Goldman Sachs 2012 Annual Report Download - page 68

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-term borrowings 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 window borrowing procedures.
66 Goldman Sachs 2012 Annual Report