Goldman Sachs 2012 Annual Report Download - page 143

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 2Asset 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