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Clients.
Collaboration.
Capital.
Ideas.
Growth.
2012
Annual
Report

Table of contents

  • Page 1
    2012 Annual Report Clients. Collaboration. Capital. Ideas. Growth.

  • Page 2
    ... We th rapidly changing needs of our the cl clients and to develop new services would, if it came to a choice, rather er imagination in everything we d do. become standard in the industry. be b e e We want to be big enough to undertake Cover: Radha Tilton, Investment Banking Division, New York

  • Page 3
    ...changing environment, our firm 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. Goldman Sachs 2012 Annual Report...

  • Page 4
    ...our capital ratios improved significantly, 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...

  • Page 5
    ... 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. Goldman Sachs 2012 Annual Report 3

  • Page 6
    ...the bulk of funding coming from bank loans. In leveraged finance, 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 4 Goldman Sachs 2012 Annual Report

  • Page 7
    ... 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 significant. Goldman Sachs 2012 Annual Report...

  • Page 8
    ... to enhance growth. 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-fifth of global...

  • Page 9
    ...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 Pacific, Europe and North America. He has nearly three decades of leadership in...

  • Page 10
    ...fit 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...

  • Page 11
    ... 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...

  • Page 12
    Access How can an airline finance the purchase of the next generation of planes in order to execute its business strategy? 10 Goldman Sachs 2012 Annual Report

  • Page 13
    ...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 financing concept used in the United States. Under the plan, the transaction would involve an offering...

  • Page 14
    ..., Managing Director, New York Ali Al-Ali, Managing Director, Dubai Doric and Emirates' historic financing 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...

  • Page 15
    ... Tilton, Greg Lee (both New York); all Investment Banking Division As traditional sources pull back, capital markets step up capital worldwide, more companies have e turned to capital market instruments, such ch United States, where funding streams are re Goldman Sachs 2012 Annual Report 13

  • Page 16
    ...-term cash ï¬,ow needs with long-term liabilities? Craig Russell Investment Management Division, New York "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." 14 Goldman Sachs 2012 Annual Report

  • Page 17
    ... 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 significant portion of the pension plan's total assets. Goldman Sachs...

  • Page 18
    ... the German and French sides, enables Daimler to sell approximately 61.1 million shares and helps to significantly increase EADS free ï¬,oat. As joint bookrunner, Goldman Sachs executed an accelerated bookbuild offering to which investors across Europe, the United States and Asia quickly signed on...

  • Page 19
    Axel Höfer Investment Banking Division, Frankfurt 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 Goldman Sachs 2012 Annual Report 17

  • Page 20
    .... 61.1M in shares 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). 150 INVESTORS 3AM 7:15AM THE...

  • Page 21
    ... Antoine Noblot, Christoph Stanger (both London); all Investment Banking Division #1 bookrunner for common stock offerings Germany 24.4% Market Share $3.9B 12.0% Market Share in shares Europe, Middle East and Africa $14.2B Source: Thomson Reuters in shares Goldman Sachs 2012 Annual Report 19

  • Page 22
    ...Global Coordinator for four of the five follow-on offerings in 2012. Through innovative and efficient 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...

  • Page 23
    ... public." Devanshu Dhyani Investment Banking Division, New York 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 Goldman Sachs 2012 Annual Report 21

  • Page 24
    Opportunity How can a company in a dynamic growth market attract the attention of world-class investors? "They didn't just want to expand their capital. They wanted strategic investors who would become an important part of their shareholder base." 22 Goldman Sachs 2012 Annual Report

  • Page 25
    ...term view. To achieve this, the company turned to Goldman Sachs, as sole bookrunner and placement agent, to find 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...

  • Page 26
    ... Banking Division Jian Mei Gan, Managing Director, Hong Kong Xi Pei, Vice President, Beijing Bernard Teo, Managing Director, Hong Kong China Pacific's recent sale of stock - fully managed by Goldman Sachs - stands out as an example of client trust and strong connections to global investors...

  • Page 27
    ... people's basic insurance needs. Evan Xu (Hong Kong), Investment Banking Division A global solution Client Shanghai Investors Abu Dhabi Oslo Singapore GS Locations Beijing Hong Kong London New York Chito Jeyarajah (Hong Kong), Investment Banking Division Goldman Sachs 2012 Annual Report 25

  • Page 28
    Innovation Where can governments find more capital to address endemic societal challenges? Andrea Phillips Urban Investment Group, New York From left: David Gorleku and Alicia Glen, David Gorleku (both New York), Urban Investment Group 26 Goldman Sachs 2012 Annual Report

  • Page 29
    ... Sachs' strong commitment to the idea of social impact investing - of leveraging private capital to generate returns that are both financially and socially desirable. From top: Sherry Wang, Margaret Anadu, Margaret Anadu (both New York), Urban Investment Group Goldman Sachs 2012 Annual Report...

  • Page 30
    ...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 five-year, $100 million global initiative helping to grow local economies...

  • Page 31
    ... 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...

  • Page 32
    ... equity ui ity directly to these activities. directly related d rela vities. Investment Banking Net Revenues (in millions) Institutional Client Services Net Revenues (in millions) $4,926 $4,355 $21,796 $4,810 2010 2011 2012 2010 2011 $17,280 2012 30 Goldman Sachs 2012 Annual Report...

  • Page 33
    ...invest in and originate loans to provide financing W longer-term in nature. We make investments, directly nd We provide investment management services and ent securities, real estate, consolidated investment s. services to high-net-worth individuals and families. Investing & Lending Net Revenues...

  • Page 34
    ...' equity (total shareholders' equity less preferred stock, goodwill and identifiable 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...

  • Page 35
    ... Statements of Changes in Shareholders' Equity 110 Consolidated Statements of Cash Flows 111 Supplemental Financial Information Quarterly Results Common Stock Price Range Common Stock Performance Selected Financial Data Statistical Disclosures 218 219 219 220 221 Goldman Sachs 2012 Annual Report...

  • Page 36
    ...-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...

  • Page 37
    ... 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...

  • Page 38
    ... 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...

  • Page 39
    ... on Form 10-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...

  • Page 40
    ...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...

  • Page 41
    ... 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

  • Page 42
    .... Models are evaluated and reapproved annually to assess the impact of any changes in the product or market and any market developments in pricing theories. See Notes 5 through 8 to the consolidated financial statements for further information about fair value measurements. 40 Goldman Sachs 2012...

  • Page 43
    ..., 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

  • Page 44
    ... 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...

  • Page 45
    ... connection with fair value measurements, and the accounting for goodwill and identifiable intangible assets, the use 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...

  • Page 46
    ... 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...

  • Page 47
    ... shareholders' equity Impact of the U.K. bank payroll tax Impact of the SEC settlement Impact of the NYSE DMM rights impairment Common shareholders' equity, excluding the impact of the U.K. bank payroll tax, the SEC settlement and the NYSE DMM rights impairment Goldman Sachs 2012 Annual Report 45

  • Page 48
    ... 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...

  • Page 49
    ... consolidated investment entities. Results for 2010 included a gain from our 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...

  • Page 50
    ...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 U.K. bank payroll tax Brokerage, clearing...

  • Page 51
    ... tax) Ratio of compensation and benefits to net revenues Compensation and benefits, including the impact of the $465 million U.K. bank payroll tax Ratio of compensation and benefits to net revenues, including the impact of the $465 million U.K. bank payroll tax Goldman Sachs 2012 Annual Report 49

  • Page 52
    .... Year Ended December 2010 $ in millions Pre-tax earnings $12,892 465 550 $13,907 Provision for taxes $4,538 - 6 $4,544 Effective income tax rate 35.2% As reported Add back: Impact of the U.K. bank payroll tax Impact of the SEC settlement As adjusted 32.7% 50 Goldman Sachs 2012 Annual Report

  • Page 53
    ... Operating Results The table below presents the net revenues, operating expenses and pre-tax earnings of our segments. Year Ended December in millions 2012 2011 2010 Investment Banking Institutional Client Services Investing & Lending Investment Management Total Net revenues Operating...

  • Page 54
    ... 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 versus 2011. Net revenues in Investment...

  • Page 55
    ... 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...

  • Page 56
    ... 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. 54 Goldman Sachs 2012 Annual Report

  • Page 57
    ... 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...

  • Page 58
    ... 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...

  • Page 59
    ... 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. Goldman Sachs 2012 Annual...

  • Page 60
    ...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...

  • Page 61
    ..., 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

  • Page 62
    ... 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...

  • Page 63
    ... 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...

  • Page 64
    ... 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

  • Page 65
    ... 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...

  • Page 66
    ... 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 Excess Liquidity and Cash 1 Secured Client Financing Institutional Client Services Investing & Lending Other Assets...

  • Page 67
    ...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

  • Page 68
    ... 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 window borrowing procedures. 66 Goldman Sachs 2012 Annual Report

  • Page 69
    ... 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-term borrowings. Se 14...

  • Page 70
    ...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...

  • Page 71
    ... 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 minimum Tier 1 leverage ratio of 4%. Goldman Sachs 2012 Annual Report 69

  • Page 72
    ... 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...

  • Page 73
    ... short-term bank deposits. In addition, credit rating agencies have assigned ratings to debt obligations of certain other subsidiaries of Group Inc. 2012 2011 Credit RWAs OTC derivatives Commitments and guarantees 1 Securities financing transactions 2 Other 3 Total Credit RWAs Market RWAs Modeled...

  • Page 74
    ... 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...

  • Page 75
    ... 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

  • Page 76
    ... in Annual Report 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...

  • Page 77
    ... 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...

  • Page 78
    ...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

  • Page 79
    ... 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

  • Page 80
    ... the oversight of our Board, our key risk-related committees and the independence of our control and support functions. Corporate Oversight Board of Directors Risk Co mm ittee Senior Management Oversight Chief Executive Officer President Chief Financial Officer Committee Oversight Manage m ent...

  • Page 81
    ... limits for both market and credit risks, approves sovereign credit risk limits and reviews results of stress tests and scenario analyses. This committee is cochaired by the firm's chief financial officer and a senior managing director from the firm's executive office, and reports to the Management...

  • Page 82
    ... 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...

  • Page 83
    ... 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

  • Page 84
    ... 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...

  • Page 85
    ...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...

  • Page 86
    ... 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...

  • Page 87
    ...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...

  • Page 88
    ... Sachs Capital II and Goldman Sachs Capital III. 4. The ratings outlook for trust preferred and preferred stock is stable. The table below presents 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...

  • Page 89
    ... 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...

  • Page 90
    ... 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...

  • Page 91
    ... 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 Risk Committee. We evaluate the accuracy of our VaR model through daily backtesting (i.e., comparing daily trading net revenues to...

  • Page 92
    ... 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

  • Page 93
    ...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 risk categories. Goldman Sachs 2012 Annual Report 91

  • Page 94
    ... 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

  • Page 95
    ... 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

  • Page 96
    ... 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 and region. 94 Goldman Sachs 2012 Annual Report

  • Page 97
    ... 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...

  • Page 98
    ... 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-bycounterparty basis (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) when a legal...

  • Page 99
    ..., 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 firm is exposed to credit risk from its receivables from brokers, dealers and clearing organizations and customers and...

  • Page 100
    ... 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

  • Page 101
    ... 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 Total Net Funded...

  • Page 102
    ... 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...

  • Page 103
    ...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...

  • Page 104
    ... 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...

  • Page 105
    ... 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. ‰ the degree of...

  • Page 106
    ... 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...

  • Page 107
    ...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...

  • Page 108
    ... 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...

  • Page 109
    ... Investment management Commissions and fees Market making Other principal transactions Total non-interest revenues Interest income Interest expense Net interest income Net revenues, including net interest income Operating expenses Compensation and benefits U.K. bank payroll tax Brokerage, clearing...

  • Page 110
    ... securities, net of tax Other comprehensive income/(loss) Comprehensive income $7,475 (89) 168 244 323 $7,798 $4,442 (55) (145) (30) (230) $4,212 $8,354 (38) 88 26 76 $8,430 The accompanying notes are an integral part of these consolidated financial statements. 108 Goldman Sachs 2012 Annual...

  • Page 111
    ... secured financings (includes $30,337 and $30,019 at fair value as of December 2012 and December 2011, respectively) Payables to brokers, dealers and clearing organizations Payables to customers and counterparties Financial instruments sold, but not yet purchased, at fair value Unsecured short-term...

  • Page 112
    ... net tax benefit/(provision) related to share-based awards Cash settlement of share-based compensation Balance, end of year Retained earnings Balance, beginning of year Net earnings Dividends and dividend equivalents declared on common stock and restricted stock units Dividends on preferred stock...

  • Page 113
    ... income taxes Share-based compensation Gain on sale of hedge fund administration business Changes in operating assets and liabilities Cash and securities segregated for regulatory and other purposes Net receivables from brokers, dealers and clearing organizations Net payables to customers and...

  • Page 114
    ... 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...

  • Page 115
    ... with Affiliated Funds Interest Income and Interest Expense Income Taxes Business Segments Credit Concentrations Legal Proceedings Employee Benefit Plans Employee Incentive Plans Parent Company Consolidation The firm consolidates entities in which the firm has a controlling financial interest. The...

  • Page 116
    ... in "Investment management" revenues. Commissions and Fees. The firm earns "Commissions and fees" from executing 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

  • Page 117
    ...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

  • Page 118
    ... 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

  • Page 119
    ... 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...

  • Page 120
    ... are marked to offer prices. Fair value measurements do not include transaction costs. The firm measures 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...

  • Page 121
    ...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...

  • Page 122
    ..., 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...

  • Page 123
    ... 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 Loans and securities...

  • Page 124
    ...-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 uniform within each product type. 122 Goldman Sachs 2012 Annual Report

  • Page 125
    ...Total U.S. government and federal agency obligations Non-U.S. government and agency obligations Mortgage and other asset-backed loans and securities: Loans and securities backed by residential real estate Bank loans and bridge loans Corporate debt securities State and municipal obligations Equities...

  • Page 126
    ... 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 traded instruments. 124 Goldman Sachs 2012 Annual Report

  • Page 127
    ...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...

  • Page 128
    ... 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

  • Page 129
    ... 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

  • Page 130
    ... 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...

  • Page 131
    ...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

  • Page 132
    ... 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

  • Page 133
    ...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

  • Page 134
    ... (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

  • Page 135
    ... 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...

  • Page 136
    ... 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

  • Page 137
    ... 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

  • Page 138
    ... 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...

  • Page 139
    ...term borrowings" and "Unsecured long-term borrowings." See Note 8 for further information. As of December in millions 2012 2011 Fair value of assets Fair value of liabilities Net asset/(liability) Notional amount 320 398 $ (78) $10,567 $ $ 422 304 $ 118 $9,530 Goldman Sachs 2012 Annual Report...

  • Page 140
    ... 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

  • Page 141
    ...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...

  • Page 142
    ...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...

  • Page 143
    ... 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...

  • Page 144
    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 ...

  • Page 145
    ... (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...

  • Page 146
    ... (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

  • Page 147
    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. ...

  • Page 148
    ...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

  • Page 149
    ...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

  • Page 150
    ... 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...

  • Page 151
    ...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

  • Page 152
    ...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 Other secured financings Unsecured short-term borrowings 2 Unsecured long-term borrowings 3 Other...

  • Page 153
    ...these lending commitments was $59.29 billion and $66.12 billion, respectively. See Note 18 for further information about lending commitments. 2012 2011 2010 Net gains/(losses) including hedges Net gains/(losses) excluding hedges $(714) (800) $596 714 $198 199 Goldman Sachs 2012 Annual Report...

  • Page 154
    ... 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...

  • Page 155
    ... 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

  • Page 156
    ... 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...

  • Page 157
    ... 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...

  • Page 158
    ...'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...

  • Page 159
    ... 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...

  • Page 160
    ...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 firm also obtains funding through these VIEs. 158 Goldman Sachs 2012 Annual Report

  • Page 161
    ... 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...

  • Page 162
    ...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

  • Page 163
    ... from brokers, dealers and clearing organizations Financial instruments owned, at fair value Other assets Total Liabilities Other secured financings Financial instruments sold, but not yet purchased, at fair value Unsecured short-term borrowings, including the current portion of unsecured long-term...

  • Page 164
    ... Real estate, credit-related and other investing CDOs, mortgage-backed and other asset-backed Principalprotected notes in millions Total Assets Cash and cash equivalents Cash and securities segregated for regulatory and other purposes Receivables from brokers, dealers and clearing organizations...

  • Page 165
    ...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...

  • Page 166
    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 ...

  • Page 167
    ... Equities Client Execution Securities Services Investing & Lending Investment Management Total $ 98 183 $ 104 186 269 2,402 105 59 586 $3,702 284 2,390 117 147 574 $3,802 Identifiable Intangible Assets As of December in millions 2012 2011 Investment Banking: Financial Advisory Underwriting...

  • Page 168
    ... 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

  • Page 169
    ... assets as of December 2012. Year Ended December in millions 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...

  • Page 170
    ... 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...

  • Page 171
    ... 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

  • Page 172
    ...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...

  • Page 173
    ...), 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...

  • Page 174
    ... 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

  • Page 175
    ... income benefits Total 1 $ - 10,274 - $ 3,296 14,213 835 270 $18,614 - $10,274 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. Goldman Sachs 2012 Annual Report...

  • Page 176
    ... 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

  • Page 177
    ... 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...

  • Page 178
    ... 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...

  • Page 179
    ... 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...

  • Page 180
    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...

  • Page 181
    ... 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...

  • Page 182
    Notes to Consolidated Financial Statements Guarantees of Securities Issued by Trusts. The firm has 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 ...

  • Page 183
    ...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...

  • Page 184
    ...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...

  • Page 185
    ... loss Balance, end of year $(170) (55) $(225) $(229) (145) $(374) $113 (30) $ 83 1 $(286) (230) $(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

  • Page 186
    ... 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...

  • Page 187
    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 new model-based capital requirements, as well as an ...

  • Page 188
    ... 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 SEC rules will be subject to regulatory capital...

  • Page 189
    ... 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. Goldman Sachs 2012 Annual Report...

  • Page 190
    ... 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...

  • Page 191
    ... 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

  • Page 192
    ..., 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...

  • Page 193
    ...and federal funds sold 1 Financial instruments owned, at fair value Other interest 2 Total interest income Interest expense Deposits Securities loaned and securities sold under agreements to repurchase Financial instruments sold, but not yet purchased, at fair value Short-term borrowings 3 Long-term...

  • Page 194
    ... Ended December 2012 2011 2010 U.S. federal statutory income tax rate State and local taxes, net of U.S. federal income tax effects Tax credits Non-U.S. operations Tax-exempt income, including dividends Other Effective income tax rate 1. Primarily includes the effect of the SEC settlement of $550...

  • Page 195
    ...2012 2011 Deferred tax assets Compensation and benefits Unrealized losses ASC 740 asset related to unrecognized tax benefits Non-U.S. operations Foreign tax credits Net operating losses Occupancy-related Other comprehensive income-related Other, net Valuation allowance 1 Total deferred tax assets...

  • Page 196
    ... See Note 12. 2. If recognized, the net tax benefit would reduce the firm's effective income tax rate. $1,887 190 336 (109) (35) (47) 15 $2,237 685 $1,552 $2,081 171 278 (41) (638) 47 (11) $1,887 569 $1,318 $1,925 171 162 (104) (128) 56 (1) $2,081 972 $1,109 194 Goldman Sachs 2012 Annual Report

  • Page 197
    ...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...

  • Page 198
    ... 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...

  • Page 199
    ... Investment Banking Institutional Client Services Investing & Lending Investment Management Total net interest income $ (15) 3,723 26 146 $3,880 $ (6) 4,360 635 203 $5,192 $ - 4,692 609 202 $5,503 Geographic Information Due to the highly integrated nature of international financial markets...

  • Page 200
    ... 2010 Net revenues Americas 1 EMEA 2 Asia 3, 4 Total net revenues Pre-tax earnings Americas 1 EMEA 2 Asia 3 Subtotal Corporate 5 Total pre-tax earnings Net earnings Americas 1 EMEA 2 Asia 3 Subtotal Corporate Total net earnings 1. Substantially all relates to the U.S. 2. EMEA (Europe, Middle East...

  • Page 201
    ... 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...

  • Page 202
    ...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

  • Page 203
    ... 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...

  • Page 204
    ...., 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...

  • Page 205
    ... 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...

  • Page 206
    ... 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...

  • Page 207
    ... 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...

  • Page 208
    ... 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...

  • Page 209
    ... 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...

  • Page 210
    ...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...

  • Page 211
    ... 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...

  • Page 212
    ... 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

  • Page 213
    ... 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...

  • Page 214
    ... 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

  • Page 215
    ... 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...

  • Page 216
    ... 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...

  • Page 217
    ... 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...

  • Page 218
    ... 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 Expected volatility Annual dividend per share Expected life...

  • Page 219
    ... income Interest expense Net interest income Net revenues, including net interest income Operating expenses Compensation and benefits Other expenses Total operating expenses Pre-tax earnings Provision/(benefit) for taxes Net earnings Preferred stock dividends Net earnings applicable to common...

  • Page 220
    ... March 2011 Total non-interest revenues Interest income Interest expense Net interest income Net revenues, including net interest income Operating expenses 1 Pre-tax earnings/(loss) Provision/(benefit) for taxes Net earnings/(loss) Preferred stock dividends Net earnings/(loss) applicable to common...

  • Page 221
    ...Nov-07 Nov-08 Dec-09 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. the S&P 500 Financials Index, and the dividends were reinvested on the date of payment without payment of any commissions. The performance shown...

  • Page 222
    ... share Book value per common share 2 Average common shares outstanding Basic Diluted Selected data (unaudited) Total staff Americas Non-Americas Total staff Assets under management (in billions) Asset class Alternative investments Equity Fixed income Total non-money market assets Money markets Total...

  • Page 223
    ... 11,381 Assets Deposits with banks U.S. Non-U.S. Securities borrowed, securities purchased under agreements to resell and federal funds sold U.S. Non-U.S. Financial instruments owned, at fair value 1, 2 U.S. Non-U.S. Other interest-earning assets 3 U.S. Non-U.S. Total interest-earning assets Cash...

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    ... 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

  • Page 225
    ...) due to change in: Volume Rate Net change Volume Rate Net change Interest-earning assets Deposits with banks U.S. Non-U.S. Securities borrowed, securities purchased under agreements to resell and federal funds sold U.S. Non-U.S. Financial instruments owned, at fair value U.S. Non-U.S. Other...

  • Page 226
    ...-sale securities, December 2012 Commercial paper, certificates of deposit, time deposits and other money market instruments U.S. government and federal agency obligations Non-U.S. government and agency obligations Mortgage and other asset-backed loans and securities Corporate debt securities State...

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    ...of deposit, time deposits and other money market instruments U.S. government and federal agency obligations Non-U.S. government and agency obligations Mortgage and other asset-backed loans and securities Corporate debt securities State and municipal obligations Other debt obligations Total available...

  • Page 228
    ... presents selected financial ratios. Year Ended December 2012 2011 2010 Net earnings to average assets Return on average common shareholders' equity 1 Return on average total shareholders' equity 2 Total average equity to average assets Dividend payout ratio 3 1. Based on net earnings applicable to...

  • Page 229
    ... 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

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    Supplemental Financial Information As of December 2010 in millions Banks Governments Other Total Country France Cayman Islands Japan Germany China United Kingdom ... of secured lending transactions with a clearing house which are secured by collateral. 228 Goldman Sachs 2012 Annual Report

  • Page 231
    ... Financial Services Debora L. Spar President of Barnard College Mark E. Tucker Executive Director, Group Chief Executive Officer and President of AIA Group Limited David A. Viniar Former Chief Financial Officer of The Goldman Sachs Group, Inc. John F.W. Rogers Secretary to the Board Management...

  • Page 232
    Board Members, Officers and Directors as of March 26, 2013 David B. Philip Ellen R. Porges Katsunori Sago Pablo J. Salame Jeffrey W. Schroeder Harvey M. Schwartz Trevor A. Smith Donald J. Truesdale John... Lee George C. Lee, II Tim Leissner Allan S. Levine...Member 230 Goldman Sachs 2012 Annual Report

  • Page 233
    Board Members, Officers and Directors as of March 26, 2013 Andrew W. Alford Fareed T. Ali William...II... Ralane F. Bonn John E. Bowman, III...Chang-Po Yang Iain N. Drayton Fadi Abuali Christian S. Alexander David Z. Alter Vincent L. Amatulli *Partnership Committee Member Goldman Sachs 2012 Annual Report...

  • Page 234
    ... 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 232 Goldman Sachs 2012 Annual Report

  • Page 235
    Board Members, Officers and Directors as of March 26, 2013 Melissa Goldman Richard ... M. Meyerowich Rodney B. Miller Jason Moo Grant R. Moyer Gersoni A. Munhoz Michael Nachmani...Richard Shannon Daniel A. Sharfman James Roger Francis Shipton Faryar Shirzad Connie ... Goldman Sachs 2012 Annual Report 233

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    Board Members, Officers and Directors as of March 26, 2013 Eric S. Jordan Anil C. Karpal Edward W. Kelly Aasem G. Khalil Donough ...John V. Lanza Solenn Le Floch Craig A. Lee Rose S. Lee José Pedro Leite da Costa Luca M. Lombardi *Partnership Committee Member 234 Goldman Sachs 2012 Annual Report

  • Page 237
    Board Members, Officers and Directors as of March 26, 2013 Joseph W. Long Todd D. Lopez Galia V. Loya Michaela J. Ludbrook ...Grant M. Eldred Manal I. Eldumiati Charles W. Evans Anne M. Fairchild Craig R. Farber John W. Fathers Lev Finkelstein Warren P. Finnerty Goldman Sachs 2012 Annual Report...

  • Page 238
    ... 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 236 Goldman Sachs 2012 Annual Report

  • Page 239
    Board Members, Officers and Directors as of March 26, 2013 ... Bond Alain Bordoni Jonathan E. Breckenridge John Brennan Brian R. Broadbent Jerome Brochard... Weigang Li Gloria W. Lio Chang Lee Liow Matthew Liste Edmund Lo Justin Lomheim David A. Mackenzie ... Parker Goldman Sachs 2012 Annual Report 237

  • Page 240
    Board Members, Officers and Directors as of March 26, 2013... Todd Foust John Gajdica Todd Giannoble John Gibson Brenda...Goyal Jason Granet David Granson David Grant Tim Grayson Brian Greeff Marci Green ...Hara Toshiya Hari Todd Haskins Aime Hendricks Michael Henry Peter U. ...Goldman Sachs 2012 Annual Report

  • Page 241
    ... 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 Goldman Sachs 2012 Annual Report 239

  • Page 242
    ... City Miami Milan Monte Carlo Moscow Mumbai New York Paris Philadelphia Princeton Riyadh Salt Lake City San Francisco São Paulo Seattle Seoul Shanghai Singapore Stockholm Sydney Taipei Tampa Tel Aviv Tokyo Toronto Warsaw Washington, D.C. West Palm Beach Zurich 240 Goldman Sachs 2012 Annual Report

  • Page 243
    .... 200 West Street New York, New York 10282 1-212-902-1000 www.goldmansachs.com Common Stock The common stock of The Goldman Sachs Group, Inc. is listed on the New York Stock Exchange and trades under the ticker symbol "GS." Shareholder Inquiries Information about the firm, including all quarterly...

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