Goldman Sachs 2000 Annual Report Download - page 40

Credit Ratings
Goldman Sachs relies upon the debt capital markets to fund
a significant portion of its day-to-day operations. The cost
and availability of debt financing is influenced by our credit
ratings. Credit ratings are also important to us when com-
peting in certain markets and when seeking to engage in
longer term transactions, including over-the-counter
derivatives. A reduction in our credit ratings could increase
our borrowing costs and limit our access to the capital mar-
kets. This, in turn, could reduce our earnings and adversely
affect our liquidity.
The following table sets forth our credit ratings as of
November 2000:
Short-Term Long-Term
Debt Debt
Fitch F1+ AA-
Moody’s Investors Service P-1 A1
Standard & Poor’s A-1+ A+
Thomson Financial BankWatch was acquired by Fitch on December 1,
2000. The most recent ratings we received from Thomson Financial
BankWatch were TBW-1 for short-term debt and AA for long-term debt.
Long-Term Debt
As of November 2000, our consolidated long-term bor-
rowings were $31.40 billion. Substantially all of these
borrowings were unsecured and consisted principally of
senior borrowings with maturities extending to 2024. The
weighted average maturity of our long-term borrowings as
of November 2000 was approximately 4.25 years. A sub-
stantial portion of our long-term borrowings are swapped
into U.S. dollar obligations with short-term floating rates of
interest in order to minimize our exposure to interest rates
and foreign exchange movements. See Note 6 to the con-
solidated financial statements for further information
regarding our long-term borrowings.
Regulated Subsidiaries
Many of our principal subsidiaries are subject to extensive
regulation in the United States and elsewhere. Goldman,
Sachs & Co. and Spear, Leeds & Kellogg, L.P. are registered
U.S. broker-dealers and futures commissions merchants,
and are regulated by the Securities and Exchange
Commission, the Commodity Futures Trading Commission,
the Chicago Board of Trade, the New York Stock Exchange
and The National Association of Securities Dealers, Inc.
Goldman Sachs International, a registered U.K. broker-
dealer, is subject to regulation by the Securities and Futures
Authority Limited and the Financial Services Authority.
Goldman Sachs (Japan) Ltd., a Tokyo-based broker-
dealer, is subject to regulation by the Financial Services
Agency, the Tokyo Stock Exchange, the Tokyo International
Financial Futures Exchange and the Japan Securities
Dealers Association. Several other subsidiaries of Goldman
Sachs are regulated by securities, investment advisory,
banking, and other regulators and authorities around the
world, such as the Bundesbank of Germany. Compliance
with the rules of these regulators may prevent us from
receiving distributions, advances or repayment of liabilities
from these subsidiaries. See Note 13 to the consolidated
financial statements for further information regarding our
regulated subsidiaries.
Risk Management
Goldman Sachs has a comprehensive risk management
process to monitor, evaluate and manage the principal risks
assumed in conducting its activities. These risks include
market, credit, liquidity, operational, legal and reputational
exposures.
Risk Management Structure
Goldman Sachs seeks to monitor and control its risk expo-
sure through a variety of separate but complementary
financial, credit, operational and legal reporting systems.
We believe that we have effective procedures for evaluating
and managing the market, credit and other risks to which we
are exposed. Nonetheless, the effectiveness of our policies
and procedures for managing risk exposure can never be
completely or accurately predicted or fully assured. For
example, unexpectedly large or rapid movements or dis-
ruptions in one or more markets or other unforeseen devel-
opments can have a material adverse effect on our results
of operations and financial condition. The consequences of
these developments can include losses due to adverse
changes in inventory values, decreases in the liquidity of
trading positions, higher volatility in our earnings,
increases in our credit exposure to customers and counter-
parties, and increases in general systemic risk.
Goldman Sachs has established risk control procedures at
several levels throughout the organization. Trading desk
managers have the first line of responsibility for managing
risk within prescribed limits. These managers have in-depth
38 Goldman Sachs Annual Report 2000