Goldman Sachs 2012 Annual Report Download - page 127

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
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 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 1Sales 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) 21,185
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 1Sales 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