Goldman Sachs 2012 Annual Report Download - page 95

Management’s Discussion and Analysis
Sensitivity Measures
Certain portfolios and individual positions are not included
in VaR because VaR is not the most appropriate risk
measure. The market risk of these positions is determined
by estimating the potential reduction in net revenues of a
10% decline in the underlying asset value.
The table below presents market risk for positions that are
not included in VaR. These measures do not reflect
diversification benefits across asset categories and therefore
have not been aggregated.
Asset Categories 10% Sensitivity
Amount as of December
in millions 2012 2011
ICBC $ 208 $ 212
Equity (excluding ICBC) 12,263 2,458
Debt 21,676 1,521
1. Relates to private and restricted public equity securities, including interests in
firm-sponsored funds that invest in corporate equities and real estate and
interests in firm-sponsored hedge funds.
2. Primarily relates to interests in our firm-sponsored funds that invest in
corporate mezzanine and senior debt instruments. Also includes loans
backed by commercial and residential real estate, corporate bank loans and
other corporate debt, including acquired portfolios of distressed loans.
VaR excludes the impact of changes in counterparty and
our own credit spreads on derivatives as well as changes in
our own credit spreads on unsecured borrowings for which
the fair value option was elected. The estimated sensitivity
to a one basis point increase in credit spreads (counterparty
and our own) on derivatives was a $3 million gain
(including hedges) as of December 2012. In addition, the
estimated sensitivity to a one basis point increase in our
own credit spreads on unsecured borrowings for which the
fair value option was elected was a $7 million gain
(including hedges) as of December 2012. However, the
actual net impact of a change in our own credit spreads is
also affected by the liquidity, duration and convexity (as the
sensitivity is not linear to changes in yields) of those
unsecured borrowings for which the fair value option was
elected, as well as the relative performance of any
hedges undertaken.
The firm engages in insurance activities where we reinsure
and purchase portfolios of insurance risk and pension
liabilities. The risks associated with these activities include,
but are not limited to: equity price, interest rate,
reinvestment and mortality risk. The firm mitigates risks
associated with insurance activities through the use of
reinsurance and hedging. Certain of the assets associated
with the firm’s insurance activities are included in VaR. In
addition to the positions included in VaR, we held
$9.07 billion of securities accounted for as available-for-
sale as of December 2012, which support the firm’s
reinsurance business. As of December 2012, our available-
for-sale securities primarily consisted of $3.63 billion of
corporate debt securities with an average yield of 4%, the
majority of which will mature after five years, $3.38 billion
of mortgage and other asset-backed loans and securities
with an average yield of 6%, the majority of which will
mature after ten years, and $856 million of U.S.
government and federal agency obligations with an average
yield of 3%, the majority of which will mature after five
years. As of December 2012, such assets were classified as
held for sale and were included in “Other assets.” See
Note 12 to the consolidated financial statements for further
information about assets held for sale. As of
December 2011, we held $4.86 billion of securities
accounted for as available-for-sale, primarily consisting of
$1.81 billion of corporate debt securities with an average
yield of 5%, the majority of which will mature after five
years, $1.42 billion of mortgage and other asset-backed
loans and securities with an average yield of 10%, the
majority of which will mature after ten years, and
$662 million of U.S. government and federal agency
obligations with an average yield of 3%, the majority of
which will mature after ten years.
In addition, as of December 2012 and December 2011, we
had commitments and held loans for which we have
obtained credit loss protection from Sumitomo Mitsui
Financial Group, Inc. See Note 18 to the consolidated
financial statements for further information about such
lending commitments. As of December 2012, the firm also
had $6.50 billion of loans held for investment which were
accounted for at amortized cost and included in
“Receivables from customers and counterparties,”
substantially all of which had floating interest rates. The
estimated sensitivity to a 100 basis point increase in interest
rates on such loans was $62 million of additional interest
income over a 12-month period, which does not take into
account the potential impact of an increase in costs to fund
such loans. See Note 8 to the consolidated financial
statements for further information about loans held
for investment.
Additionally, we make investments accounted for under the
equity method and we also make direct investments in real
estate, both of which are 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