Goldman Sachs 2012 Annual Report Download - page 89

Management’s Discussion and Analysis
We believe 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 governance; and
‰the external operating environment, including the
assumed level of government support.
Certain of the firm’s derivatives have been transacted under
bilateral agreements with counterparties who may require us
to post collateral or terminate the transactions based on
changes in our credit ratings. We assess the impact of these
bilateral agreements by determining the collateral or
termination payments that would occur assuming a
downgrade by all rating agencies. A downgrade by any one
rating agency, depending on the agency’s relative ratings of
the firm at the time of the downgrade, may have an impact
which is comparable to the impact of a downgrade by all
rating agencies. We allocate a portion of our GCE to ensure
we would be able to make the additional collateral or
termination payments that may be required in the event of a
two-notch reduction in our long-term credit ratings, as well
as collateral that has not been called by counterparties, but is
available to them. The table below presents the additional
collateral or termination payments that could have been
called at the reporting date by counterparties in the event of a
one-notch and two-notch downgrade in our credit ratings.
As of December
in millions 2012 2011
Additional collateral or termination payments for a
one-notch downgrade $1,534 $1,303
Additional collateral or termination payments for a
two-notch downgrade 2,500 2,183
Cash Flows
As a global financial institution, our cash flows are complex
and bear little relation to our net earnings and net assets.
Consequently, we believe that traditional cash flow analysis
is less meaningful in evaluating our liquidity position than
the excess liquidity and asset-liability management policies
described above. Cash flow analysis may, however, be
helpful in highlighting certain macro trends and strategic
initiatives in our businesses.
Year Ended December 2012. Our cash and cash
equivalents increased by $16.66 billion to $72.67 billion at
the end of 2012. We generated $9.14 billion in net cash
from operating and investing activities. We generated
$7.52 billion in net cash from financing activities from an
increase in bank deposits, partially offset by net repayments
of unsecured and secured long-term borrowings.
Year Ended December 2011. Our cash and cash
equivalents increased by $16.22 billion to $56.01 billion at
the end of 2011. We generated $23.13 billion in net cash
from operating and investing activities. We used net cash of
$6.91 billion for financing activities, primarily for
repurchases of our Series G Preferred Stock and common
stock, partially offset by an increase in bank deposits.
Year Ended December 2010. Our cash and cash
equivalents increased by $1.50 billion to $39.79 billion at
the end of 2010. We generated $7.84 billion in net cash
from financing activities primarily from net proceeds from
issuances of short-term secured financings. We used net
cash of $6.34 billion for operating and investing activities,
primarily to fund an increase in securities purchased under
agreements to resell and an increase in cash and securities
segregated for regulatory and other purposes, partially
offset by cash generated from a decrease in
securities borrowed.
Goldman Sachs 2012 Annual Report 87