fiscal year, increased by the number of shares
available for awards in previous years but not covered by
awards granted in such years. As of December 2012 and
December 2011, 188.3 million and 161.0 million shares,
respectively, were available for grant under the SIP.
Restricted Stock Units
The firmgrants RSUs to employees under the SIP, primarily
in connection with year-end compensation and
acquisitions. RSUs are valued based on the closing price of
the underlying shares on the date of grant after taking into
account a liquidity discount for any applicable post-vesting
transfer restrictions. Year-end RSUs generally vest and
underlying shares of common stock deliver as outlined in
the applicable RSU agreements. Employee RSU agreements
generally provide that vesting is accelerated in certain
circumstances, such as on retirement, death and extended
absence. Delivery of the underlying shares of common stock
is conditioned on the grantees satisfying certain vesting and
other requirements outlined in the award agreements. The
table belowpresents the activity related to RSUs.
214 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Restricted Stock
Units Outstanding
Weighted Average
Grant-Date Fair Value of Restricted
Stock Units Outstanding
Future
Service
Required
No Future
Service
Required
Future
Service
Required
No Future
Service
Required
Outstanding, December 2011 14,302,189
4
30,840,580 $139.46 $124.33
Granted
1, 2
6,967,886 4,246,015 84.59 84.92
Forfeited (1,228,200) (68,350) 126.97 122.40
Delivered
3
— (30,980,248) — 120.35
Vested
2
(11,352,354) 11,352,354 125.03 125.03
Outstanding, December 2012 8,689,521
4
15,390,351 116.07 121.99
1. The weighted average grant-date fair value of RSUs granted during the years ended December 2012, December 2011 and December 2010 was $84.72, $141.21 and
$132.64, respectively. The fair value of the RSUs granted during the year ended December 2012, December 2011 and December 2010 includes a liquidity discount
of 21.7%, 12.7% and 13.2%, respectively, to reflect post-vesting transfer restrictions of up to 4 years.
2. The aggregate fair value of awards that vested during the years ended December 2012, December 2011 and December 2010 was $1.57 billion, $2.40 billion and
$4.07 billion, respectively.
3. Includes RSUs that were cash settled.
4. Includes restricted stock subject to future service requirements as of December 2012 and December 2011 of 276,317 and 754,482 shares, respectively.
In the first quarter of 2013, the firm granted to its
employees 16.7 million year-end RSUs, of which
5.7 million RSUs require future service as a condition of
delivery. These awards are subject to additional conditions
as outlined in the award agreements. Generally, shares
underlying these awards, net of required withholding tax,
deliver over a three-year period but are subject to post-
vesting transfer restrictions through January 2018. These
grants are not included in the above table.
Stock Options
Stock options generally vest as outlined in the applicable
stock option agreement. Options granted in February 2010
generally became exercisable in one-third installments in
January 2011, January 2012 and January 2013 and will
expire in February 2014. In general, options granted prior
to February 2010 expire on the tenth anniversary of the
grant date, although they may be subject to earlier
termination or cancellation under certain circumstances in
accordance with the terms of the SIP and the applicable
stock option agreement.
The table below presents the activity related to
stockoptions.
Options
Outstanding
Weighted Average
Exercise Price
Aggregate
Intrinsic Value
(in millions)
Weighted Average
Remaining Life
(years)
Outstanding, December 2011 47,256,938 $ 97.76 $ 444 6.08
Exercised (4,009,948) 78.93
Forfeited (21,600) 113.68
Expired (8,279) 78.87
Outstanding, December 2012 43,217,111 99.51 1,672 5.55
Exercisable, December 2012 43,203,775 99.49 1,672 5.55
Goldman Sachs 2012 Annual Report 215
Notes to Consolidated Financial Statements
The total intrinsic value of options exercised during the
years ended December 2012, December 2011 and
December 2010 was $151 million, $143 million and
$510 million, respectively. The table below presents
options outstanding.
Exercise Price
Options
Outstanding
Weighted
Average
Exercise Price
Weighted Average
Remaining
Life (years)
$ 75.00 - $ 89.99 34,103,907 $ 78.78 6.00
90.00 - 104.99 275,580 96.08 0.92
105.00 - 119.99 — — —
120.00 - 134.99 2,791,500 131.64 2.92
135.00 - 149.99 — — —
150.00 - 164.99 65,000 154.16 1.17
165.00 - 194.99 — — —
195.00 - 209.99 5,981,124 202.27 4.48
Outstanding, December 2012 43,217,111 99.51 5.55
The weighted average grant-date fair value of options
granted during the year ended December 2010 was $37.58.
The tables below present the primary weighted average
assumptions used to estimate fair value as of the grant
date based on a Black-Scholes option-pricing model,
and share-based compensation and the related excess tax
benefit/(provision).
Year Ended December
2012 2011 2010
Risk-free interest rate N/A N/A 1.6%
Expected volatility N/A N/A 32.5
Annual dividend per share N/A N/A $1.40
Expected life N/A N/A 3.75 years
Year Ended December
in millions 2012 2011 2010
Share-based compensation $1,338 $2,843 $4,070
Excess tax benefit related to options exercised 53 55 183
Excess tax benefit/(provision) related to share-based awards
1
(11) 138 239
1. Represents the tax benefit/(provision) recognized in additional paid-in capital on stock options exercised and the delivery of common stock underlying share-
based awards.
As of December 2012, there was $434 million of total
unrecognized compensation cost related to non-vested
share-based compensation arrangements. This cost is
expected to be recognized over a weighted average period
of 1.62 years.
216 Goldman Sachs 2012 Annual Report
Notes to Consolidated Financial Statements
Note 30.
Parent Company
Group Inc. — Condensed Statements of Earnings
Year Ended December
in millions 2012 2011 2010
Revenues
Dividends from bank subsidiaries $ — $ 1,000 $ —
Dividends from nonbank subsidiaries 3,622 4,967 6,032
Undistributed earnings of subsidiaries 3,682 481 2,884
Other revenues 1,567 (3,381) 964
Total non-interest revenues 8,871 3,067 9,880
Interest income 4,751 4,547 4,153
Interest expense 4,287 3,917 3,429
Net interest income 464 630 724
Net revenues, including net interest income 9,335 3,697 10,604
Operating expenses
Compensation and benefits 452 300 423
Other expenses 448 252 238
Total operating expenses 900 552 661
Pre-tax earnings 8,435 3,145 9,943
Provision/(benefit) for taxes 960 (1,297) 1,589
Net earnings 7,475 4,442 8,354
Preferred stock dividends 183 1,932 641
Net earnings applicable to
common shareholders $7,292 $ 2,510 $ 7,713
Group Inc. — Condensed Statements of Financial Condition
As of December
in millions 2012 2011
Assets
Cash and cash equivalents $ 14 $ 14
Loans to and receivables from subsidiaries
Bank subsidiaries 4,103 7,196
Nonbank subsidiaries
1
174,609 180,397
Investments in subsidiaries and other affiliates
Bank subsidiaries 20,671 19,226
Nonbank subsidiaries and other affiliates 52,646 48,473
Financial instruments owned, at fair value 19,132 20,698
Other assets 4,782 7,912
Total assets $275,957 $283,916
Liabilities and shareholders’ equity
Payables to subsidiaries $ 657 $ 693
Financial instruments sold, but not yet purchased, at
fair value 301 241
Unsecured short-term borrowings
With third parties
2
29,898 35,368
With subsidiaries 4,253 4,701
Unsecured long-term borrowings
With third parties
3
158,761 166,342
With subsidiaries
4
3,574 1,536
Other liabilities and accrued expenses 2,797 4,656
Total liabilities 200,241 213,537
Commitments, contingencies and guarantees
Shareholders’ equity
Preferred stock 6,200 3,100
Common stock 8 8
Restricted stock units and employee stock options 3,298 5,681
Additional paid-in capital 48,030 45,553
Retained earnings 65,223 58,834
Accumulated other comprehensive loss (193) (516)
Stock held in treasury, at cost (46,850) (42,281)
Total shareholders’ equity 75,716 70,379
Total liabilities and shareholders’ equity $275,957 $283,916
Group Inc. — Condensed Statements of Cash Flows
Year Ended December
in millions 2012 2011 2010
Cash flows from operating activities
Net earnings $ 7,475 $ 4,442 $ 8,354
Adjustments to reconcile net earnings to net
cash provided by operating activities
Undistributed earnings of subsidiaries (3,682) (481) (2,884)
Depreciation and amortization 15 14 18
Deferred income taxes (1,258) 809 214
Share-based compensation 81 244 393
Changes in operating assets and liabilities
Financial instruments owned, at fair value 1,464 3,557 (176)
Financial instruments sold, but not yet
purchased, at fair value (3) (536) (1,091)
Other, net 2,621 1,422 10,852
Net cash provided by operating activities 6,713 9,471 15,680
Cash flows from investing activities
Purchase of property, leasehold
improvements and equipment (12) (42) (15)
Repayments of short-term loans by
subsidiaries, net of issuances 6,584 20,319 (9,923)
Issuance of term loans to subsidiaries (17,414) (42,902) (5,532)
Repayments of term loans by subsidiaries 18,715 21,850 1,992
Capital distributions from/(contributions to)
subsidiaries, net (298) 4,642 (1,038)
Net cash provided by/(used for)
investing activities 7,575 3,867 (14,516)
Cash flows from financing activities
Unsecured short-term borrowings, net (2,647) (727) 3,137
Proceeds from issuance of
long-term borrowings 26,160 27,251 21,098
Repayment of long-term borrowings,
including the current portion (35,608) (27,865) (21,838)
Preferred stock repurchased — (3,857) —
Common stock repurchased (4,640) (6,048) (4,183)
Dividends and dividend equivalents paid on
common stock, preferred stock and
restricted stock units (1,086) (2,771) (1,443)
Proceeds from issuance of preferred stock,
net of issuance costs 3,087 — —
Proceeds from issuance of common stock,
including stock option exercises 317 368 581
Excess tax benefit related to
share-based compensation 130 358 352
Cash settlement of
share-based compensation (1) (40) (1)
Net cash used for financing activities (14,288) (13,331) (2,297)
Net increase/(decrease) in cash and
cash equivalents — 7 (1,133)
Cash and cash equivalents, beginning of year 14 7 1,140
Cash and cash equivalents, end of year $ 14 $ 14 $ 7
SUPPLEMENTAL DISCLOSURES:
Cash payments for third-party interest, net of capitalized interest, were
$5.11 billion, $3.83 billion and $3.07 billion for the years ended
December 2012, December 2011 and December 2010, respectively.
Cash payments for income taxes, net of refunds, were $1.59 billion,
$1.39 billion and $2.05 billion for the years ended December 2012,
December 2011 and December 2010, respectively.
Non-cash activity:
During the year ended December 2011, $103 million of common stock was
issued in connection with the acquisition of GS Australia.
1. Primarily includes overnight loans, the proceeds of which can be used to
satisfy the short-term obligations of Group Inc.
2. Includes $4.91 billion and $6.25 billion at fair value as of December 2012 and
December 2011, respectively.
3. Includes $8.19 billion and $12.91 billion at fair value as of December 2012
and December 2011, respectively.
4. Unsecured long-term borrowings with subsidiaries by maturity date are
$434 million in 2014, $191 million in 2015, $2.08 billion in 2016, $107 million
in 2017, and $766 million in 2018-thereafter.
Goldman Sachs 2012 Annual Report 217
Supplemental Financial Information
Quarterly Results (unaudited)
The following represents the firm’s unaudited quarterly
results for the years ended December 2012 and
December 2011. These quarterly results were prepared in
accordance with U.S. GAAP and reflect all adjustments that
are, in the opinion of management, necessary for a fair
statement of the results. These adjustments are of a normal,
recurring nature.
Three Months Ended
in millions, except per share data
December
2012
September
2012
June
2012
March
2012
Total non-interest revenues $8,263 $7,515 $5,537 $ 8,968
Interest income 2,864 2,629 3,055 2,833
Interest expense 1,891 1,793 1,965 1,852
Net interest income 973 836 1,090 981
Net revenues, including net interest income 9,236 8,351 6,627 9,949
Operating expenses
1
4,923 6,053 5,212 6,768
Pre-tax earnings 4,313 2,298 1,415 3,181
Provision for taxes 1,421 786 453 1,072
Net earnings 2,892 1,512 962 2,109
Preferred stock dividends 59 54 35 35
Net earnings applicable to common shareholders $2,833 $1,458 $ 927 $ 2,074
Earnings per common share
Basic $ 5.87 $ 2.95 $ 1.83 $ 4.05
Diluted 5.60 2.85 1.78 3.92
Dividends declared per common share 0.50 0.46 0.46 0.35
Three Months Ended
in millions, except per share data
December
2011
September
2011
June
2011
March
2011
Total non-interest revenues $4,984 $2,231 $5,868 $10,536
Interest income 3,032 3,354 3,681 3,107
Interest expense 1,967 1,998 2,268 1,749
Net interest income 1,065 1,356 1,413 1,358
Net revenues, including net interest income 6,049 3,587 7,281 11,894
Operating expenses
1
4,802 4,317 5,669 7,854
Pre-tax earnings/(loss) 1,247 (730) 1,612 4,040
Provision/(benefit) for taxes 234 (337) 525 1,305
Net earnings/(loss) 1,013 (393) 1,087 2,735
Preferred stock dividends 35 35 35 1,827
Net earnings/(loss) applicable to common shareholders $ 978 $ (428) $1,052 $ 908
Earnings/(loss) per common share
Basic $ 1.91 $ (0.84) $ 1.96 $ 1.66
Diluted 1.84 (0.84) 1.85 1.56
Dividends declared per common share 0.35 0.35 0.35 0.35
1. The timing and magnitude of changes in the firm’s discretionary compensation accruals can have a significant effect on results in a given quarter.
218 Goldman Sachs 2012 Annual Report
Supplemental Financial Information
Common Stock Price Range
The table belowpresents the high and lowsales prices per share of the firm’s common stock.
Year Ended December
2012 2011 2010
High Low High Low High Low
First quarter $128.72 $ 92.42 $175.34 $153.26 $178.75 $147.81
Second quarter 125.54 90.43 164.40 128.30 186.41 131.02
Third quarter 122.60 91.15 139.25 91.40 157.25 129.50
Fourth quarter 129.72 113.84 118.07 84.27 171.61 144.70
As of February 15, 2013, there were 13,297 holders of
record of the firm’s common stock.
On February 15, 2013, the last reported sales price for the
firm’s common stock on the New York Stock Exchange
was $154.99 per share.
Common Stock Performance
The following graph compares the performance of an
investment in the firm’s common stock from
November 30, 2007 through December 31, 2012, with the
S&P 500 Index and the S&P 500 Financials Index. The
graph assumes $100 was invested on November 30, 2007
in each of the firm’s common stock, the S&P 500 Index and
the S&P 500 Financials Index, and the dividends were
reinvested on the date of payment without payment of any
commissions. The performance shown in the graph
represents past performance and should not be considered
an indication of future performance.
$ 0
$ 25
$ 50
$ 75
$100
$125
$150
The Goldman Sachs Group, Inc. S&P 500 Index S&P 500 Financials Index
Nov-07 Nov-08 Dec-09 Dec-10
Dec-11
Dec-12
The table below shows the cumulative total returns in
dollars of the firm’s common stock, the S&P 500 Index and
the S&P 500 Financials Index for Goldman Sachs’ last five
fiscal year ends
1
, assuming $100 was invested on
November 30, 2007 in each of the firm’s common stock,
the S&P 500 Index and the S&P 500 Financials Index, and
the dividends were reinvested on the date of payment
without payment of any commissions. The performance
shown in the table represents past performance and should
not be considered an indication of future performance.
11/30/07 11/28/08 12/31/09 12/31/10 12/31/11 12/31/12
The Goldman Sachs Group, Inc. $100.00 $35.16 $76.08 $76.49 $41.61 $ 59.66
S&P 500 Index 100.00 61.91 79.13 91.04 92.96 107.84
S&P 500 Financials Index 100.00 42.42 49.61 55.65 46.18 59.53
1. As a result of the firm’s change in fiscal year-end during 2009, this table includes 61 months beginning November 30, 2007 and ending December 31, 2012.
Goldman Sachs 2012 Annual Report 219
Supplemental Financial Information
Selected Financial Data
As of or for the
Year Ended One Month Ended
December
2012
December
2011
December
2010
December
2009
November
2008
December
2008
1
Income statement data (in millions)
Total non-interest revenues $ 30,283 $ 23,619 $ 33,658 $ 37,766 $ 17,946 $ (502)
Interest income 11,381 13,174 12,309 13,907 35,633 1,687
Interest expense 7,501 7,982 6,806 6,500 31,357 1,002
Net interest income 3,880 5,192 5,503 7,407 4,276 685
Net revenues, including net interest income 34,163 28,811 39,161 45,173 22,222 183
Compensation and benefits 12,944 12,223 15,376 16,193 10,934 744
U.K. bank payroll tax — — 465 — — —
Other operating expenses 10,012 10,419 10,428 9,151 8,952 697
Pre-tax earnings/(loss) $ 11,207 $ 6,169 $ 12,892 $ 19,829 $ 2,336 $ (1,258)
Balance sheet data (in millions)
Total assets $938,555 $923,225 $911,332 $848,942 $884,547 $1,112,225
Other secured financings (long-term) 8,965 8,179 13,848 11,203 17,458 18,413
Unsecured long-term borrowings 167,305 173,545 174,399 185,085 168,220 185,564
Total liabilities 862,839 852,846 833,976 778,228 820,178 1,049,171
Total shareholders’ equity 75,716 70,379 77,356 70,714 64,369 63,054
Common share data (in millions, except per share amounts)
Earnings/(loss) per common share
Basic $ 14.63 $ 4.71 $ 14.15 $ 23.74 $ 4.67 $ (2.15)
Diluted 14.13 4.51 13.18 22.13 4.47 (2.15)
Dividends declared per common share 1.77 1.40 1.40 1.05 1.40 0.47
3
Book value per common share
2
144.67 130.31 128.72 117.48 98.68 95.84
Average common shares outstanding
Basic 496.2 524.6 542.0 512.3 437.0 485.5
Diluted 516.1 556.9 585.3 550.9 456.2 485.5
Selected data (unaudited)
Total staff
Americas 16,400 17,200 19,900 18,900 19,700 19,200
Non-Americas 16,000 16,100 15,800 13,600 14,800 14,100
Total staff 32,400 33,300 35,700 32,500 34,500 33,300
Assets under management (in billions)
Asset class
Alternative investments $ 133 $ 142 $ 148 $ 146 $ 146 $ 145
Equity 133 126 144 146 112 114
Fixed income 370 340 340 315 248 253
Total non-money market assets 636 608 632 607 506 512
Money markets 218 220 208 264 273 286
Total assets under management $ 854 $ 828 $ 840 $ 871 $ 779 $ 798
1. In connection with becoming a bank holding company, the firm was required to change its fiscal year-end from November to December. December 2008 represents
the period from November 29, 2008 to December 26, 2008.
2. Book value per common share is based on common shares outstanding, including RSUs granted to employees with no future service requirements, of 480.5 million,
516.3 million, 546.9 million, 542.7 million, 485.4 million and 485.9 million as of December 2012, December 2011, December 2010, December 2009, November 2008
and December 2008, respectively.
3. Rounded to the nearest penny. Exact dividend amount was $0.4666666 per common share and was reflective of a four-month period (December 2008 through
March 2009), due to the change in the firm’s fiscal year-end.
220 Goldman Sachs 2012 Annual Report
Supplemental Financial Information
Statistical Disclosures
Distribution of Assets, Liabilities and Shareholders’ Equity
The table belowpresents a summary of consolidated average balances and interest rates.
For the Year Ended December
2012 2011 2010
in millions, except rates
Average
balance Interest
Average
rate
Average
balance Interest
Average
rate
Average
balance Interest
Average
rate
Assets
Deposits with banks $ 52,500 $ 156 0.30% $ 38,039 $ 125 0.33% $ 29,371 $ 86 0.29%
U.S. 49,123 132 0.27 32,770 95 0.29 24,988 67 0.27
Non-U.S. 3,377 24 0.71 5,269 30 0.57 4,383 19 0.43
Securities borrowed, securities purchased under
agreements to resell and federal funds sold 331,828 (77) (0.02) 351,896 666 0.19 353,719 540 0.15
U.S. 191,166 (431) (0.23) 219,240 (249) (0.11) 243,907 75 0.03
Non-U.S. 140,662 354 0.25 132,656 915 0.69 109,812 465 0.42
Financial instruments owned, at fair value
1, 2
310,982 9,817 3.16 287,322 10,718 3.73 273,801 10,346 3.78
U.S. 190,490 6,548 3.44 183,920 7,477 4.07 189,136 7,865 4.16
Non-U.S. 120,492 3,269 2.71 103,402 3,241 3.13 84,665 2,481 2.93
Other interest-earning assets
3
136,427 1,485 1.09 143,270 1,665 1.16 118,364 1,337 1.13
U.S. 90,071 974 1.08 99,042 915 0.92 82,965 689 0.83
Non-U.S. 46,356 511 1.10 44,228 750 1.70 35,399 648 1.83
Total interest-earning assets 831,737 11,381 1.37 820,527 13,174 1.61 775,255 12,309 1.59
Cash and due from banks 7,357 4,987 3,709
Other non-interest-earning assets
2
107,702 118,901 113,310
Total Assets $946,796 $944,415 $892,274
Liabilities
Interest-bearing deposits $ 56,399 $ 399 0.71% $ 40,266 $ 280 0.70% $ 38,011 $ 304 0.80%
U.S. 48,668 362 0.74 33,234 243 0.73 31,418 279 0.89
Non-U.S. 7,731 37 0.48 7,032 37 0.53 6,593 25 0.38
Securities loaned and securities sold under
agreements to repurchase 177,550 822 0.46 171,753 905 0.53 160,280 708 0.44
U.S. 121,145 380 0.31 110,235 280 0.25 112,839 355 0.31
Non-U.S. 56,405 442 0.78 61,518 625 1.02 47,441 353 0.74
Financial instruments sold, but not yet purchased,
at fair value
1, 2
94,740 2,438 2.57 102,282 2,464 2.41 89,040 1,859 2.09
U.S. 41,436 852 2.06 52,065 984 1.89 44,713 818 1.83
Non-U.S. 53,304 1,586 2.98 50,217 1,480 2.95 44,327 1,041 2.35
Short-term borrowings
4, 5
70,359 581 0.83 78,497 526 0.67 55,512 453 0.82
U.S. 47,614 479 1.01 50,659 431 0.85 33,306 394 1.18
Non-U.S. 22,745 102 0.45 27,838 95 0.34 22,206 59 0.27
Long-term borrowings
5, 6
176,698 3,736 2.11 186,148 3,439 1.85 193,031 3,155 1.63
U.S. 170,163 3,582 2.11 179,004 3,235 1.81 183,338 2,910 1.59
Non-U.S. 6,535 154 2.36 7,144 204 2.86 9,693 245 2.53
Other interest-bearing liabilities
7
206,790 (475) (0.23) 203,940 368 0.18 189,008 327 0.17
U.S. 150,986 (988) (0.65) 149,958 (535) (0.36) 142,752 (221) (0.15)
Non-U.S. 55,804 513 0.92 53,982 903 1.67 46,256 548 1.18
Total interest-bearing liabilities 782,536 7,501 0.96 782,886 7,982 1.02 724,882 6,806 0.94
Non-interest-bearing deposits 324 140 169
Other non-interest-bearing liabilities
2
91,406 88,681 92,966
Total liabilities 874,266 871,707 818,017
Shareholders’ equity
Preferred stock 4,392 3,990 6,957
Common stock 68,138 68,718 67,300
Total shareholders’ equity 72,530 72,708 74,257
Total liabilities and shareholders’ equity $946,796 $944,415 $892,274
Interest rate spread 0.41% 0.59% 0.65%
Net interest income and net yield on
interest-earning assets $ 3,880 0.47 $ 5,192 0.63 $ 5,503 0.71
U.S. 2,556 0.49 3,600 0.67 4,161 0.77
Non-U.S. 1,324 0.43 1,592 0.56 1,342 0.57
Percentage of interest-earning assets and
interest-bearing liabilities attributable to
non-U.S. operations
8
Assets 37.38% 34.80% 30.22%
Liabilities 25.88 26.53 24.35
Goldman Sachs 2012 Annual Report 221
Supplemental Financial Information
1. Consists of cash financial instruments, including equity securities and convertible debentures.
2. Derivative instruments and commodities are included in other non-interest-earning assets and other non-interest-bearing liabilities.
3. Primarily consists of cash and securities segregated for regulatory and other purposes and certain receivables from customers and counterparties.
4. Consists of short-term other secured financings and unsecured short-term borrowings.
5. Interest rates include the effects of interest rate swaps accounted for as hedges.
6. Consists of long-term secured financings and unsecured long-term borrowings.
7. Primarily consists of certain payables to customers and counterparties.
8. Assets, liabilities and interest are attributed to U.S. and non-U.S. based on the location of the legal entity in which the assets and liabilities are held.
222 Goldman Sachs 2012 Annual Report
Supplemental Financial Information
Changes in Net Interest Income, Volume and Rate
Analysis
The table below presents an analysis of the effect on net
interest income of volume and rate changes. In this analysis,
changes due to volume/rate variance have been allocated
tovolume.
For the Year Ended
December 2012 versus December 2011 December 2011 versus December 2010
Increase (decrease) due to
change in:
Increase (decrease) due to
change in:
in millions Volume Rate
Net
change Volume Rate
Net
change
Interest-earning assets
Deposits with banks $ 32 $ (1) $ 31 $ 28 $ 11 $ 39
U.S. 45 (8) 37 23 5 28
Non-U.S. (13) 7 (6) 5 6 11
Securities borrowed, securities purchased under agreements to
resell and federal funds sold 83 (826) (743) 186 (60) 126
U.S. 63 (245) (182) 28 (352) (324)
Non-U.S. 20 (581) (561) 158 292 450
Financial instruments owned, at fair value 689 (1,590) (901) 375 (3) 372
U.S. 225 (1,154) (929) (212) (176) (388)
Non-U.S. 464 (436) 28 587 173 760
Other interest-earning assets (74) (106) (180) 299 29 328
U.S. (97) 156 59 149 77 226
Non-U.S. 23 (262) (239) 150 (48) 102
Change in interest income 730 (2,523) (1,793) 888 (23) 865
Interest-bearing liabilities
Interest-bearing deposits 118 1 119 15 (39) (24)
U.S. 115 4 119 13 (49) (36)
Non-U.S. 3 (3) — 2 10 12
Securities loaned and securities sold under agreements to
repurchase (6) (77) (83) 136 61 197
U.S. 34 66 100 (7) (68) (75)
Non-U.S. (40) (143) (183) 143 129 272
Financial instruments sold, but not yet purchased, at fair value (127) 101 (26) 313 292 605
U.S. (219) 87 (132) 139 27 166
Non-U.S. 92 14 106 174 265 439
Short-term borrowings (54) 109 55 167 (94) 73
U.S. (31) 79 48 147 (110) 37
Non-U.S. (23) 30 7 20 16 36
Long-term borrowings (200) 497 297 (151) 435 284
U.S. (186) 533 347 (78) 403 325
Non-U.S. (14) (36) (50) (73) 32 (41)
Other interest-bearing liabilities 10 (853) (843) 103 (62) 41
U.S. (7) (446) (453) (26) (288) (314)
Non-U.S. 17 (407) (390) 129 226 355
Change in interest expense (259) (222) (481) 583 593 1,176
Change in net interest income $ 989 $(2,301) $(1,312) $ 305 $(616) $ (311)
Goldman Sachs 2012 Annual Report 223
Supplemental Financial Information
Available-for-sale Securities Portfolio
The table below presents the fair value of available-for-sale
securities. As of December 2012, such assets related to the
firm’s reinsurance business were classified as held for sale
and were included in “Other assets.” See Note 12 for
further information about assets held for sale.
in millions
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Available-for-sale securities, December 2012
Commercial paper, certificates of deposit, time deposits and other money market instruments $ 467 $ — $ — $ 467
U.S. government and federal agency obligations 814 47 (5) 856
Non-U.S. government and agency obligations 2 — — 2
Mortgage and other asset-backed loans and securities 3,049 341 (8) 3,382
Corporate debt securities 3,409 221 (5) 3,625
State and municipal obligations 539 91 (1) 629
Other debt obligations 112 3 (2) 113
Total available-for-sale securities $8,392 $703 $ (21) $9,074
Available-for-sale securities, December 2011
Commercial paper, certificates of deposit, time deposits and other money market instruments $ 406 $ — $ — $ 406
U.S. government and federal agency obligations 582 80 — 662
Non-U.S. government and agency obligations 19 — — 19
Mortgage and other asset-backed loans and securities 1,505 30 (119) 1,416
Corporate debt securities 1,696 128 (11) 1,813
State and municipal obligations 418 63 — 481
Other debt obligations 67 — (3) 64
Total available-for-sale securities $4,693 $301 $(133) $4,861
224 Goldman Sachs 2012 Annual Report
Supplemental Financial Information
The table below presents the fair value, amortized cost and
weighted average yields of available-for-sale securities by
contractual maturity. Yields are calculated on a weighted
average basis.
As of December 2012
Due in
One Year or Less
Due After
One Year Through
Five Years
Due After
Five Years Through
Ten Years
Due After
Ten Years Total
$ in millions Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Fair value of available-for-sale securities
Commercial paper, certificates of deposit,
time deposits and other money market
instruments $467 —% $ — —% $ — —% $ — —% $ 467 —%
U.S. government and federal agency
obligations 57 — 267 1 88 2 444 4 856 3
Non-U.S. government and agency obligations — — — — — — 2 4 2 4
Mortgage and other asset-backed loans
and securities 4 3 218 5 23 6 3,137 6 3,382 6
Corporate debt securities 74 2 804 3 1,567 4 1,180 5 3,625 4
State and municipal obligations — — 10 5 — — 619 6 629 6
Other debt obligations 18 1 6 1 5 5 84 4 113 3
Total available-for-sale securities $620 $1,305 $1,683 $5,466 $9,074
Amortized cost of available-for-sale
securities $617 $1,267 $1,593 $4,915 $8,392
As of December 2011
Due in
One Year or Less
Due After
One Year Through
Five Years
Due After
Five Years Through
Ten Years
Due After
Ten Years Total
$ in millions Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Fair value of available-for-sale securities
Commercial paper, certificates of deposit,
time deposits and other money market
instruments $406 —% $ — —% $ — —% $ — —% $ 406 —%
U.S. government and federal agency
obligations 72 — 132 3 69 2 389 4 662 3
Non-U.S. government and agency obligations — — 9 3 9 6 1 4 19 4
Mortgage and other asset-backed loans
and securities — — 120 7 19 5 1,277 10 1,416 10
Corporate debt securities 33 5 425 4 848 5 507 6 1,813 5
State and municipal obligations 1 5 12 5 — — 468 6 481 6
Other debt obligations — — 10 4 — — 54 3 64 3
Total available-for-sale securities $512 $ 708 $ 945 $2,696 $4,861
Amortized cost of available-for-sale securities $512 $ 696 $ 899 $2,586 $4,693
Goldman Sachs 2012 Annual Report 225
Supplemental Financial Information
Deposits
The table belowpresents a summary of the firm’s interest-bearing deposits.
Average Balances Average Interest Rates
Year Ended December Year Ended December
$ in millions 2012 2011 2010 2012 2011 2010
U.S.:
Savings
1
$32,235 $25,916 $23,260 0.42% 0.42% 0.44%
Time 16,433 7,318 8,158 1.38 1.84 2.16
Total U.S. deposits 48,668 33,234 31,418 0.74 0.73 0.89
Non-U.S.:
Demand 5,318 5,378 5,559 0.30 0.46 0.34
Time 2,413 1,654 1,034 0.87 0.73 0.58
Total Non-U.S. deposits 7,731 7,032 6,593 0.48 0.53 0.38
Total deposits $56,399 $40,266 $38,011 0.71 0.70 0.80
1. Amounts are available for withdrawal upon short notice, generally within seven days.
Ratios
The table belowpresents selected financial ratios.
Year Ended December
2012 2011 2010
Net earnings to average assets 0.8% 0.5% 0.9%
Return on average common shareholders’ equity
1
10.7 3.7 11.5
Return on average total shareholders’ equity
2
10.3 6.1 11.3
Total average equity to average assets 7.7 7.7 8.3
Dividend payout ratio
3
12.5 31.0 10.6
1. Based on net earnings applicable to common shareholders divided by average monthly common shareholders’ equity.
2. Based on net earnings divided by average monthly total shareholders’ equity.
3. Dividends declared per common share as a percentage of diluted earnings per common share.
Short-term and Other Borrowed Funds
The table below presents a summary of the firm’s securities
loaned and securities sold under agreements to repurchase
and short-term borrowings. These borrowings generally
mature within one year of the financial statement date and
include borrowings that are redeemable at the option of the
holder within one year of the financial statement date.
Securities Loaned and Securities Sold
Under Agreements to Repurchase Short-Term Borrowings
1, 2
As of December As of December
$ in millions 2012 2011 2010 2012 2011 2010
Amounts outstanding at year-end $185,572 $171,684 $173,557 $67,349 $78,223 $72,371
Average outstanding during the year 177,550 171,753 160,280 70,359 78,497 55,512
Maximum month-end outstanding 198,456 190,453 173,557 75,280 87,281 72,371
Weighted average interest rate
During the year 0.46% 0.53% 0.44% 0.83% 0.67% 0.82%
At year-end 0.44 0.39 0.44 0.79 0.92 0.63
1. Includes short-term secured financings of $23.05 billion, $29.19 billion and $24.53 billion as of December 2012, December 2011 and December 2010, respectively.
2. The weighted average interest rates for these borrowings include the effect of hedging activities.
226 Goldman Sachs 2012 Annual Report
Supplemental Financial Information
Cross-border Outstandings
Cross-border outstandings are based on the Federal
Financial Institutions Examination Council’s (FFIEC)
regulatory guidelines for reporting cross-border
information and represent the amounts that the firm may
not be able to obtain from a foreign country due to
country-specific events, including unfavorable economic
and political conditions, economic and social instability,
and changes in government policies.
Credit exposure represents the potential for loss due to the
default or deterioration in credit quality of a counterparty
or an issuer of securities or other instruments the firmholds
and is measured based on the potential loss in an event of
non-payment by a counterparty. Credit exposure is reduced
through the effect of risk mitigants, such as netting
agreements with counterparties that permit the firm to
offset receivables and payables with such counterparties or
obtaining collateral from counterparties. The tables below
do not include all the effects of such risk mitigants and do
not represent the firm’s credit exposure.
Claims in the tables below include cash, receivables,
securities purchased under agreements to resell, securities
borrowed and cash financial instruments, but exclude
derivative instruments and commitments. Securities
purchased under agreements to resell and securities
borrowed are presented gross, without reduction for related
securities collateral held, based on the domicile of the
counterparty. Margin loans (included in receivables) are
presented based on the amount of collateral advanced by
the counterparty.
The tables below present cross-border outstandings for
each country in which cross-border outstandings exceed
0.75% of consolidated assets in accordance with the
FFIECguidelines.
As of December 2012
in millions Banks Governments Other Total
Country
Cayman Islands $ — $ — $39,283 $39,283
France 24,333
1
2,370 5,819 32,522
Japan 16,679 19 8,908 25,606
Germany 4,012 10,976 7,912 22,900
Spain 3,790 4,237 1,816 9,843
Ireland 438 68 7,057 7,563
2
United Kingdom 1,422 237 5,874 7,533
China 2,564 1,265 3,564 7,393
Brazil 1,383 3,704 2,280 7,367
Switzerland 3,706 230 3,133 7,069
As of December 2011
in millions Banks Governments Other Total
Country
France $33,916
1
$ 2,859 $ 3,776 $40,551
Cayman Islands — — 33,742 33,742
Japan 18,745 31 6,457 25,233
Germany 5,458 16,089 3,162 24,709
United Kingdom 2,111 3,349 5,243 10,703
Italy 6,143 3,054 841 10,038
3
Ireland 1,148 63 8,801
2
10,012
China 6,722 38 2,908 9,668
Switzerland 3,836 40 5,112 8,988
Canada 676 1,019 6,841 8,536
Australia 1,597 470 5,209 7,276
1. Primarily comprised of secured lending transactions with a clearing house which are secured by collateral.
2. Primarily comprised of interests in and receivables from funds domiciled in Ireland, but whose underlying investments are primarily located outside of Ireland, and
secured lending transactions.
3. Primarily comprised of secured lending transactions which are primarily secured by German government obligations.
Goldman Sachs 2012 Annual Report 227
Supplemental Financial Information
As of December 2010
in millions Banks Governments Other Total
Country
France $29,250
1
$ 7,373 $ 4,860 $41,483
Cayman Islands 7 — 35,850 35,857
Japan 21,881 49 8,002 29,932
Germany 3,767 16,572 2,782 23,121
China 10,849 701 2,931 14,481
United Kingdom 2,829 2,401 6,800 12,030
Switzerland 2,473 151 7,616 10,240
Canada 260 366 6,741 7,367
1. Primarily comprised of secured lending transactions with a clearing house which are secured by collateral.
228 Goldman Sachs 2012 Annual Report
229 Goldman Sachs 2012 Annual Report
*Partnership Committee Member
Board of
Directors
Lloyd C. Blankfein
Chairman and Chief
Executive Of?cer
Gary D. Cohn
President and Chief
Operating Of?cer
M. Michele Burns
Chief Executive Of?cer of
the Retirement Policy Center
sponsored by Marsh &
McLennan Companies, Inc.
Claes Dahlbäck
Senior Advisor to
Investor AB and Foundation
Asset Management
Stephen Friedman
Chairman of Stone Point
Capital
William W. George
Professor of Management
Practice at Harvard
Business School
James A. Johnson
Former Vice Chairman of
Perseus, L.L.C.
Lakshmi N. Mittal
Chairman and Chief Executive
Of?cer of ArcelorMittal S.A.
Adebayo O. Ogunlesi
Chairman and Managing Partner
of Global Infrastructure Partners
James J. Schiro
Former Chairman and Chief
Executive Of?cer of Zurich
Financial Services
Debora L. Spar
President of Barnard College
Mark E. Tucker
Executive Director, Group Chief
Executive Of?cer and President
of AIA Group Limited
David A. Viniar
Former Chief Financial Of?cer of
The Goldman Sachs Group, Inc.
John F.W. Rogers
Secretary to the Board
Management
Committee
Lloyd C. Blankfein
Chairman and Chief
Executive Of?cer
Gary D. Cohn
President and Chief
Operating Of?cer
John S. Weinberg
J. Michael Evans
Michael S. Sherwood
Mark Schwartz
Vice Chairmen
R. Martin Chavez
Christopher A. Cole
Edith W. Cooper
Gordon E. Dyal
Isabelle Ealet
Richard A. Friedman
Richard J. Gnodde
Eric S. Lane
Gwen R. Libstag
Masanori Mochida
Timothy J. O’Neill
John F.W. Rogers
David C. Ryan
Pablo J. Salame
Stephen M. Scherr
Jeffrey W. Schroeder
Harvey M. Schwartz
David M. Solomon
Esta E. Stecher
Steven H. Strongin
Gene T. Sykes
Ashok Varadhan
Gregory K. Palm
General Counsel
Alan M. Cohen
Head of Global Compliance
Managing Directors
Managing Directors are organized by Managing Director class
Lloyd C. Blankfein
John P. Curtin, Jr.
Richard A. Friedman
Timothy J. O’Neill
Gregory K. Palm
Masanori Mochida
Gene T. Sykes
John S. Weinberg
Sharmin Mossavar-Rahmani*
Armen A. Avanessians
Gary D. Cohn
Christopher A. Cole
Henry Cornell
J. Michael Evans
Michael S. Sherwood*
Esta E. Stecher
Terence J. O’Neill
Thomas C. Brasco
Peter D. Brundage
Andrew A. Chisholm
Abby Joseph Cohen
E. Gerald Corrigan
Charles P. Eve
Christopher G. French
C. Douglas Fuge
Richard J. Gnodde
Jeffrey B. Goldenberg
Timothy J. Ingrassia
Bruce M. Larson
Gwen R. Libstag
Victor M. Lopez-Balboa
Sanjeev K. Mehra
John P. Shaughnessy
Theodore T. Sotir
W. Thomas York, Jr.
Jonathan A. Beinner
Steven M. Bunson
John W. Curtis
Matthew S. Darnall
Alexander C. Dibelius
Karlo J. Duvnjak
Isabelle Ealet
Elizabeth C. Fascitelli
Oliver L. Frankel
Celeste A. Guth
Gregory T. Hoogkamp
William L. Jacob, III
Andrew J. Kaiser
Robert C. King, Jr.
Francisco Lopez-Balboa
Antigone Loudiadis
John A. Mahoney
J. William McMahon
Donald J. Mulvihill
Stephen R. Pierce
John J. Rafter
John F.W. Rogers
Michael M. Smith
Haruko Watanuki
Paolo Zannoni
Frances R. Bermanzohn*
Robert A. Berry
Craig W. Broderick
Richard M. Campbell-Breeden
Anthony H. Carpet
Michael J. Carr
Kent A. Clark
Edith W. Cooper*
John S. Daly
Gordon E. Dyal
Michael P. Esposito*
Matthew T. Fremont-Smith
Andrew M. Gordon
David J. Greenwald
Walter H. Haydock
James A. Hudis
David J. Kostin
Paulo C. Leme
Kathy M. Matsui*
Geraldine F. McManus
Michael J. Poulter
Paul M. Russo*
Steven M. Scopellite*
Sarah E. Smith
Steven H. Strongin
John J. Vaske
David M. Solomon
Karen R. Cook
Gregory A. Agran
Raanan A. Agus
Dean C. Backer
Stuart N. Bernstein
Alison L. Bott
Mary D. Byron
Thomas G. Connolly*
Michael G. De Lathauwer
James Del Favero
Michele I. Docharty
Thomas M. Dowling
Keith L. Hayes
Bruce A. Heyman
Daniel E. Holland, III
Michael R. Housden
Paul J. Huchro
Andrew J. Jonas
James M. Karp
Matthew Lavicka
David N. Lawrence
Ronald S. Levin
Richard P. McNeil
Michael R. Miele
Suok J. Noh
Board Members, Of?cers and Directors
as of March 26, 2013
230 Goldman Sachs 2012 Annual Report
Board Members, Of?cers and Directors
as of March 26, 2013
*Partnership Committee Member
David B. Philip
Ellen R. Porges
Katsunori Sago
Pablo J. Salame
Jeffrey W. Schroeder
Harvey M. Schwartz
Trevor A. Smith
Donald J. Truesdale
John S. Willian
Andrew F. Wilson
Paul M. Young
Jack Levy*
Mark F. Dehnert
Michael H. Siegel
Matthew C. Westerman
Jason H. Ekaireb
Seaborn S. Eastland
Alan J. Brazil
W. Reed Chisholm II
Jane P. Chwick
Michael D. Daffey*
Joseph P. DiSabato
James H. Donovan
Donald J. Duet
Michael L. Dweck
Earl S. Enzer
Christopher H. Eoyang
Norman Feit
Robert K. Frumkes
Gary T. Giglio
Michael J. Graziano
Peter Gross
Douglas C. Heidt
Kenneth W. Hitchner
Philip Holzer
Walter A. Jackson
Peter T. Johnston
Roy R. Joseph
James C. Katzman
Shigeki Kiritani
Gregory D. Lee
Todd W. Leland
Bonnie S. Litt
John V. Mallory
John J. McCabe
James A. McNamara
Fergal J. O’Driscoll
L. Peter O’Hagan
Nigel M. O’Sullivan
James R. Paradise
Philip A. Raper
Michael J. Richman
Elizabeth E. Robinson*
Michael S. Rotter
Thomas M. Schwartz
Lisa M. Shalett
Ralph J. Silva
Johannes R. Sulzberger
Eiji Ueda
Ashok Varadhan
Martin M. Werner
Wassim G. Younan
Donald W. Himpele
Harry Silver
Alison J. Mass*
Ben I. Adler
Philip S. Armstrong
William J. Bannon
Scott B. Barringer
Steven M. Barry
Jordan M. Bender
Dorothee Blessing
Valentino D. Carlotti
Linda S. Daines
Stephen Davies
Daniel L. Dees*
Kenneth M. Eberts, III
David A. Fishman
Orit Freedman Weissman
Naosuke Fujita
Enrico S. Gaglioti
Nancy Gloor
Mary L. Harmon
Edward A. Hazel
Sean C. Hoover
Kenneth L. Josselyn
Eric S. Lane
Gregg R. Lemkau*
Ryan D. Limaye
Robert A. Mass
J. Ronald Morgan, III
Rie Murayama
Jeffrey P. Nedelman
Gavin G. O’Connor
Todd G. Owens
Fumiko Ozawa
Helen Paleno
Archie W. Parnell
Alan M. Rapfogel
Sara E. Recktenwald
Thomas S. Riggs, III
David C. Ryan
Susan J. Scher
Stephen M. Scherr
Abraham Shua
John E. Waldron
Robert P. Wall
Michael W. Warren
David D. Wildermuth
Kevin L. Willens
Edward R. Wilkinson
Timothy H. Moe
Charles Baillie
Bernardo Bailo
Stacy Bash-Polley*
Susan M. Benz
Johannes M. Boomaars
J. Theodore Borter
Timothy J. Bridges
Nicholas F. Burgin
Colin Coleman
Kenneth W. Coquillette
Michael J. Crinieri
Craig W. Crossman
Jeffrey R. Currie
Stephen D. Daniel
Bradley S. DeFoor
Alvaro del Castano
Robert K. Ehudin
Kathy G. Elsesser
Peter C. Enns
Katherine B. Enquist
James P. Esposito
Douglas L. Feagin
Timothy T. Furey
Gonzalo R. Garcia
Justin G. Gmelich*
Michael J. Grimaldi
Simon N. Holden
Shin Horie
Adrian M. Jones
Alan S. Kava
Andreas Koernlein
J. Christopher A. Kojima*
Takahiro Komatsu
Rudolf N. Lang
Brian J. Lee
George C. Lee, II
Tim Leissner
Allan S. Levine
Brian T. Levine
Paula B. Madoff
Puneet Malhi
Bruce H. Mendelsohn
Michael J. Millette
Milton R. Millman
Philip J. Mof?tt
Simon P. Morris
Thomas C. Morrow*
Marc O. Nachmann
Steven M. Pinkos
Richard J. Revell
Marc A. Rothenberg
Matthew L. Schroeder
Daniel M. Shefter
Guy C. Slimmon
Christoph W. Stanger
Robin A. Vince
Andrea A. Vittorelli
Theodore T. Wang
Elisha Wiesel
Denise A. Wyllie
Sheila H. Patel
Mark E. Agne
Gareth W. Bater
Oliver R. Bolitho
Sally A. Boyle*
Philippe L. Camu
John W. Cembrook
William J. Conley, Jr.
Thomas W. Cornacchia*
David H. Dase
François-Xavier de Mallmann
Elisabeth Fontenelli
Elizabeth J. Ford
Colleen A. Foster
Linda M. Fox
Kieu L. Frisby
Timur F. Galen
Rachel C. Golder
Kevin J. Guidotti
Elizabeth M. Hammack
Kenneth L. Hirsch
James P. Kenney
Steven E. Kent
Yasuro K. Koizumi
Robert A. Koort
Brian J. Lahey
Hugh J. Lawson
Ronald Lee
Deborah R. Leone
Thomas R. Lynch
Peter J. Lyon
James P. McCarthy
Dermot W. McDonogh
Arjun N. Murti
Craig J. Nossel
Anthony J. Noto
Peter C. Oppenheimer
Gilberto Pozzi
Louisa G. Ritter
Lisa A. Rotenberg
Pamela S. Ryan
Clare R. Scherrer
Vivian C. Schneck-Last
John A. Sebastian
Peter A. Seccia
Peter D. Selman
Heather K. Shemilt
Gavin Simms
Alec P. Stais
Laurence Stein
Thomas D. Teles
Frederick Tow?gh
Greg A. Tusar
Philip J. Venables
Alejandro Vollbrechthausen
Eileen M. Dillon
Deborah B. Wilkens
Shinichi Yokote
Alan M. Cohen
Michiel P. Lap
Helena Koo
Stefan R. Bollinger
Gregory B. Carey
Paul R. Aaron
*Partnership Committee Member
Board Members, Of?cers and Directors
as of March 26, 2013
231 Goldman Sachs 2012 Annual Report
Andrew W. Alford
Fareed T. Ali
William D. Anderson, Jr.
Rachel Ascher
Dolores S. Bamford
Benjamin C. Barber
Slim C. Bentami
Susan G. Bowers
Christoph M. Brand
Michael J. Brandmeyer
Andrew I. Braun
Anne F. Brennan
Tony M. Briney
Jason M. Brown
Nancy D. Browne
Elizabeth M. Burban
Anthony Cammarata, Jr.
David C. Carlebach
Donald J. Casturo
James R. Charnley
Matthew J. Clark
Jeffrey F. Daly
Debora J. Daskivich
Michael C. Dawley
Ahmad B. Deek
Aidan P. Dunn
William J. Elliott
Mark Evans
William J. Fallon
Matthew J. Fassler
Wolfgang Fink
Dino Fusco
Philip L. Gardner
James R. Garman
Sarah J. Gray
Thomas E. Halverson
Jan Hatzius
Jens D. Hofmann
Laura A. Holleman
Dane E. Holmes
Robyn A. Huffman
Alastair J. Hunt
Leonid Ioffe
Steffen J. Kastner
Christopher M. Keogh
Peter Kimpel
Scott G. Kolar
Eugene H. Leouzon
Iain Lindsay
Hugo P. MacNeill
Kevin T. McGuire
Avinash Mehrotra
Jonathan M. Meltzer
Christopher Milner
Christina P. Minnis
Kenichi Nagasu
Ted K. Neely, II
Michael L. November
Konstantinos N. Pantazopoulos
Robert D. Patch
Bruce B. Petersen
Cameron P. Poetzscher
Kenneth A. Pontarelli*
Lora J. Robertson
Lorin P. Radtke
Luigi G. Rizzo
J. Timothy Romer
John R. Sawtell
Harvey S. Shapiro
Suhail A. Sikhtian
Norborne G. Smith, III
Ying Ying Glenda So
David Z. Solomon
Robert C. Spofford
Joseph J. Struzziery, III
Randolph A. Stuzin
Damian E. Sutcliffe
Robert J. Sweeney
Pawan Tewari
Terrence P. Travis
Paul Walker
Dominic A. Wilson
Steve Windsor
Martin Wiwen-Nilsson
Yoshihiko Yano
Xing Zhang
R. Martin Chavez
Atosa Moini
Edward Madara, III
Stephen J. O’Flaherty
Court E. Golumbic
Alasdair J. Warren
Ian Gilday
Andy Fisher
Marshall Smith
Charles F. Adams
Thomas J. Stein
Farid Pasha
Hidehiro Imatsu
Nick S. Advani
Analisa M. Allen
Mark A. Allen
Ichiro Amano
Tracey E. Benford
Gaurav Bhandari
Marc O. Boheim
V. Bunty Bohra
Ralane F. Bonn
John E. Bowman, III
Oonagh T. Bradley
Samuel S. Britton
Torrey J. Browder
Derek T. Brown
Samantha R. Brown
Steve M. Bunkin
Mark J. Buono
Charles E. Burrows
Shawn P. Byron
Marguarite A. Carmody
Stuart A. Cash
Christopher L. Castello
Nien Tze Elizabeth Chen
Denis P. Coleman, III
Richard N. Cormack
James V. Covello
Christian P. de Haaij
Olaf Diaz-Pintado
Albert F. Dombrowski
David P. Eisman
Carl Faker
Stephan J. Feldgoise
Patrick J. Fels
Benjamin W. Ferguson
Samuel W. Finkelstein
Peter E. Finn
Sean J. Gallagher
Ivan C. Gallegos Rivas
Francesco U. Garzarelli
Michelle Gill
Alicia K. Glen
Jason A. Gottlieb
Mark K. Hancock
Martin Hintze
Todd Hohman
James P. Houghton
Christopher E. Hussey
Etsuko Kanayama
Dimitrios Kavvathas
C. Annette Kelton
John J. Kim
Hideki Kinuhata
Michael E. Koester
Geoffrey C. Lee
Laurent Lellouche
John R. Levene
Hao-Cheng Liu
David M. Marcinek
Marvin Markus
Thomas F. Matthias
F. Scott McDermott
John J. McGuire, Jr.
Sean T. McHugh
David R. Mittelbusher
Bryan P. Mix
Junko Mori
Takashi Murata
Amol S. Naik
Junya Nishiwaki
Jennifer A. Padovani
Nicholas W. Phillips
Louis Piliego
Michelle H. Pinggera
M. Louise Pitt
James F. Radecki
Richard N. Ramsden
Carl J. Reed
Scott A. Romanoff
Michael J. Rost
David T. Rusoff
Ankur A. Sahu
Guy E. Saidenberg
Julian Salisbury*
Brian J. Saluzzo
David A. Schwimmer
Rebecca M. Shaghalian
Magid N. Shenouda
Julian F. Simon
Michael L. Simpson
Barry Sklar
Mark R. Sorrell
John D. Storey
Ram K. Sundaram
Tatsuya Suzuki
Michael J. Swenson
Joseph D. Swift
Teresa Teague
Klaus B. Toft
Jeffrey M. Tomasi
John H. Tribolati
Suzette M. Unger
Leo J. Van Der Linden
Lai Kun Judy Vas Chau
Simone Verri
Toby C. Watson
Oliver C. Will
Andrew E. Wolff
Jennifer O. Youde
Thomas G. Young
Han Song Zhu
Steven A. Mayer
Mitsuo Kojima
Michael T. Smith
Thomas G. Fruge
Clifford D. Schlesinger
Krishnamurthy Sudarshan
Maziar Minovi
Tuan Lam
Todd E. Eagle
Jess T. Fardella
Robin Rousseau
Adam S. Clayton
Jonathan M. Penkin
Mark R. Etherington
Craig W. Packer
Michael Rimland
Keith Ackerman
Carlos Pertejo
Dojin Kim
Massimo Della Ragione
Lachlan G. Edwards
Chang-Po Yang
Iain N. Drayton
Fadi Abuali
Christian S. Alexander
David Z. Alter
Vincent L. Amatulli
Board Members, Of?cers and Directors
as of March 26, 2013
232 Goldman Sachs 2012 Annual Report
Ramaz A. Ashurov
Andrew J. Bagley
Susan E. Balogh
Jennifer A. Barbetta
Gerard M. Beatty
Henry Becker, Jr.
Roger S. Begelman
Oliver B. Benkert
Avanish R. Bhavsar
Christopher E. Blume
Shane M. Bolton
William C. Bousquette, Jr.
Patrick T. Boyle
Janet A. Broeckel
Richard J. Butland
Joseph A. Camarda
John H. Chartres
Alex S. Chi
Steven N. Cho
Kasper Christoffersen
Gary W. Chropuvka
Jesse H. Cole
Brian M. Coleman
Cyril Cottu
Vijay B. Culas
Kyle R. Czepiel
Manda J. D’Agata
John F. Daly
Michael J. Daum
Nicola A. Davies
Craig M. Delizia
Stacey Ann DeMatteis
Christina Drews
Vance M. Duigan
Steven T. Elia
Harry Eliades
Suzanne Escousse
Steven A. Ferjentsik
Carlos Fernandez-Aller
Gregory C. Ferrero
David A. Friedland
Irwin Goldberg
Juan D. Gomez-Villalba
Philip W. Grovit
Jonathan J. Hall
Magnus C. Hardeberg
Norman A. Hardie
Harold P. Hope, III
Gregory P. Hopper
Ericka T. Horan
Stephanie Hui
Irfan S. Hussain
Tsuyoshi Inoue
Makoto Ito
Kathleen Jack
Matthew A. Jaume
Tanweer Kabir
Christian Kames
Afwa D. Kandawire
Nicola S. Kane
Herman R. Klein Wassink
Edward C. Knight
Akiko Koda
Ravi G. Krishnan
Jorg H. Kukies
Shiv Kumar
Edwin Wing-Tang Kwok
David W. Lang
Nyron Z. Latif
Matthew D. Leavitt
David A. Lehman
Leland Lim
David B. Ludwig
Raghav Maliah
Matthew F. Mallgrave
Karim H. Manji
Scott D. Marchakitus
Fabio N. Mariani
Ramnek S. Matharu
Shogo Matsuzawa
Thomas C. Mazarakis
Patrick S. McClymont
Penny A. McSpadden
Celine-Marie G. Mechain
Simon H. Moseley
Jeff Mullen
Edward T. Naylor
Graham H. Of?cer
Lisa Opoku
Gerald B. Ouderkirk, III
Charles L. Park
Jae Hyuk Park
Francesco Pascuzzi
Curtis S. Probst
Jeffrey Rabinowitz
Ante Razmilovic
Lawrence J. Restieri, Jr.
Samuel D. Robinson
Michael E. Ronen
Adam C. Rosenberg
Ricardo Salaman
Thierry Sancier
David J. Santina
Kara Saxon
Ian M. Schmidek
Steven M. Schwartz
Stephen B. Scobie
Judith L. Shandling
Graham P. Shaw
Hazem A. Shawki
Steven R. Sher
Radford Small
Ian G. Smith
Ramsey D. Smith
Kevin M. Sterling
Robert M. Suss
J. Richard Suth
Daiki Takayama
Tin Hsien Tan
Megan M. Taylor
Richard J. Taylor
Oliver Thym
Ingrid C. Tierens
Joseph K. Todd
Mark R. Tolette
Hiroyuki Tomokiyo
Jill L. Toporek
David Townshend
Patrick M. Tribolet
Richard J. Tufft
Toshihiko Umetani
John P. Underwood
Thomas S. Vandever
Richard C. Vanecek
Kurt J. Von Holzhausen
Nicholas H. von Moltke
Daniel Wainstein
Fred Waldman
Daniel S. Weiner
Owen O. West
Alan S. Wilmit
David T. Wilson
Edward C. Wilson
Christopher D. Woolley
Brendan Wootten
Salvatore T. Lentini
Brendan M. McGovern
Shigemitsu Sugisaki
Takashi Yoshimura
Drake Pike
David K. Cheung
Matthew C. Schwab
Khaled Eldabag
Julie A. Harris
Michael S. Swell
John C. Shaffer
William F. Spoor
Erich Bluhm
David G. McDonald
Ezra Nahum
Dina H. Powell
Anthony Gutman*
Peter C. Russell
Celeste J. Tambaro
Michael M. Furth
Andrew Wilkinson
Gregory P. Lee
Alexis Maged
Jason B. Mollin
Robert M. Pulford
Paul A. Craven
Maximillian C. Justicz
Adriano C. Piccinin
Patrick Tassin de Nonneville
David M. Inggs
Edward B. Droesch
Timothy J. Talkington
Daniel J. Bingham
Sergei S. Stankovski
Kyu Sang Cho
Gerald Messier
Andrea Vella
Serge Marquie
Karl J. Robijns
Timothy Callahan
Julian C. Allen
Joanne L. Alma
Quentin Andre
Sergei Arsenyev
Aaron M. Arth
Ian T. Bailey
Vivek J. Bantwal
Michael H. Bartsch
Caroline R. Benton
Philip R. Berlinski
Neeti Bhalla
Brian W. Bolster
C. Kane Brenan
Michael A. Cagnassola
Jimmy R. Carlberg
Glen T. Casey
Christian Channell
Eva Chau
David Chou
Thalia Chryssikou
Charles Citro
Michael J. Civitella
Luke E. Clayton
Kathleen A. Connolly
John G. Creaton
Cecile Crochu
Anne Marie B. Darling
Paul S. Davies
Bruno P. De Kegel
Matthew P. DeFusco
Daniel Deng
Jonathan G. Donne
William P. Douglas
Mary L. Dupay
Alessandro Dusi
Mark S. Edwards
Jonathan M. Egol
Akishige Eguchi
Halil Emecen
David P. Ferris
Jonathan H. Fine
David A. Fox
Jay A. Friedman
Ramani Ganesh
Huntley Garriott
Maksim Gelfer
Gabe E. Gelman
Tamilla F. Ghodsi
Federico J. Gilly
Marc C. Gilly
John L. Glover, III
*Partnership Committee Member
Board Members, Of?cers and Directors
as of March 26, 2013
233 Goldman Sachs 2012 Annual Report
Melissa Goldman
Richard C. Govers
Bradley J. Gross
Arni G. Hauksson
Michael L. Hensch
Steven P. Herrup
Ning Hong
Pierre Hudry
Jonathan O. Hughes
Yuji Ito
Brian J. Jacoby
Andrius Jankunas
Dominique M. Jooris
Rajiv K. Kamilla
Brian A. Kane
Vijay M. Karnani
Noriko Kawamura
Dirk-Jan J. Keijer
William P. Keirstead
Shuya Kekke
Prashant R. Khemka
Vivien Khoo
Tammy A. Kiely
Jisuk Kim
Lee Guan Kelvin Koh
Masafumi Koike
Satoshi Kubo
Kim M. Lazaroo
Scott L. Lebovitz
Geoffery Y.A. Lee
David A. Levy
Dirk L. Lievens
David B. Lischer
Stephen I. Lucas
Patrick O. Luthi
Christina Ma
Whitney C. Magruder
Suneil Mahindru
Monica M. Mandelli
Richard M. Manley
Joseph S. Mauro
Matthew D. McAskin
Matthew B. McClure
Carolyn E. McGuire
Jack Mendelson
Xavier C. Menguy
Lance M. Meyerowich
Rodney B. Miller
Jason Moo
Grant R. Moyer
Gersoni A. Munhoz
Michael Nachmani
Rishi Nangalia
Allison F. Nathan
Dario Negri
Chris Oberoi
Jun Ohama
Gregory G. Olafson
Beverly L. O’Toole
Edward S. Pallesen
Dave S. Park
Anthony W. Pasquariello
Jignesh Patel
Nirubhan Pathmanabhan
Richard A. Peacock
Antonio R. Pereira
Peter J. Perrone
James R. Peters
Luis Puchol-Plaza
Sumit Rajpal
Peggy D. Rawitt
Kathleen M. Redgate
Donald C. Reed
Mark G. Retik
James H. Reynolds
Sean D. Rice
Robert E. Ritchie
Scott M. Rofey
Jeroen Rombouts
Denis R. Roux
Douglas L. Sacks
Vikram P. Sahu
Yann Samuelides
Laura D. Sanchez
Luke A. Sars?eld, III
Richard A. Schafrann
Oliver Schiller
Martin A. Schneider
Michael T. Seigne
Konstantin A. Shakhnovich
Richard Shannon
Daniel A. Sharfman
James Roger Francis Shipton
Faryar Shirzad
Connie J. Shoemaker
Anna K. Skoglund
Andrew J. Smith
Bing Song
Aurora J. Swithenbank
Carl H. Taniguchi
Mark J. Taylor
Ryan J. Thall
Robert B. Thompson
Terence Ting
Jacquelyn G. Titus
Mark C. Toomey
Kenneth A. Topping
Pamela C. Torres
Padideh N. Trojanow
Kenro Tsutsumi
Peter van der Goes, Jr.
Damien R. Vanderwilt
Ram S. Venkateswaran
Christoph von Reiche
Sherif J. Wahba
Zhixue Josh Wang
Michael L. Warren
Simon R. Watson
Vivien Webb Wong
Peter A. Weidman
Karl D. Wianecki
Gavin A. Wills
Stephen T.C. Wong
Shunichi Yamada
Kentaro Yamagishi
Raymond L. Yin
Ka Yan Wilfred Yiu
Hisaaki Yokoo
Hsin Yue Yong
George F. Travers
Rafael I. de Fex
Andre Laport Ribeiro
Beatriz Sanchez
Ricardo Mora
Joseph A. Stern
Jeffrey L. Verschleiser
Jeffrey B. Andreski
Graeme C. Jeffery
Albert J. Cass, III
Hidefumi Fukuda
Rondy Jennings
Peeyush Misra
Neil C. Kearns
Jeffrey M. Scruggs
Antonio F. Esteves
Caglayan Cetin
Aya Stark Hamilton
Alan Zagury
Mary Anne Choo
Daniel J. Rothman
Jami Rubin
Ajay Sondhi
Philippe Challande
Marc d’Andlau
Lancelot M. Braunstein
Eric L. Hirsch?eld
Charles A. Irwin
Robert D. Boroujerdi
Christopher Pilot
Francesco Adiliberti
Arthur Ambrose
Graham N. Ambrose
Anna Gabriella C. Antici
Jason S. Armstrong
Gregory A. Asikainen
David J. Atkinson
Heather L. Beckman
Karim Bennani
Shomick D. Bhattacharya
David C. Bicarregui
Miguel A. Bilbao
Matthias B. Bock
Jason H. Brauth
Justin M. Brickwood
Michael G. Broadbery
Michael R. Brooke
Shoqat Bunglawala
David Castelblanco
Michael L. Chandler
Toby J. Chapman
Omar J. Chaudhary
Hyung-Jin Chung
Giacomo Ciampolini
Samara P. Cohen
Stephanie E. Cohen
Richard Cohn
James M. Conti
David Coulson
Robert Crane
Nicholas T. Cullen, III
Thomas J. Davis
Ann M. Dennison
Michael J. DesMarais
Sheetal Dhanuka
Robert Drake-Brockman
Yuichiro Eda
Eric Elbaz
Edward A. Emerson
Michael T. Feldman
Thomas J. Fennimore
Andrew B. Fontein
Salvatore Fortunato
Sheara J. Fredman
Michael L. Freeborn
Thomas S. Friedberger
Jacques Gabillon
April E. Galda
Dean M. Galligan
Matthew R. Gibson
Jeffrey M. Gido
Tyler E. Ginn
Nick V. Giovanni
Thomas H. Glan?eld
Boon Leng Goh
Alexander S. Golten
Wade G. Griggs, III
Ralf Hafner
Jeffrey D. Hamilton
Joanne Hannaford
Nicholas M. Harper
Honora M. Harvey
Takashi Hatanaka
Jeffrey R. Haughton
Jason T. Herman
Charles P. Himmelberg
Timothy R. Hodge
Russell W. Horwitz
Russell E. Hutchinson
Tetsuji Ichimori
Elena Ivanova
Tomohiro Iwata
Maria S. Jelescu
Steve Jeneste
Thomas F. Jessop
Kara R. Johnston
Denis Joly
Board Members, Of?cers and Directors
as of March 26, 2013
234 Goldman Sachs 2012 Annual Report
Eric S. Jordan
Anil C. Karpal
Edward W. Kelly
Aasem G. Khalil
Donough Kilmurray
Lorence H. Kim
Tobias Koester
Adam M. Korn
Paul Kornfeld
Ulrich R. Kratz
Florence Kui
Glen M. Kujawski
Michael E. Kurlander
Cory H. Laing
Meena K. Lakdawala
Richard N. Lamming
Francesca Lanza
Sarah C. Lawlor
Benjamin Leahy
Timothy M. Leahy
Dominic J. Lee
Jason Lee
Lakith R. Leelasena
Edward K. Leh
Philippe H. Lenoble
Eugeny Levinzon
Ning Ma
John G. Madsen
Brian M. Margulies
Michael C. Marsh
David W. May
Robert A. McEvoy
William T. McIntire
Christopher G. Mckey
Paul J. Miller
Yutaka Miura
Joseph Montesano
Jennifer L. Moyer
David J. Mullane
Eric D. Muller
T. Clark Munnell, Jr.
Guy A. Nachtomi
Jyothsna G. Natauri
Jeffrey R. Nazzaro
Carey Nemeth
John M. O’Connell
Kristin A. Olson
Kevin W. Pamensky
Nash Panchal
Ali Peera
Tracey A. Perini
Edward J. Perkin
Jonathan G. Pierce
Dhruv Piplani
Dmitri Potishko
Siddharth P. Prabhu
Philip B. Prince
Dirk J. Pruis
Francois J. Rigou
Stuart Riley
Tami B. Rosen
Santiago J. Rubin
Howard H. Russell
Natasha P. Sai
Christian D. Salomone
Krishnan P. Sankaran
Timothy K. Saunders, Jr.
Peter Scheman
Pedro E. Scherer
Stephanie R. Schueppert
Hugo P. Scott-Gall
Gaurav Seth
Kiran V. Shah
Raj Shah
Roopesh K. Shah
Takehisa Shimada
Tomoya Shimizu
Nameer A. Siddiqui
David A. Sievers
Brigit L. Simler
David I. Simpson
Jason E. Singer
David R. Spurr
Michael H. Stanley
Matthew F. Stanton
Umesh Subramanian
Kathryn E. Sweeney
Teppei Takanabe
Troy S. Thornton
Ben W. Thorpe
Matthew E. Tropp
Charles-Eduard van Rossum
Mark A. Van Wyk
Jonathan R. Vanica
Rajesh Venkataramani
John R. Vitha, II
Katherine M. Walker
Brent D. Watson
Nicole A. Weeldreyer
John A. Weir
Noah Y. Weisberger
Ellis Whipple
Pansy Piao Wong
Yat Wai Wu
Andrew P. Wyke
Seigo Yamasaki
Xi Ye
Susan Yung
Maoqi Zhang
Xiaoyin Zhang
Helen Zhu
Robert Allard
Paul Ferrarese
Matthew T. Kaiser
Kenneth Damstrom
Robert M. Dannenberg
Thomas Wadsworth
Tareq Islam
Michael Paese
Alain Marcus
Jonathan Ezrow
Asad Haider
Hector Chan
Toshiya Saito
Una M. Neary
Shantanu Shete
Keith Tomao
Steve L. Bossi
Bobby Vedral
Bob G. MacDonald
Cassius Leal
Etienne Comon
Li Hui Suo
Dalinc Ariburnu*
John D. Melvin
Tabassum A. Inamdar
Richard M. Andrade
Benny Adler
Bruce A. Albert
Umit Alptuna
Matthew T. Arnold
Divyata Ashiya
Taraneh Azad
Jeffrey Bahl
Vishal Bakshi
David C. Bear
Deborah Beckmann
Gary K. Beggerow
Andrea Berni
Roop Bhullar
Christopher W. Bischoff
John D. Blondel
Jill A. Borst
Peter Bradley
James W. Briggs
Heather L. Brownlie
Richard M. Buckingham
Robert Buff
Maxwell S. Bulk
Paul J. Burgess
Jonathan P. Bury
Kevin G. Byrne
Tracy A. Caliendo
Thomas J. Carella
Winston Cheng
Doris Cheung
Alina Chiew
Getty Chin
Paul Christensen
Andrew Chung
Robert C. Cignarella
Alberto Cirillo
Nigel C. Cobb
Giorgio Cocini
Shaun A. Collins
Martin A. Cosgrove
Patrick C. Cunningham
Canute H. Dalmasse
Stephen J. DeAngelis
Michele della Vigna
Brian R. Doyle
Orla Dunne
Karey D. Dye
Sarel Eldor
Sanja Erceg
Alexander E. Evis
Robert A. Falzon
Danielle Ferreira
John K. Flynn
Una I. Fogarty
Allan W. Forrest
Mark Freeman
Boris Funke
Udhay Furtado
Jian Mei Gan
Simon F. Gee
Mark E. Giancola
Cyril J. Goddeeris
Brian S. Goldman
Jennifer E. Gordon
Adam C. Graves
Benedict L. Green
Lars A. Gronning
Carey Baker Halio
Thomas V. Hansen
Michael J. Hayes
Scott P. Hegstrom
Edouard Hervey
Timothy S. Hill
Joseph B. Hudepohl
Jeffrey J. Huffman
Hiroyuki Ito
Corey M. Jassem
Ian A. Jensen-Humphreys
Baoshan Jin
Aynesh L. Johnson
Eri Kakuta
John D. Kast
Kevin G. Kelly
Jane M. Kelsey
Anita K. Kerr
Michael Kirch
Marie Louise Kirk
Caroline V. Kitidis
Katharina Koenig
Matthew E. Korenberg
Tatiana A. Kotchoubey
Anshul Krishan
Dennis M. Lafferty
Raymond Lam
John V. Lanza
Solenn Le Floch
Craig A. Lee
Rose S. Lee
José Pedro Leite da Costa
Luca M. Lombardi
*Partnership Committee Member
Board Members, Of?cers and Directors
as of March 26, 2013
235 Goldman Sachs 2012 Annual Report
Joseph W. Long
Todd D. Lopez
Galia V. Loya
Michaela J. Ludbrook
August Lund
R. Thornton Lurie
Peter R. Lyneham
Gregory P. Lyons
Paget R. MacColl
Lisa S. Mantil
Clifton C. Marriott
Nicholas Marsh
Daniel G. Martin
Elizabeth G. Martin
Jason L. Mathews
Masaaki Matsuzawa
Alexander M. Mayer
John P. McLaughlin
Jean-Pascal Meyre
Arthur M. Miller
Tom Milligan
Heather K. Miner
Gregory P. Minson
Hironobu Moriyama
Edward G. Morse
Teodoro Moscoso
Caroline B. Mutter
Robert T. Naccarella
Olga A. Naumovich
Brett J. Nelson
Roger Ng
Victor K. Ng
Stephen J. Nundy
Jernej Omahen
Daniel S. Oneglia
Andrew J. Orekar
Anna Ostrovsky
Marco Pagliara
Uberto Palomba
Gena Palumbo
Thomas J. Pearce
David Perez
Jonathan E. Perry
Gerald J. Peterson
Julien D. Petit
Charlotte L. Pissaridou
David S. Plutzer
Ian E. Pollington
Alexander E. Potter
Jonathan A. Prather
Alberto Ramos
Marko J. Ratesic
Sunder K. Reddy
Joanna Redgrave
Ryan E. Roderick
Philip J. Salem
Hana Thalova
Gleb Sandmann
Jason M. Savarese
Joshua S. Schiffrin
Adam Schlesinger
Rick Schonberg
Johan F. Schulten
Matthew W. Seager
Gaik Khin Nancy Seah
Oliver R.C. Sedgwick
David Sismey
Bryan Slotkin
Timothy A. Smith
Warren E. Smith
Thomas E. Speight
Russell W. Stern
Joseph Stivaletti
Thomas Stolper
Chandra K. Sunkara
Kengo Taguchi
Boon-Kee Tan
Kristi A. Tange
Jonathan E.A. ten Oever
David S. Thomas
Jonathan S. Thomas
Andrew Tilton
Frank T. Tota
Hiroshi Ueki
Naohide Une
Fernando P. Vallada
Samuel Villegas
Christian von Schimmelmann
Peadar Ward
Hideharu Watanabe
Scott C. Watson
Martin Weber
Gregory F. Werd
Ronnie A. Wexler
David A. Whitehead
David Whitmore
David Williams
Julian Wills
William Wong
Michael Woo
Nick Yim
Koji Yoshikawa
Albert E. Youssef
Alexei Zabudkin
Adam J. Zotkow
Robert J. Liberty
Fabio H. Bicudo
Philip Callahan
Christopher J. Cowen
Atanas Djumaliev
Sonjoy Chatterjee
Yun Liu
Asita Anche
Bernard Thye Peng Teo
Shannon E. Young, III
Boris M. Baroudel
Pankaj Jhamb
Johan M.D. Den Hoedt
Johannes P. Fritze
Richard Gostling
Jeffrey S. Isaacs
William Shope, Jr.
Steven K. Barg
Guido Filippa
Kathleen Hughes
Michael Zeier
David Wells
Philip A. May
Alastair Maxwell
Jiming Ha
Sara Strang
Yusof Yaacob
Julian Zhu
Michael Wise
Pierre-Emmanuel Y. Juillard
Clemens Grafe
Gary Suen
Jeffrey A. Barclay
Joseph L. D’Anna
David K. Gallagher
Grant Willis
Frederique Gilain-Huneeus
Joel T. Schwartz
Philip J. Shelley
Theodore Lubke
Patrick J. Moran
Ronald Arons
Michael S. Goldstein
John P. Killian
Brett A. Olsher
James B. Adams
Geoffrey P. Adamson
Yashar Aghababaie
Nicole Agnew
Ahmet Akarli
Ali A. Al-Ali
Jorge Alcover
Moazzam Ali
Shawn M. Anderson
Gina M. Angelico
John J. Arege
Paula G. Arrojo
Richard J. Asbery
Naohiko Baba
Gargi Banerjee
Amit Bansal
Thomas J. Barrett, III
Roger K. Bartlett
Stephen E. Becker
Mick J. Beekhuizen
Stuart R. Bevan
Ron Bezoza
Nick Bhuta
Christopher J. Biasotti
David R. Binnion
James Black
Michael Bogdan
Charles P. Bouckaert
Marco Branca
Didier Breant
Kelly Reed Brennan
Craig T. Bricker
Nellie A. Bronner
Sara Burigo
James M. Busby
Elizabeth A. Byrnes
Alvaro Camara
Ramon Camina Mendizabal
Tavis C. Cannell
Michael J. Casabianca
Jacqueline M. Cassidy
Leor Ceder
Gaurang Chadha
Eli W. Chamberlain
Gilbert Chan
Kevin M. Chan
Francis S. Chlapowski
Dongsuk Choi
Stephen L. Christian
Peter I. Chu
Vania H. Chu
Emmanuel D. Clair
Bracha Cohen
Darren W. Cohen
Christopher J. Creed
Helen A. Crowley
Elie M. Cukierman
Matthew J. Curtis
Jason S. Cuttler
Sterling D. Daines
Kevin J. Daly
Rajashree Datta
Samantha S. Davidson
Adam E. Davis
Sally Pope Davis
Raymond E. de Castro
Gilles M. Dellaert
George J. Dennis
Sara V. Devereux
Diana R. Dieckman
Avi Dimor
Lisa A. Donnelly
Mark T. Drabkin
Tilo A. Dresig
Thomas K. Dunlap
Steven M. Durham
Michael S. DuVally
Masahiro Ehara
Grant M. Eldred
Manal I. Eldumiati
Charles W. Evans
Anne M. Fairchild
Craig R. Farber
John W. Fathers
Lev Finkelstein
Warren P. Finnerty
Board Members, Of?cers and Directors
as of March 26, 2013
236 Goldman Sachs 2012 Annual Report
Elizabeth O. Fischer
John J. Flynn
Veronica Foo
Francesca Fornasari
Christian L. Fritsch
Andrew J. Fry
Charles M. Fuller
Ruth Gao
David M. Garofalo
Luke F. Gillam
Lisa M. Giuffra de Diaz
Matthew J. Glickman
Parameswaran Gopikrishnan
Luke G. Gordon
Pooja Grover
Patricia R. Hall
Anna Hardwick
Gerrit Heine
Caroline Heller
Richard I. Hempsell
Isabelle Hennebelle-Warner
Jeremy P. Herman
Matthias Hieber
Amanda S. Hindlian
Darren S. Hodges
Edward Y. Huang
Simon Hurst
Edward McKay Hyde
Nagisa Inoue
Marc Irizarry
Shintaro Isono
Benon Z. Janos
Ronald Jansen
Mikhail Jirnov
Benjamin R. Johnson
Richard G. Jones
Mariam Kamshad
Makiko Kawamura
Christina Kelerchian
Andre H. Kelleners
Sven H. Khatri
Sandip S. Khosla
David A. Killian
Melinda Kleehamer
Maxim B. Klimov
Adriano Koelle
Goohoon Kwon
Thymios Kyriakopoulos
Laurent-Olivier Labeis
David R. Land
Lambert M. Lau
Sandra G. Lawson
David H. Leach
Deborah A. Lento
Gavin J. Leo-Rhynie
Leon Leung
Ke Li
Xing Li
Sabrina Y. Liak
Jason R. Lilien
Amy M. Liu
Bernard C. Liu
Nelson Lo
Kyri Loupis
Yvonne Low
Joshua Lu
Yvonne Lung
John G. Macpherson
Marcello Magaletti
Uday Malhotra
Upacala Mapatuna
Kristerfor T. Mastronardi
Ikuo Matsuhashi
Francois Mauran
Brendan M. McCarthy
Patrick E. McCarthy
Michael J. McCreesh
Mathew R. McDermott
Charles M. McGarraugh
Sean B. Meeker
Vahagn Minasian
Matthew R. Mitchell
Ryan C. Mitchell
Christine Miyagishima
Igor Modlin
Michael Moizant
Petra Monteiro
Heather L. Mulahasani
Eric Murciano
Colin D. Murphy
Paul M. Mutter
Arvind Narayanan
Mani Natarajan
Antti K. Niini
Tomoya Nishikawa
Daniel Nissenbaum
Kevin Ohn
Thomas A. Osmond
Diana Y. Pae
Elena Paitra
James Park
Katherine J. Park
Kyung-Ah Park
Ian L. Parker
Benjamin R. Payne
Thomas G. Pease
Andrew J. Pena
Stuart R. Pendell
Ricardo H. Penfold
Andrew Philipp
Sasa Pilipovic
Asahi M. Pompey
Ling C. Pong
Raya Prabhu
Macario Prieto
Joshua Purvis
Xiao Qin
Philippe Quix
J Ram
Rajiv Ramachandran
Maximilliano Ramirez
Gary M. Rapp
Felicia J. Rector
Christopher C. Rollins
Colin J. Ryan
Maheshwar R. Saireddy
Ricardo F. Salgado
Ian P. Savage
Bennett J. Schachter
Martin L. Schmelkin
Laurie E. Schmidt
Dirk Schumacher
Carsten Schwarting
Thomas Schweppe
Dmitri Sedov
Stacy D. Selig
Kunal Shah
Tejas A. Shah
Alasdair G. Share
Kevin C. Shea
William Q. Shelton
Jason E. Silvers
Ales Sladic
Howard D. Sloan
Michelle D. Smith
Stephanie P. Smith
Thomas J. Smith
Sangam Sogani
Robert A. Spencer
Thomas G. Stelmach
Thomas A. Stokes
Sinead M. Strain
Phillip B. Suh
Jamie Sutherland
Anton Sychev
Hideaki Takada
Konnin Tam
Bong Loo Tan
Yasuko Taniguchi
Daniel W. Tapson
Richard M. Thomas
Francis S. Todd
Christos Tomaras
Lale Topcuoglu
Thomas A. Tormey
Chi Keung Tse
Weidong Tu
Reha Tutuncu
Mei Ling Tye
Nicholas A. Valtz
Nicholas J. van den Arend
Emile F. Van Dijk
Alexandra S. Vargas
Peter G. Vermette
Matthew P. Verrochi
Sindy Wan
Freda Wang
Yi Wang
Mitchell S. Weiss
Greg R. Wilson
Mark J. Wilson
Gudrun Wolff
Isaac W. Wong
David J. Woodhouse
Stuart J. Wrigley
Jerry Wu
Jihong Xiang
Ying Xu
Lan Xue
C.T. Yip
Angel Young
Daniel M. Young
Raheel Zia
David A. Markowitz
Kent Wosepka
Joseph Jiampietro
China D. Onyemeluke
Terri M. Messina
Michele Cortese
Kamal S. Hamdan
Max I. Coreth
Paul Trickett
Yi Wang
Sanjiv Nathwani
Ramez Attieh
Joe Raia
Erwin W. Shilling
Brad Brown
Soares R. Rodolfo
Roberto Belchior
Julian M. Trott
Aaron J. Peyton
Jayne Lerman
Ross Levinsky
Eduard E. van Wyk
Keshav K. Sanghi
David A. Youngberg
Johan G. van Jaarsveld
Heather Bellini
Royal I. Hansen
Alexandra L. Merz
Dan P. Petrozzo
Andrew Armstrong
David John Acton
Kate A. Aitken
Chris Baohm
Andrew Barclay
George Batsakis
Ruben K. Bhagobati
Timothy M. Burroughs
Chris D. Champion
Nicholas J. Fay
Joseph A. Fayyad
Ryan S. Fisher
Zac Fletcher
Robert F. Foale
Board Members, Of?cers and Directors
as of March 26, 2013
237 Goldman Sachs 2012 Annual Report
David Goatley
Simon Greenaway
Christian J. Guerra
Dion Hershan
Andrew J. Hinchliff
Nell C. Hutton
Nick S. Jacobson
Christian W. Johnston
Gordon Livingstone
Brendan R. Lyons
Steven Maartensz
George Maltezos
James M. McMurdo
Matthew J. McNee
Anthony I. J. Miller
Craig R. Murray
Ian M. Preston
Andrew K. Rennie
Matthew G. Ross
Simon A. Rothery
Duncan Rutherford
Nick D. Sims
Conor J. Smyth
Ashley K. Spencer
Andrew R. A. Sutherland
Andrew R. Tanner
Kate A. Temby
Tim F. Toohey
Paul S. J. Uren
Sean Walsh
David Watts
Dion Werbeloff
Jeremy Williams
Vaishali Kasture
Robert G. Burke
Charles Cheng
Jia Ming Hu
Sanjiv Shah
John Clappier
Huw R. Pill
Alan P. Konevsky
PV Krishna
Suk Yoon Choi
Richard J. Quigley
Alex Andrew A. von Moll
Antoine de Guillenchmidt
Carl Stern
Tunde J. Reddy
Paul Ockene
Andrew Robin
Ronald Hua
Darrick Geant
Houston Huang
Felipe F. Mattar
Heath Terry
Jonathan H. Xiong
Jeremy W. Cave
Jose C. Labate
Michael Clarke
Ryad Yousuf
Jeff A. Psaki
Hiroko Adachi
Sajid Ahmed
Flavio Aidar
Lee M. Alexander
Osman Ali
Axel P. Andre
Ilana D. Ash
Dominic Ashcroft
Farshid M. Asl
Linda W. Avery
Vladislav E. Avsievich
Lucy Baldwin
Jonathan K. Barry
Yasmine Bassili
Jonathan Bayliss
Omar L. Beer
Mark W. Bigley
Timothy C. Bishop
James Blackham
Jacki Bond
Alain Bordoni
Jonathan E. Breckenridge
John Brennan
Brian R. Broadbent
Jerome Brochard
Jason R. Broder
Robin Brooks
Amy C. Brown
Stefan Burgstaller
Christopher Henry Bush
Michael J. Butkiewicz
Eoghainn L. Calder
Scott S. Calidas
Katrien Carbonez
Sean V. Carroll
John B. Carron
David E. Casner
Kenneth G. Castelino
Sylvio Castro
Vincent Catherine
Winston Chan
Gary A. Chandler
Christopher H. Chattaway
Jonathan L. Cheatle
Simon Cheung
Pierre Chu
Jean-Paul Churchouse
Gregory Chwatko
Massimiliano Ciardi
Simon M. Collier
Kenneth Connolly
Frederic J.F. Crosnier
Alistair K. Cross
Robert G. Crystal
David J. Curtis
Keith L. Cynar
Simon Dangoor
Jennifer L. Davis
Thomas Degn-Petersen
James Dickson
Kevin M. Dommenge
Benjamin J. Dyer
Christopher M. Dyer
Mariano Echeguren
Charles P. Edwards
Katherine A. El-Hillow
Jenniffer Emanuel
Ha?ze Gaye Erkan
Sean Fan
Richard M. Fearn
Michael A. Fisher
Nick Forster
Jennifer A. Fortner
Nanssia Fragoudaki
Grady C. Frank
Michael C. Freedman
Benjamin M. Freeman
Thomas Gasson
Antonio Gatti
Frank S. Ghali
Jason A. Ginsburg
Paul A. Giordano
Joshua Glassman
Gary M. Godshaw
Albert Goh
Ernest Gong
Jonathan J. Goodfellow
Michael Goosay
Rosalee M. Gordon
Poppy Gozal
Genevieve Gregor
Krag (Buzz) Gregory
Nick E. Guano
Nicholas Halaby
Sanjay A. Harji
Corey R. Harris
Thomas J. Harrop
Brian M. Haufrect
Adam T. Hayes
Robert Hinch
Ida Hoghooghi
Michael P. Huber
Jonathan S. Hunt
Ahmed Husain
Aytac Ilhan
Omar Iqbal
Gurjit S. Jagpal
Simona Jankowski
Arbind K. Jha
Xiangrong Jin
Danielle G. Johnson
Michael G. Johnson
Paul A. Johnson
Jean Joseph
Edina Jung
Philipp O. Kahre
Abhishek Kapur
Sho Kawano
Jeremiah E. Keefe
Ryan J. Kelly
Brian J. Kennedy
Nimesh Khiroya
Jeff Kim
Phillip Kimber
Kathryn A. Koch
Konstantin Koudriaev
Tannon L. Krumpelman
Fiona Laffan
James Lamanna
Kerry C. Landreth
Peter B. Lardner
Matthew Larson
Alison W. Lau
Arden Lee
Hanben Kim Lee
Hung Ke Lee
Sang-Jun Lee
Howard Russell Leiner
Rainer Lenhard
Stephen L. Lessar
Daphne Leung
Chad J. Levant
Weigang Li
Gloria W. Lio
Chang Lee Liow
Matthew Liste
Edmund Lo
Justin Lomheim
David A. Mackenzie
Regis Maignan
Sameer R. Maru
Miyuki I. Matsumoto
Antonino Mattarella
Janice M. McFadden
Jack McFerran
John L. McGuire
Aziz McMahon
Jans Meckel
Ali Meli
Rodrigo Mello
Vrinda Menon
Raluca Mihaila
Milko Milkov
Shinsuke Miyaji
Gabriel Mollerberg
Matthew L. Moore
Robert Mullane
Eric S. Neveux
Dale Nolan
Asim H. Nurmohamed
Deirdre M. O’Connor
Satoshi Ohishi
Simon G. Osborn
Hilary Packer
Daniel M. J. Parker
Board Members, Of?cers and Directors
as of March 26, 2013
238 Goldman Sachs 2012 Annual Report
Srivathsan Parthasarathy
Giles R. Pascoe
Rahul Patkar
Robert D. Patton
Deepan Pavendranathan
Alejandro E. Perez
Jan M. Petzel
Tushar Poddar
Jeff Pollard
Nicole Pullen-Ross
Steven J. Purdy
Ali Raissi
Rosanne Reneo
Paul Rhodes
Jill Rosenberg Jones
Jason T. Rowe
Matthew Rubens
Joshua A. Rubinson
Owi Ruivivar
Jennifer A. Ryan
Andrew S. Rymer
Albert Sagiryan
Hiroyoshi Sandaya
John Santonastaso
Eduardo Sayto
Michael Schmitz
Mike Schmitz
Michael Schramm
Beesham A. Seecharan
Peter Sheridan
Seung Shin
Andrea Skarbek
Spencer Sloan
William Smiley
Taylor Smisson
Gary Smolyanskiy
Nishi Somaiya
Michael R. Sottile Jr
Andre Souza
Oliver Stewart-Malir
Christopher W. Taendler
Winnie Tam
Trevor Tam
Luke D. Taylor
Vipul Thakore
Michael D. Thompson
Artur Tomala
John B. Tousley
Alfred Traboulsi
Alexandre Traub
Eddie Tse
Hidetoshi Uriu
Dirk Urmoneit
Ram Vittal
Michael Voris
Thomas W. Waite
Joseph F. Walkush
Steve Weddell
Paul Weitzkorn
Andrew M. Whyte
Vicky Wickremeratne
Ed Wittig
Jon J. Wondrack
Yvonne Y. Woo
XueYing Shel Xu
Takashi Yamada
Xiaohong Lilly Yang
Wai Yip
Yusuke Yoshizawa
Kota Yuzawa
Richard Zhu
Mikhail Zlotnik
Richard Phillips
Jake Siewert
Tom Ferguson
Jeffrey Burch
Daniel Zarkowsky
Masaki Taniguchi
Matthew Gleason
Joshua Kruk
David Starr
Robert L. Goodman
Claude Schmidt
Paul V. Jensen
Mark Schwartz
Scott Ackerman
Brian Ainsworth
Kim Bradley
Sven Dahlmeyer
Michael Dalton
Mike Forbes
Todd Foust
John Gajdica
Todd Giannoble
John Gibson
Brenda Grubbs
Stephen Hipp
Frederic Jariel
Tim Johnson
Hiroyasu Kaizuka
Klaus Kraegel
Francesco Magliocchetti
David Miller
Wes Moffett
Chance Monroe
Chris Nelson
Barry Olson
Steven Pluss
Mike Schaffer
Ken Sugimoto
Scott Toornburg
Berthold von Thermann
Michelle Khalili
Li Cui
Jasdeep Maghera
Yongzhi Jiang
Rafael Borja
Manish Gupta
Craig Sainsbury
Andrew Donohue
Nicholas T. Pappas
Zachary T. Ablon
Reyhaan Aboo
Jeff Albee
Carlos Albertotti
Shahzad Ali
David E. Alvillar
Timothy Amman
Lucia Arienti
Jacqueline Arthur
Willem Baars
Nilesh Banerjee
Michael Bang
Marc Banziger
Yibo Bao
Vlad Y. Barbalat
Tanya Barnes
Melissa Barrett
Dan Bennett
Alyssa Benza
Bruce Berg
Dinkar Bhatia
Meera Bhutta
Matthew G. Bieber
Keith Birch
Kerry Blum
Tim Boddy
Matteo Botto Poala
Ryan Boucher
Joseph Braik
Fernando Bravo
Chris Buddin
Paul H. Burchard
Caroline Carr
Marie-Ange Causse
Daniel Cepeda
Jean-Baptiste Champon
Raymond Chan
Rita Chan
Pierre Chavenon
Gigi Chavez de Arnavat
Angus Cheng
Nikhil Choraria
Adam Clark
Hugo Clark
Colin Convey
Piers Cox
Chris Crampton
Fredrik Creutz
Heidi Cruz
Angelo Curreli
Laurianne Curtil
Pol De Win
Matthew DeMonte
Anthony Dewell
Joshua A. Dickstein
Kuniaki Doi
Jessica Douieb
Martine Doyon
Jennifer Drake
Dexter D’Souza
David Dubner
Amy Elliott
Theodore Enders
Hugh Falcon
Aidan Farrell
Raymond Filocoma
Andrea Finan
Jeffrey Fine
James A. Fitzsimmons
Matthew Flett
Robert G. Frahm III
Alisdair Fraser
Barry Friedeman
Charlie Gailliot
Renyuan Gao
Manuel A. Garcia
Suzanne Gauron
Darren T. Gilbert
Jason Gilbert
Eric Goldstein
Jamie Goodman
Betsy Gorton
Pooja Goyal
Jason Granet
David Granson
David Grant
Tim Grayson
Brian Greeff
Marci Green
Stephen Grif?n
Kristen Grippi
Dinesh Gupta
Manav Gupta
Yuhei Hara
Toshiya Hari
Todd Haskins
Aime Hendricks
Michael Henry
Peter U. Hermann
Alejandro Hernandez
James Herring
Jamie Higgins
Peter J. Hirst
Christopher Hogan
Mike Holmes
Jonathan P. Horner
Katie Hudson
Kenneth Hui
Lars Humble
Amer Ikanovic
Stephanie Ivy
Antoine Izard
Gunnar Jakobsson
Dong Soo Jang
James M. Joyce
Board Members, Of?cers and Directors
as of March 26, 2013
239 Goldman Sachs 2012 Annual Report
John C. Joyce
Benjamin D. Kass
Christopher Keller
Simon J. Kingsbury
Judge Kirby
Jeffrey Klein
John H. Knorring
Marina Koupeeva
Jane Lah
Pierre Lamy
Arthur Leiz
Alex Levy
Alexander S. Lewis
Tim Li
Zheng Li
Stephane Lintner
Ilya Lisansky
Darren Littlejohn
Jean Liu
John Liu
Wanlin Liu
Wendy Mahmouzian
Mazen Makarem
Daniel R. Mallinson
Thomas Manetta
Robert C. Mara III
Stephen Markman
Dunstan Marris
Jon May
Kristen McDuffy
Victoria McLean
Sean McWeeney Jr
Benoit Mercereau
Edouard Metrailler
Peter Michelsen
Samantha Migdal
Jeffrey Miller
Marko Milos
Teruko Miyoshi
Steven Mof?tt
Sarah Mook
Hari Moorthy
Michael Moran
Paula P. Moreira
Alister A. Morrison
Peter Mortimer
Chukri Moubarak
Sara Naison-Tarajano
Anthony J. Nardi
Gleb Naumovich
Sean Naylen
Oliver Neal
Olaf Nordmeyer
Barry O’Brien
Patrick O’Connell
Zahabiya Of?cewala
Keisuke Okuda
Elizabeth Overbay
Robert A. Palazzi
Philip Pallone
Mitesh J. Parikh
Brian A. Pasquinelli
Nita Patel
Manolo Pedrini
Douglas Penick
David Perdue
Michael Perloff
Patrick Perreault
Alec Phillips
Marc Pillemer
Noah Poponak
Kim-Thu Posnett
Sameer Ralhan
Mo Ramani
Samuel Ramos
Andrea Raphael
Kareem Raymond
Neil Reeve
Claudia Reim
Grant Richard
Valentina Riva
Fernando Rivera
Brian Robinson
Tom Robinson
Javier Rodriguez
David Roman
Katya Rosenblatt
Richard J. Rosenblum
Amanda Rubin
Bryan Rukin
Akshay Sahni
Gunjan Samtani
Lucas W. Sandral
Manu Sareen
Philip Saunders
Monika Schaller
Michael Schlee
Jonathan Schorr
Anton Schreider
Peter Schwab
Roy A. Schwartz
Joshua Schwimmer
Stuart Sclater-Booth
Kunal Shah
Martin Sharpe
Hao Shen
Mark Siconol?
Vanessa Simonetti
Amit Sinha
Matthew Slater
Ian Spaulding
Richard Spencer
Lesley Steele
Heiko Steinmetz
Michael Strafuss
Takashi Suwabe
Linda Tai
Laura Takacs
Maurice Tamman
Eng Guan Tan
Katsunori Tanaka
Bob Tankoos
Belina Thiagarajah
John R. Thomas
Cullen Thomason
Glenn Thorpe
Jonathan Tipermas
Michele Titi-Cappelli
Timothy G. Tomalin-Reeves
Carrie Van Syckel
Tammy VanArsdalen
Carmine Venezia
Frank Viola
Heather von Zuben
Monali Vora
Martin Walsh
Ward Waltemath
Stephen Warren
Luke Wei
Matthew Weir
Chris Wells
Geoffrey M. Williams
Neil Wolitzer
Willie W. Wong
Nicola Wright
Makoto Yamada
Wendy Yun
Genya Zemlyakova
Jing Zhang
Allen Zhao
Anthony Davis
Sarah Rennie
Steve Kron
Chin Thean Quek
Saleh Romeih
240 Goldman Sachs 2012 Annual Report
Advisory
Directors
Eric S. Dobkin
Jonathan L. Cohen
Alan A. Shuch
Robert E. Higgins
Carlos A. Cordeiro
Timothy G. Freshwater
Paul S. Efron
John J. Powers
Robert J. Markwick
Maykin Ho
Tracy R. Wolstencroft
Terrence Campbell
Philip M. Darivoff
Martin R. Devenish
Silverio Foresi
Kevin S. Gasvoda
Joseph H. Gleberman
Edith A. Hunt
Charles G.R. Manby
Blake W. Mather
Linnea Roberts
Susan A. Willetts
Lindsay P. LoBue
Jeffrey M. Moslow
Philippe J. Altuzarra
L. Brooks Entwistle
Stefan Green
Timothy M. Kingston
Paul G. Sundberg
Jon A. Woodruff
Neil J. Wright
H. John Gilbertson, Jr.
Kaysie P. Uniacke
Peter D. Sutherland KCMG
Chairman of Goldman Sachs
International
Senior
Directors
John C. Whitehead
H. Frederick Krimendahl II
Donald R. Gant
James P. Gorter
Robert B. Menschel
Robert E. Mnuchin
Thomas B. Walker, Jr.
Richard L. Menschel
Eugene Mercy, Jr.
Stephen B. Kay
Robert N. Downey
Roy J. Zuckerberg
Robert M. Conway
David M. Silfen
Eugene V. Fife
Peter G. Sachs
Willard J. Overlock, Jr.
Mark O. Winkelman
John R. Farmer
Robert J. Katz
Robin Neustein
Robert Hurst
Robert S. Kaplan
Edward K. Eisler
Yoel Zaoui
Patrick J. Ward
Board of
International Advisors
Claudio Aguirre
Erik Åsbrink
Charles de Croisset
Charles Curran, A.C.
Guillermo de la Dehesa
Vladimír Dlouhý
Walter W. Driver, Jr.
Senator Judd Gregg
Lord Grif?ths of Fforestfach
Professor Victor Halberstadt
Professor Otmar Issing
Roberto Junguito
Ian Macfarlane, A.C.
Dr. Axel May
Tito T. Mboweni
Enrico Vitali
Offices
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George Town
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Jersey City
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Kuala Lumpur
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Madrid
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Riyadh
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Seoul
Shanghai
Singapore
Stockholm
Sydney
Taipei
Tampa
Tel Aviv
Tokyo
Toronto
Warsaw
Washington, D.C.
West Palm Beach
Zurich
Directors, Advisors and Of?ces
as of March 26, 2013
Shareholder Information
2012 Annual Report on Form 10-K
Copies of the ?rm’s 2012 Annual Report on
Form 10-K as ?led with the U.S. Securities and Exchange
Commission can be accessed via our Web site at
www.goldmansachs.com/shareholders/.
Copies can also be obtained by
contacting Investor Relations via email at
[email protected]
or by calling 1-212-902-0300.
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Shareholder inquiries can also be
directed to Investor Relations via email at
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or by calling 1-212-902-0300.
© 2013 The Goldman Sachs Group, Inc. All rights reserved.
Except where speci?cally de?ned, the terms “Goldman Sachs,” “?rm,”
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or more of them, depending on the context in each instance. Except
where otherwise noted, all marks indicated by ®, TM, or SM are
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