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EMERGING TRENDS, TRANSFORMATIVE IMPACTS
AND HOW WE ARE HELPING OUR CLIENTS AROUND
THE WORLD DRIVE AND LEVERAGE THEM
WAYS WE SAW THE
WORLD CHANGE IN 2013
INSIDE
25
AND COMMERCE
OPPORTUNITIES
IN ENERGY
TECHNOLOGY’S
NEXT WAVE
DIVERSE
POWER SOURCES
TRANSFORMATIONAL
INTEGRATED
STRATEGIES FOR
MANAGING RISK
BIG
-
STEP
INNOVATIONS
GAME
-
CHANGING
PLATFORMS
Goldman Sachs 2013 Annual Report

Table of contents

  • Page 1
    ...HELPING OUR CLIENTS AROUND THE WORLD DRIVE AND LEVERAGE THEM Goldman Sachs 2013 Annual Report INSIDE AND COMMERCE OPPORTUNITIES IN ENERGY TECHNOLOGY'S NEXT WAVE DIVERSE POWER SOURCES TRANSFORMATIONAL ENTREPRENEURS INTEGRATED STRATEGIES FOR MANAGING RISK BIG-STEP INNOVATIONS GAME-CHANGING PLATFORMS

  • Page 2
    ... continued success depends upon unswerving adherence to this standard. Our goal is to provide superior returns to our shareholders. Profitability is critical to achieving superior returns, building our capital, and attracting and keeping our best people. Significant employee stock ownership aligns...

  • Page 3
    ....13 for 2012. Our return on average common shareholders' equity (ROE) was 11.0 percent. Book value per common share increased by approximately five percent during 2013 and has grown from $20.94 at the end of our first year as a public company in 1999 to $152.48, a compounded annual growth rate of...

  • Page 4
    ... and European insurance businesses, no longer generated attractive returns under a Basel III framework and, as a result, we opted to sell a majority stake in them. Even with investments, such as the longstanding one that Goldman Sachs had in Industrial and Commercial Bank of China Limited (ICBC...

  • Page 5
    ...growth resumes. And, we see reasons to be confident in the fundamentals of the global economy. While emerging markets typically entail higher risk and volatility, we believe that over time they will generate stronger growth as the middle class in those countries Goldman Sachs 2013 Annual Report 3

  • Page 6
    ...ficant increase in lending at rates that would ultimately dilute long-term returns. Our approach could change to the extent that regulatory changes drive more attractive pricing. More broadly, the past year represented one of our strongest market share performances in our advisory and underwriting...

  • Page 7
    ... our pending acquisition of Deutsche Bank's stable value business. Like our other businesses, success in Investment Management is a function of performing for our clients. Our asset-weighted mutual fund performance has been above the industry average for nine consecutive quarters through 2013. Two...

  • Page 8
    ...In 2013, we were proud to be named as one of Fortune magazine's "100 Best Companies to Work For." Goldman Sachs is one of only five companies to be recognized every year that the Great Place to Work Institute has issued its list since 1984. Of course, we operate in a global and competitive industry...

  • Page 9
    ... individual grants. 10,000 Small Businesses 10,000 Small Businesses expanded its network of cities and partners to provide small businesses with the education, business services and capital they need to grow and create jobs. By year's end, 10,000 Small Businesses was operating in more than 20 sites...

  • Page 10
    ... medium enterprises. Goldman Sachs Foundation, IFC and other investors will contribute up to $600 million to the facility, which will enable approximately 100,000 women entrepreneurs to access capital. 10,000 Women remains committed to expanding business and management education to reach more high...

  • Page 11
    ...term ideas. While the people of Goldman Sachs apply their expertise across a range Energy Entrepreneurship and of disciplines, four themes in particular - Technology Risk Management - stand out as among the most notable for our business in 2013. With a focus on these areas, this year's annual report...

  • Page 12
    ... in the global economy. As a strategic advisor and a source of capital, Goldman Sachs works not only with companies at the forefront of technological breakthroughs, but also within dozens of other industries undergoing technology-driven transformation. 1 10 Goldman Sachs 2013 Annual Report

  • Page 13
    ... around the world This game-changing technology has enabled the storage and sharing of huge volumes of data, the birth of entirely new business models and the ability to work collaboratively from any location around the globe. At our third annual Cloud Computing Conference, Goldman Sachs brought...

  • Page 14
    ...-thinking/ourconferences/technology-conference Global sales of smartphones and tablets now outpace those of PCs and laptops. According to the UN International Telecommunication Union, mobile subscriptions will top the world's population sometime in 2014. Goldman Sachs team members supporting the...

  • Page 15
    ... GLOBAL INVESTMENT RESEARCH 2013: AN ACTIVE YEAR FOR THE FIRM'S TECHNOLOGY, MEDIA AND TELECOM TEAM Working closely with leading and emerging technology companies to help them achieve their business goals, Goldman Sachs' Technology, Media and Telecommunications Group helped plan and execute...

  • Page 16
    ...technology - are providing significant opportunities for investment while also driving sustainable economic growth, enhanced competitiveness and responsible development of energy resources. 8 NO 9 SMART GRID NETWORKS ARE DRIVING EFFICIENCY ALONG THE ELECTRICAL GRID 14 Goldman Sachs 2013 Annual...

  • Page 17
    ... expansion in developed economies. According to Goldman Sachs research, the ability of shale to drive a resurgence of energy production in North America is creating powerful economic benefits. The revolution will contribute structurally to a more stable oil market, in which global demand can...

  • Page 18
    ...nancing and investing $40 billion in clean energy over the next decade," says Stuart Bernstein, global head of both the Clean Technology and Renewables Group and the Venture Capital Coverage Group at Goldman Sachs. "Our work is wide ranging in industries from renewable power production to electric...

  • Page 19
    .... The key: securities that offered generally stable, long-term cash ï¬,ow with the prospect for growth. Yield Company structures enable energy businesses such as NRG to expand the investor base for its portfolio of assets, creating a cost-of-capital advantage to economically fund the acquisition and...

  • Page 20
    ... the global spotlight. The most productive innovators of 2013 set ambitious goals and were successful due to their creativity, market insights, unshakable fortitude and strategic execution. At Goldman Sachs, we work with new entrants and disruptive companies that change the way businesses compete...

  • Page 21
    ..., they often do so with the assistance of Goldman Sachs. For example, in 2013, we helped to raise over $1 billion in financing for Tesla Motors, serving as sole manager and lead left bookrunner for respective offerings of common stock and convertible bonds. Goldman Sachs 2013 Annual Report 19

  • Page 22
    ... peers and learn from some of the most seasoned business and financial leaders in the world. View video David Solomon on the challenges and opportunities facing entrepreneurs today. Go to: goldmansachs.com/ annual-report-2013/david-solomon "I'm not selling something that's just a product for me...

  • Page 23
    ...to lending to women entrepreneurs, The Goldman Sachs Foundation will provide an $18 million anchor donation to fund capacity building support for banks and women borrowers. This support will address the barriers to banks deploying capital and women entrepreneurs accessing it. View video Learn about...

  • Page 24
    ... view risk as a highly strategic issue - and why we have seen a rapid rise in risk consciousness more broadly. Our clients turn to Goldman Sachs for our deep risk management expertise to help them manage their most important and complex risk exposures. 2 22 Goldman Sachs 2013 Annual Report

  • Page 25
    ... of markets including currencies, commodities, credit and equities." Esposito adds that "clients seek our advice because risk management is part of our DNA." View video Jim Esposito on risk management. Go to: goldmansachs.com/annual-report2013/jim-esposito Goldman Sachs 2013 Annual Report 23

  • Page 26
    ... credit risk versus reputational, liquidity or operational risk, we look across the spectrum of those risks to understand how they interrelate." View video Liz Robinson describes the complexity of global risk management. Go to: goldmansachs.com/annualreport-2013/liz-robinson 24 Goldman Sachs team...

  • Page 27
    ...and consumption to urbanization and climate change, the need to pursue sustainability and manage environmental risks is a growing imperative both for our clients and for Goldman Sachs. The Environmental Markets Group at Goldman Sachs works closely with deal teams to conduct enhanced due diligence on...

  • Page 28
    ... values, with the certainty," says Cooper "that it's the power of the whole that really makes an impact on our clients and the world." View video Edith Cooper, global head of Human Capital Management, speaks about the people and culture at Goldman Sachs. Go to: goldmansachs.com/ annual-report-2013...

  • Page 29
    ... our junior team members learn by working closely with seasoned professionals. We believe this is critical to developing the next generation of Goldman Sachs leaders, who will best serve our clients, manage our capital, manage our risk and grow our business. Goldman Sachs 2013 Annual Report 27

  • Page 30
    ... industries. In 2013, a group of 10 interns worked in various parts of our London office, filling positions in Technology, Operations, Human Capital Management, Securities, Investment Banking, and Corporate Services & Real Estate. In the year since the campaign began, 400 companies have joined the...

  • Page 31
    ... and private equity securities, and real estate entities. Investing & Lending Net Revenues (in millions) 2013 2012 2011 $2,142 $5,891 $7,018 Investment Management We provide investment management services and offer investment products (primarily through separately managed accounts and commingled...

  • Page 32
    ... share Book value per common share Tangible book value per common share 1 Ending stock price Financial Condition and Selected Ratios Total assets Unsecured long-term borrowings Total shareholders' equity Leverage ratio 2 Tier 1 common ratio 3 Tier 1 capital ratio 3 Selected Data Total staff Assets...

  • Page 33
    ... 111 Consolidated Statements of Financial Condition 112 Consolidated Statements of Changes in Shareholders' Equity 113 Consolidated Statements of Cash Flows 114 Supplemental Financial Information Quarterly Results Common Stock Price Range Common Stock Performance Selected Financial Data Statistical...

  • Page 34
    ... around the world. We report our activities in four business segments: Investment Banking, Institutional Client Services, Investing & Lending and Investment Management. See "Results of Operations" below for further information about our business segments. When we use the terms "Goldman Sachs," "the...

  • Page 35
    ... for 2013. These results reflected significantly higher net revenues in Investment Banking, as well as higher net revenues in Investing & Lending and Investment Management compared with 2012. These increases were offset by lower net revenues in Institutional Client Services compared with 2012. An...

  • Page 36
    ...2012. Investing & Lending Net revenues in Investing & Lending increased compared with 2012, reflecting a significant increase in net gains from investments in equity securities, driven by company-specific events and stronger corporate performance, as well as significantly higher global equity prices...

  • Page 37
    ... fixed investment. House prices, house sales and housing starts increased, although the rise in U.S. bond yields drove mortgage interest rates higher. Industrial production expanded in 2013, but at a slower pace than in the previous year. Although political uncertainty around the federal government...

  • Page 38
    ... U.S. dollar and, in equity markets, the Nikkei 225 Index increased by 57%. In China, real GDP increased by 7.7% in 2013, broadly in line with the increase in the previous year, although impacted by less supportive monetary policies and tightening financial conditions. Measures of inflation remained...

  • Page 39
    ... below), the final valuation decision is made by senior managers in control and support functions that are independent of the revenue-producing units. This independent price verification is critical to ensuring that our financial instruments are properly valued. Goldman Sachs 2013 Annual Report 37

  • Page 40
    ...evaluated and reapproved annually to assess the impact of any changes in the product or market and any market developments in pricing theories. See Notes 5 through 8 to the consolidated financial statements for further information about fair value measurements. 38 Goldman Sachs 2013 Annual Report

  • Page 41
    ... in April 2013, primarily consisting of securities accounted for as available-for-sale and insurance separate account assets. See Notes 3 and 12 to the consolidated financial statements for further information about the sale of our Americas reinsurance business. Goldman Sachs 2013 Annual Report 39

  • Page 42
    ... carrying value. See Note 12 to the consolidated financial statements for impairments of our identifiable intangible assets. Recent Accounting Developments See Note 3 to the consolidated financial statements for information about Recent Accounting Developments. 40 Goldman Sachs 2013 Annual Report

  • Page 43
    ... out of tax audits to the extent that uncertain tax positions fail to meet the recognition standard under FASB Accounting Standards Codification 740. See Note 24 to the consolidated financial statements for further information about accounting for income taxes. Goldman Sachs 2013 Annual Report 41

  • Page 44
    ... market conditions on our results of operations. Financial Overview The table below presents an overview of our financial results. Year Ended December $ in millions, except per share amounts 2013 2012 2011 Net revenues Pre-tax earnings Net earnings Net earnings applicable to common shareholders...

  • Page 45
    ... higher than 2012, primarily reflecting higher commissions and fees in Asia and Europe. During 2013, our average daily volumes were higher in Asia and Europe and lower in the United States compared with 2012, consistent with listed cash equity market volumes. Goldman Sachs 2013 Annual Report 43

  • Page 46
    ... of revenues (excluding net interest) from client execution activities related to making markets in interest rate products, credit products, mortgages, currencies, commodities and equity products. Market-making activities are included in our Institutional Client Services segment. During 2013, market...

  • Page 47
    ...net revenues, overall financial performance, prevailing labor markets, business mix, the structure of our share-based compensation programs and the external environment. The table below presents our operating expenses and total staff (which includes employees, consultants and temporary staff). 2013...

  • Page 48
    ...rules related to the deferral of U.S. tax on certain nonrepatriated active financing income expired effective December 31, 2013. This change is not expected to have a material impact on our financial condition, results of operations or cash flows for the year ending December 2014. 46 Goldman Sachs...

  • Page 49
    ...Operating Results The table below presents the net revenues, operating expenses and pre-tax earnings/(loss) of our segments. Year Ended December in millions 2013 2012 2011 Investment Banking Institutional Client Services Investing & Lending Investment Management Total Net revenues Operating...

  • Page 50
    ... of securities, loans and other financial instruments, and derivative transactions directly related to these client underwriting activities. The table below presents the operating results of our Investment Banking segment. Year Ended December in millions 2013 versus 2012. Net revenues in Investment...

  • Page 51
    ... in market conditions. Operating expenses were $3.33 billion for 2012, 11% higher than 2011, due to increased compensation and benefits expenses, primarily resulting from higher net revenues. Pre-tax earnings were $1.60 billion in 2012, 17% higher than 2011. Goldman Sachs 2013 Annual Report 49

  • Page 52
    ... were slightly lower, while net revenues in credit products and commodities were essentially unchanged compared with 2012. In December 2013, we completed the sale of a majority stake in our European insurance business and recognized a gain of $211 million. 50 Goldman Sachs 2013 Annual Report

  • Page 53
    ... consolidate this business. Net revenues related to the Americas reinsurance business were $317 million for 2013, $1.08 billion for 2012 and $880 million for 2011. See Note 12 to the consolidated financial statements for further information about this sale. Goldman Sachs 2013 Annual Report 51

  • Page 54
    ... make investments, directly and indirectly through funds that we manage, in debt securities and loans, public and private equity securities, and real estate entities. The table below presents the operating results of our Investing & Lending segment. Year Ended December in millions 2013 2012 2011...

  • Page 55
    ... separately managed accounts and commingled vehicles, such as mutual funds and private investment funds) across all major asset classes to a diverse set of institutional and individual clients. Investment Management also offers wealth advisory services, including portfolio management and financial...

  • Page 56
    ... with our acquisitions of Goldman Sachs Australia Pty Ltd and Benchmark Asset Management Company Private Limited. 2013 2012 2011 Assets under management Other client assets Total AUS Asset Class Alternative investments 1 Equity Fixed income Long-term AUS Liquidity products Total AUS Distribution...

  • Page 57
    ... and benefits expenses. Pre-tax earnings were $928 million in 2012, 8% lower than 2011. Geographic Data See Note 25 to the consolidated financial statements for a summary of our total net revenues, pre-tax earnings and net earnings by geographic region. Regulatory Developments Our businesses are...

  • Page 58
    ... to be material to our financial condition, results of operations or cash flows. However, the rule is highly complex, and its impact will not be known until market practices are fully developed. In addition to the prohibition on proprietary trading, the Volcker rule limits the sponsorship of, and...

  • Page 59
    ... with our expected funding sources and capital levels for the upcoming quarter. The objectives of this quarterly planning process are: ‰ to develop our near-term balance sheet projections, taking into account the general state of the financial markets and expected business activity levels; ‰ to...

  • Page 60
    ... would manage our balance sheet and risks through the duration of a severe crisis, and we develop plans to access funding, generate liquidity, and/or redeploy or issue equity capital, as appropriate. Balance Sheet Allocation In addition to preparing our consolidated statements of financial condition...

  • Page 61
    ... to private wealth management clients. 4. Includes assets related to our Americas reinsurance business classified as held for sale, in which a majority stake was sold in April 2013. See Note 12 to the consolidated financial statements for further information. Goldman Sachs 2013 Annual Report 59

  • Page 62
    ... financial statements because total assets disclosed in Note 25 include allocations of our excess liquidity and cash, secured client financing and other assets. As of December 2013 Excess Liquidity and Cash 1 Secured Client Financing Institutional Client Services Investing & Lending Other...

  • Page 63
    ...in "Equity Capital - Consolidated Regulatory Capital Ratios" below, and further described in Note 20 to the consolidated financial statements. Debt to equity ratio. The debt to equity ratio equals unsecured long-term borrowings divided by total shareholders' equity. Goldman Sachs 2013 Annual Report...

  • Page 64
    ... statements for further information about the classification of financial instruments in the fair value hierarchy and "- Unsecured Long-Term Borrowings" below for further information about the use of unsecured long-term borrowings as a source of funding. 62 Goldman Sachs 2013 Annual Report

  • Page 65
    ...to convert a substantial portion of our long-term borrowings into floating-rate obligations in order to manage our exposure to interest rates. See Note 16 to the consolidated financial statements for further information about our unsecured long-term borrowings. Goldman Sachs 2013 Annual Report 63

  • Page 66
    ... of December 2013, our unsecured short-term borrowings, including the current portion of unsecured long-term borrowings, were $44.69 billion. See Note 15 to the consolidated financial statements for further information about our unsecured short-term borrowings. 64 Goldman Sachs 2013 Annual Report

  • Page 67
    ...' equity of $69.52 billion and preferred stock of $6.20 billion). See "- Consolidated Regulatory Capital Ratios" below for information regarding the impact of regulatory developments. Consolidated Regulatory Capital The Federal Reserve Board is the primary regulator of Group Inc., a bank holding...

  • Page 68
    ... capital adequacy. The Tier 1 common ratio is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. 3. See Note 20 to the consolidated financial statements for additional information about the firm's Tier 1 leverage ratio. 66 Goldman Sachs 2013 Annual...

  • Page 69
    ...Business - Regulation" in Part I, Item 1 of the 2013 Form 10-K and Note 20 to the consolidated financial statements for additional information about our regulatory capital ratios and related regulatory requirements, including pending and proposed regulatory changes. Goldman Sachs 2013 Annual Report...

  • Page 70
    ... our web site as described under "Business - Available Information" in Part I, Item 1 of the 2013 Form 10-K. The table below presents information on the components of RWAs within our consolidated regulatory capital ratios, which were based on Basel I, as implemented by the Federal Reserve Board, and...

  • Page 71
    ... capital and leverage ratio rules, and thereby, implement certain provisions of the Dodd-Frank Act. Under the Revised Capital Framework, Group Inc. is an "Advanced approach" banking organization. See Note 20 to the consolidated financial statements for further information about the Revised Capital...

  • Page 72
    ... in, the Revised Capital Framework. The changes to the definition of capital and minimum ratios, subject to transitional provisions, were effective beginning January 1, 2014. RWAs are based on Basel I Adjusted, as defined in Note 20 to the consolidated financial statements. The firm will transition...

  • Page 73
    ... of all swap dealers, major swap participants, security-based swap dealers and major security-based swap participants. The firm has registered certain subsidiaries as "swap dealers" under the CFTC rules, including GS&Co., GS Bank USA, Goldman Sachs International (GSI), and J. Aron & Company. These...

  • Page 74
    ... than a single calculation. See "Liquidity Risk Management - Credit Ratings" for further information about credit ratings of Group Inc., GS Bank USA, GS&Co., GSI and GSIB. Subsidiary Capital Requirements Many of our subsidiaries, including GS Bank USA and our broker-dealer subsidiaries, are subject...

  • Page 75
    ...with assigned credit ratings) or internal policies, including policies concerning the minimum amount of capital a subsidiary should hold based on its underlying level of risk. In certain instances, Group Inc. may be limited in its ability to access capital held at certain subsidiaries as a result of...

  • Page 76
    ... of the 2013 Form 10-K and Note 19 to the consolidated financial statements for additional information on our repurchase program and see above for information about the annual CCAR. Other Capital Metrics The table below presents information on our shareholders' equity and book value per common share...

  • Page 77
    ... offer investors access to specific cash flows and risks created through the securitization process. We also enter into these arrangements to underwrite client securitization transactions; provide secondary market liquidity; make investments in performing and nonperforming debt, equity, real estate...

  • Page 78
    ... long-term borrowings, secured long-term financings and time deposits based on applicable interest rates as of December 2013. Includes stated coupons, if any, on structured notes. 4. $5.66 billion of commitments to covered funds (as defined by the Volcker Rule) are included in the 2014 and 2015...

  • Page 79
    ... liquidity and our reputation. For a further discussion of our areas of risk, see "- Liquidity Risk Management," "- Market Risk Management," "- Credit Risk Management," "- Operational Risk Management" and "Certain Risk Factors That May Affect Our Businesses" below. Goldman Sachs 2013 Annual Report...

  • Page 80
    ..." for further information on our risk limits. Active management of our positions is another important process. Proactive mitigation of our market and credit exposures minimizes the risk that we will be required to take outsized actions during periods of stress. 78 Goldman Sachs 2013 Annual Report

  • Page 81
    ... the best technology serves only as a tool for helping to make informed decisions in real time about the risks we are taking. Ultimately, effective risk management requires our people to interpret our risk data on an ongoing and timely basis and adjust risk positions accordingly. In both our revenue...

  • Page 82
    ...Credit Risk Management Operational Risk Management Business Managers Business Risk Managers Internal Audit Controllers Market Risk Management Operations Tax Technology Treasury Human Capital Management Compliance Legal Management Committee. The Management Committee oversees the global activities...

  • Page 83
    ... and regulatory requirements. As a part of such oversight, among other things, this committee reviews and approves balance sheet limits and the size of our GCE. This committee is cochaired by the firm's chief financial officer and the firm's global treasurer. Goldman Sachs 2013 Annual Report 81

  • Page 84
    ...for Europe, Middle East and Africa who are appointed by the Firmwide Risk Committee chairpersons. Investment Management Division Risk Committee. The Investment Management Division Risk Committee is responsible for the ongoing monitoring and control of global market, counterparty credit and liquidity...

  • Page 85
    ...of the condition of the financial markets and the firm, we believe our liquidity position as of both December 2013 and December 2012 was appropriate. The table below presents the fair value of the securities and certain overnight cash deposits that are included in our GCE. Average for the Year Ended...

  • Page 86
    .... Average for the Year Ended December in millions 2013 2012 Group Inc. Major broker-dealer subsidiaries Major bank subsidiaries Total $ 29,752 93,103 59,795 $182,650 $ 37,405 78,229 56,461 $172,095 Our GCE reflects the following principles: ‰ The first days or weeks of a liquidity crisis...

  • Page 87
    ... of funding in a liquidity crisis. ‰ We do not assume asset liquidation, other than the GCE. The Modeled Liquidity Outflow is calculated and reported to senior management on a daily basis. We regularly refine our model to reflect changes in market or economic conditions and the firm's business mix...

  • Page 88
    ... a variety of products, including secured funding, unsecured borrowings and deposits. Customer Cash and Securities ‰ Contingent: Liquidity outflows associated with our prime brokerage business, including withdrawals of customer credit balances, and a reduction in customer short positions, which...

  • Page 89
    ...liquidity coverage ratio, designed to ensure that banks and bank holding companies maintain an adequate level of unencumbered high-quality liquid assets based on expected cash outflows under an acute liquidity stress scenario, and a net stable funding ratio, designed to promote more medium- and long...

  • Page 90
    ... securities issued by Murray Street Investment Trust I and Vesey Street Investment Trust I. 3. Includes Group Inc.'s non-cumulative preferred stock and the APEX issued by Goldman Sachs Capital II and Goldman Sachs Capital III. The table below presents the unsecured credit ratings of GS Bank USA...

  • Page 91
    ... 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...

  • Page 92
    ... risk reports detail key risks, drivers and changes for each desk and business, and are distributed daily to senior management of both our revenue-producing units and our independent control and support functions. Value-at-Risk VaR is the potential loss in value due to adverse market movements over...

  • Page 93
    ... testing is integrated into our risk governance framework. This includes selecting appropriate scenarios to use for our capital planning and stress testing process. See "Equity Capital - Capital Planning and Stress Testing Process" above for further information. Goldman Sachs 2013 Annual Report 91

  • Page 94
    .... We evaluate the accuracy of our VaR model through daily backtesting (i.e., comparing daily trading net revenues to the VaR measure calculated as of the prior business day) at the firmwide level and for each of our businesses and major regulated subsidiaries. 92 Goldman Sachs 2013 Annual Report

  • Page 95
    ... were partially offset by a decrease in the interest rates category primarily due to decreased exposures. During 2013 and 2012, the firmwide VaR risk limit was not exceeded and in each year it was reduced on one occasion due to lower levels of volatility. Goldman Sachs 2013 Annual Report 93

  • Page 96
    ... Quarter 2013 Daily trading net revenues are compared with VaR calculated as of the end of the prior business day. Trading losses incurred on a single day did not exceed our 95% oneday VaR during 2013 or 2012 (i.e., a VaR exception). During periods in which the firm has significantly more positive...

  • Page 97
    ... by commercial and residential real estate, corporate bank loans and other corporate debt, including acquired portfolios of distressed loans. These debt positions are included in "Financial instruments owned, at fair value." See Note 6 to the consolidated financial statements for further information...

  • Page 98
    ... credit loss protection from Sumitomo Mitsui Financial Group, Inc. See Note 18 to the consolidated financial statements for further information about such lending commitments. Additionally, we make investments accounted for under the equity method and we also make direct investments in real estate...

  • Page 99
    ... and on an aggregate basis to counterparties and their subsidiaries (economic groups). These systems also provide management with comprehensive information on our aggregate credit risk by product, internal credit rating, industry, country and region. Goldman Sachs 2013 Annual Report 97

  • Page 100
    ... bank loan claims and, for certain lending commitments, provisions in the legal documentation that allow the firm to adjust loan amounts, pricing, structure and other terms as market conditions change. The type and structure of risk mitigants employed can significantly influence the degree of credit...

  • Page 101
    ... management considers when determining credit risk, but such collateral is not eligible for netting under U.S. GAAP. The categories shown reflect our internally determined public rating agency equivalents. As of December 2013 in millions Credit Rating Equivalent 0 - 12 Months 1-5 Years 5 Years...

  • Page 102
    ... liquidity and general corporate purposes or in connection with contingent acquisitions. The firm's lending activities also include extending loans to borrowers that are secured by commercial and other real estate. See the tables below for further information about our credit exposures associated...

  • Page 103
    ...2012 Asset Managers & Funds Banks, Brokers & Other Financial Institutions Consumer Products, Non-Durables & Retail Government & Central Banks Healthcare & Education Insurance Natural Resources & Utilities Real Estate Technology, Media, Telecommunications & Services Transportation Other Total Credit...

  • Page 104
    ...U.S. Treasury securities collateral and excludes non-U.S. government and agency obligations and corporate securities collateral of $254 million. 3. Includes written and purchased credit derivative notionals reduced by the fair values of such credit derivatives. 102 Goldman Sachs 2013 Annual Report

  • Page 105
    ...secured lending transactions and other secured receivables were fully collateralized. For information about the nature of or payout under trigger events related to written and purchased credit protection contracts see Note 7 to the consolidated financial statements. Goldman Sachs 2013 Annual Report...

  • Page 106
    ... difficult to quantify and may materially differ from our estimates. See "Liquidity Risk Management - Modeled Liquidity Outflow," "Market Risk Management - Stress Testing" and "Credit Risk Management - Stress Tests/Scenario Analysis" for further discussion. 104 Goldman Sachs 2013 Annual Report

  • Page 107
    ... and reporting; ‰ risk measurement; and ‰ risk monitoring. Internal Audit performs an independent review of our operational risk framework, including our key controls, processes and applications, on an annual basis to assess the effectiveness of our framework. Goldman Sachs 2013 Annual Report...

  • Page 108
    ... in the credit markets, including reduced access to credit and higher costs of obtaining credit. ‰ Our market-making activities have been and may be affected by changes in the levels of market volatility. ‰ Our investment banking, client execution and investment management businesses have been...

  • Page 109
    ... the poor investment performance of our investment products. ‰ We may incur losses as a result of ineffective risk management processes and strategies. ‰ Our liquidity, profitability and businesses may be adversely affected by an inability to access the debt capital markets or to sell assets or...

  • Page 110
    ...over Financial Reporting Management of The Goldman Sachs Group, Inc., together with its consolidated subsidiaries (the firm), is responsible for establishing and maintaining adequate internal control over financial reporting. The firm's internal control over financial reporting is a process designed...

  • Page 111
    ... statements of earnings, comprehensive income, changes in shareholders' equity and cash flows present fairly, in all material respects, the financial position of The Goldman Sachs Group, Inc. and its subsidiaries (the Company) at December 31, 2013 and 2012, and the results of its operations...

  • Page 112
    ... Statements of Earnings Year Ended December in millions, except per share amounts 2013 2012 2011 Revenues Investment banking Investment management Commissions and fees Market making Other principal transactions Total non-interest revenues Interest income Interest expense Net interest income Net...

  • Page 113
    ... comprehensive income/(loss) Comprehensive income $8,040 (50) 38 (327) 8 (331) $7,709 $7,475 (89) 168 244 - 323 $7,798 $4,442 (55) (145) (30) - (230) $4,212 The accompanying notes are an integral part of these consolidated financial statements. Goldman Sachs 2013 Annual Report 111

  • Page 114
    ... secured financings (includes $23,591 and $30,337 at fair value as of December 2013 and December 2012, respectively) Payables to brokers, dealers and clearing organizations Payables to customers and counterparties Financial instruments sold, but not yet purchased, at fair value Unsecured short-term...

  • Page 115
    ... Statements of Changes in Shareholders' Equity Year Ended December in millions 2013 2012 2011 Preferred stock Balance, beginning of year Issued Repurchased Balance, end of year Common stock Balance, beginning of year Issued Balance, end of year Restricted stock units and employee stock...

  • Page 116
    ... of common stock in connection with the acquisition of Goldman Sachs Australia Pty Ltd (GS Australia), formerly Goldman Sachs & Partners Australia Group Holdings Pty Ltd. The accompanying notes are an integral part of these consolidated financial statements. 114 Goldman Sachs 2013 Annual Report

  • Page 117
    Notes to Consolidated Financial Statements Note 1. Description of Business The Goldman Sachs Group, Inc. (Group Inc.), a Delaware corporation, together with its consolidated subsidiaries (collectively, the firm), is a leading global investment banking, securities and investment management firm that...

  • Page 118
    ... Shareholders' Equity Regulation and Capital Adequacy Earnings Per Common Share Transactions with Affiliated Funds Interest Income and Interest Expense Income Taxes Business Segments Credit Concentrations Legal Proceedings Employee Benefit Plans Employee Incentive Plans Parent Company Consolidation...

  • Page 119
    ... "Market making" for positions in Institutional Client Services and "Other principal transactions" for positions in Investing & Lending. See Notes 5 through 8 for further information about fair value measurements. Investment Banking. Fees from financial advisory assignments and underwriting revenues...

  • Page 120
    ... Financial Statements Commissions and Fees. The firm earns "Commissions and fees" from executing and clearing client transactions on stock, options and futures markets. Commissions and fees are recognized on the day the trade is executed. Transfers of Assets Transfers of assets are accounted...

  • Page 121
    ...% in the European insurance business are accounted for at fair value under the fair value option and are included in "Financial instruments owned, at fair value" as of December 2013. Results from these remaining investments are included in the Investing & Lending segment. Prior to the sales, certain...

  • Page 122
    ... reporting periods in fiscal years that begin after December 15, 2013. Earlier application is prohibited. Adoption of ASU No. 2013-08 did not affect the firm's financial condition, results of operations, or cash flows. Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate...

  • Page 123
    ...than sales. No such transactions related to commodities included in "Financial instruments owned, at fair value" were outstanding as of December 2013. 2. Primarily relates to the fair value of unfunded lending commitments for which the fair value option was elected. Goldman Sachs 2013 Annual Report...

  • Page 124
    ... primarily includes commodities-related net revenues. 2. Includes a gain of $211 million on the sale of a majority stake in the firm's European insurance business. 3. Includes a gain of $494 million on the sale of the firm's hedge fund administration business. 122 Goldman Sachs 2013 Annual Report

  • Page 125
    ... in less active markets, or internally developed models that primarily use market-based or independently sourced parameters as inputs including, but not limited to, interest rates, volatilities, equity or debt prices, foreign exchange rates, commodity prices, credit spreads and funding spreads...

  • Page 126
    ...3 cash instruments, derivatives and other financial assets and financial liabilities accounted for at fair value under the fair value option, respectively, including information about significant unrealized gains and losses, and transfers in and out of level 3. 124 Goldman Sachs 2013 Annual Report

  • Page 127
    ... traded listed equities, certain government agency obligations and money market instruments. These instruments are valued using quoted prices for identical unrestricted instruments in active markets. The firm defines active markets for equity instruments based on the average daily trading volume...

  • Page 128
    ... and bridge loans Non-U.S. government and agency obligations Corporate debt securities State and municipal obligations Other debt obligations Equities and convertible debentures (including private equity investments and investments in real estate entities) 126 Goldman Sachs 2013 Annual Report

  • Page 129
    ... and agency obligations Corporate debt securities State and municipal obligations Other debt obligations Equities and convertible debentures (including private equity investments and investments in real estate entities) $3,977 Discounted cash flows: ‰ Yield ‰ Recovery rate ‰ Duration (years...

  • Page 130
    ... and agency obligations Corporate debt securities State and municipal obligations Other debt obligations Equities and convertible debentures (including private equity investments and investments in real estate entities) $4,651 Discounted cash flows: ‰ Yield ‰ Recovery rate ‰ Duration (years...

  • Page 131
    ... Total Commercial paper, certificates of deposit, time deposits and other money market instruments U.S. government and federal agency obligations Non-U.S. government and agency obligations Mortgage and other asset-backed loans and securities 1: Loans and securities backed by commercial real estate...

  • Page 132
    Notes to Consolidated Financial Statements Cash Instrument Assets at Fair Value as of December 2012 in millions Level 1 Level 2 Level 3 Total Commercial paper, certificates of deposit, time deposits and other money market instruments U.S. government and federal agency obligations Non-U.S. ...

  • Page 133
    ... cash instrument liabilities) for 2013 primarily consisted of gains on private equity investments, principally driven by strong corporate performance, bank loans and bridge loans, primarily due to tighter credit spreads and favorable company-specific events, and corporate debt securities, primarily...

  • Page 134
    ... 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. 2. The aggregate amounts include gains of approximately $617 million, $2.13 billion and $962 million reported in "Market making," "Other...

  • Page 135
    ... high-yield capital for mid- to largesized leveraged and management buyout transactions, recapitalizations, financings, refinancings, acquisitions and restructurings for private equity firms, private family companies and corporate issuers. Real estate funds invest globally, primarily in real estate...

  • Page 136
    ...rate exposure in certain fixedrate unsecured long-term and short-term borrowings, and deposits, to manage foreign currency exposure on the net investment in certain non-U.S. operations, and to manage the exposure to the variability in cash flows associated with the forecasted sales of certain energy...

  • Page 137
    ... 2013, and a corresponding increase in counterparty netting and cash collateral with no impact to the consolidated statements of financial condition. The impact of reflecting transactions with this clearing organization as settled as of December 2012 resulted in a reduction of gross interest rate...

  • Page 138
    ...are not actively traded and/or that are valued using models that calibrate to market-clearing levels of OTC derivatives. In evaluating the significance of a valuation input, the firm considers, among other factors, a portfolio's net risk exposure to that input. 136 Goldman Sachs 2013 Annual Report

  • Page 139
    Notes to Consolidated Financial Statements The selection of a particular model to value a derivative depends on the contractual terms of and specific risks inherent in the instrument, as well as the availability of pricing information in the market. For derivatives that trade in liquid markets, ...

  • Page 140
    ... Inputs (Average / Median) as of December 2013 22% to 84% (58% / 60%) 36 basis points per annum (bpa) to 165 bpa (107 bpa / 112 bpa) Credit $4,176 1 Option pricing models, correlation models and discounted cash flows models: Correlation 2 Credit spreads Upfront credit points Recovery rates 5% to...

  • Page 141
    ... Financial Statements Net Level 3 Assets/(Liabilities) as of December 2012 (in millions) $(355) Level 3 Derivative Product Type Interest rates Valuation Techniques and Significant Unobservable Inputs Option pricing models: Correlation 2 Volatility Range of Significant Unobservable Inputs (Average...

  • Page 142
    ...product type. ‰ Correlation: In general, for contracts where the holder benefits from the convergence of the underlying asset or index prices (e.g., interest rates, credit spreads, foreign exchange rates, inflation rates and equity prices), an increase in correlation results in a higher fair value...

  • Page 143
    ...643) $ 57,879 Derivative Liabilities at Fair Value as of December 2013 in millions Interest rates Credit Currencies Commodities Equities Gross fair value of derivative liabilities Counterparty netting Subtotal Cash collateral Fair value included in financial instruments sold, but not yet purchased...

  • Page 144
    Notes to Consolidated Financial Statements Derivative Assets at Fair Value as of December 2012 in millions Level 1 Level 2 Level 3 Cross-Level Netting Total Interest rates Credit Currencies Commodities Equities Gross fair value of derivative assets Counterparty netting Subtotal Cash collateral...

  • Page 145
    ...of certain credit derivatives to level 2, principally due to unobservable credit spread and correlation inputs no longer being significant to the valuation of these derivatives and unobservable inputs not being significant to the net risk of certain portfolios. Goldman Sachs 2013 Annual Report 143

  • Page 146
    ...Unsecured long-term borrowings" with the related borrowings. See Note 8 for further information. As of December in millions 2013 2012 Fair value of assets Fair value of liabilities Net liability Notional amount $ 285 373 $ 88 $7,580 $ 320 398 $ 78 $10,567 144 Goldman Sachs 2013 Annual Report

  • Page 147
    ... 4,068 (3,395) $31,177 $ 43,832 11,018 18,198 7,873 17,357 (11,017) $ 87,261 (19,744) (24,161) $ 43,356 1. Represents the netting of cash collateral received and posted on a counterparty basis under enforceable credit support agreements. Goldman Sachs 2013 Annual Report 145

  • Page 148
    Notes to Consolidated Financial Statements in millions OTC Derivatives as of December 2012 0 - 12 Months 1-5 Years 5 Years or Greater Total Assets Product Type Interest rates Credit Currencies Commodities Equities Netting across product types Subtotal Cross maturity netting Cash collateral 1 ...

  • Page 149
    ... a broad array of credit derivatives in locations around the world to facilitate client transactions and to manage the credit risk associated with marketmaking and investing and lending activities. Credit derivatives are actively managed based on the firm's net risk position. Credit derivatives are...

  • Page 150
    ... credit derivatives that economically hedge written credit derivatives with identical underlyings. 2. This purchased protection represents the notional amount of all other purchased credit derivatives not included in "Offsetting Purchased Credit Derivatives." 148 Goldman Sachs 2013 Annual Report

  • Page 151
    Notes to Consolidated Financial Statements 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, (ii) certain...

  • Page 152
    ... December 2012, the firm had designated $1.97 billion and $2.77 billion, respectively, of foreign currency-denominated debt, included in "Unsecured long-term borrowings" and "Unsecured shortterm borrowings," as hedges of net investments in nonU.S. subsidiaries. 150 Goldman Sachs 2013 Annual Report

  • Page 153
    ...and Commodities Client Execution; ‰ substantially all other secured financings, including transfers of assets accounted for as financings rather than sales; ‰ certain unsecured short-term borrowings, consisting of all promissory notes and commercial paper and certain hybrid financial instruments...

  • Page 154
    ... fair value measurement. Due to the distinctive nature of each of the firm's level 3 other secured financings, the interrelationship of inputs is not necessarily uniform across such financings. See Note 9 for collateralized financings. further information about 152 Goldman Sachs 2013 Annual Report

  • Page 155
    Notes to Consolidated Financial Statements Unsecured Short-term and Long-term Borrowings. The significant inputs to the valuation of unsecured shortterm and long-term borrowings at fair value are the amount and timing of expected future cash flows, interest rates, the credit spreads of the firm, as ...

  • Page 156
    ... prices, interest rates, the amount and timing of expected future cash flows and funding spreads. As of December 2012, level 3 secured loans were primarily related to the firm's European insurance business, in which a majority stake was sold in December 2013. See Note 3 for further information...

  • Page 157
    ... borrowed and resale agreements. The table above includes $19.50 billion of level 1 securities segregated for regulatory and other purposes accounted for at fair value under other U.S. GAAP, consisting of U.S. Treasury securities and money market instruments. Goldman Sachs 2013 Annual Report 155

  • Page 158
    Notes to Consolidated Financial Statements Other Financial Assets at Fair Value as of December 2012 in millions Level 1 Level 2 Level 3 Total Securities segregated for regulatory and other purposes 1 Securities purchased under agreements to resell Securities borrowed Receivables from customers ...

  • Page 159
    ... short-term borrowings, principally due to an increase in global equity prices. Sales of other liabilities and accrued expenses during 2013 primarily reflected the sale of a majority stake in the firm's European insurance business. Transfers out of level 3 of other financial assets during 2013...

  • Page 160
    .... The net unrealized loss on level 3 other financial liabilities of $1.39 billion for 2012 primarily reflected the impact of tighter funding spreads and changes in foreign exchange rates on certain insurance liabilities, and an increase in global equity prices and tighter credit spreads on...

  • Page 161
    ... elected was a liability of $1.22 billion and $1.99 billion, respectively, and the related total contractual amount of these lending commitments was $51.54 billion and $59.29 billion, respectively. See Note 18 for further information about lending commitments. Goldman Sachs 2013 Annual Report 159

  • Page 162
    ...2012, $60.38 billion and $38.40 billion of securities borrowed and $973 million and $1.56 billion of securities loaned were at fair value, respectively. Net gains/(losses) including hedges Net gains/(losses) excluding hedges $(296) $(714) $596 (317) (800) 714 160 Goldman Sachs 2013 Annual Report

  • Page 163
    ... other U.S. GAAP and therefore are not included in the firm's fair value hierarchy in Notes 6, 7 and 8. Had these arrangements been included in the firm's fair value hierarchy, they would have been classified in level 2 as of December 2013 and December 2012. Goldman Sachs 2013 Annual Report 161

  • Page 164
    ... other purposes." 2. As of December 2012, the firm classified $148 million of resale agreements and $115 million of repurchase agreements related to the firm's Americas reinsurance business as held for sale. See Note 3 for further information about this sale. 162 Goldman Sachs 2013 Annual Report

  • Page 165
    ... value as of December 2013 and December 2012, respectively, and includes $9.50 billion and $13.53 billion of other secured financings collateralized by financial instruments received as collateral and repledged as of December 2013 and December 2012, respectively. Goldman Sachs 2013 Annual Report...

  • Page 166
    Notes to Consolidated Financial Statements The table below presents other secured financings by maturity. As of December 2013 in millions Other secured financings (short-term) Other secured financings (long-term): 2015 2016 2017 2018 2019-thereafter Total other secured financings (long-term) Total...

  • Page 167
    ... involvement. Year Ended December in millions 2013 2012 2011 Residential mortgages Commercial mortgages Other financial assets Total Cash flows on retained interests $29,772 6,086 - $35,858 $ 249 $33,755 300 - $34,055 $ 389 $40,131 - 269 $40,400 $ 569 Goldman Sachs 2013 Annual Report 165

  • Page 168
    ... Outstanding principal amount includes $418 million and $835 million as of December 2013 and December 2012, respectively, related to securitization entities in which the firm's only continuing involvement is retained servicing which is not a variable interest. 166 Goldman Sachs 2013 Annual Report

  • Page 169
    .... As of December 2013 Type of Retained Interests $ in millions Mortgage-Backed Other 1 Fair value of retained interests Weighted average life (years) Constant prepayment rate Impact of 10% adverse change Impact of 20% adverse change Discount rate Impact of 10% adverse change Impact of 20% adverse...

  • Page 170
    ...to mitigate its risk. Real Estate, Credit-Related and Other Investing VIEs. The firm purchases equity and debt securities issued by and makes loans to VIEs that hold real estate, performing and nonperforming debt, distressed loans and equity securities. The firm typically does not sell assets to, or...

  • Page 171
    ... in the consolidated statement of financial condition as follows: ‰ Substantially all assets held by the firm related to mortgage-backed, corporate CDO and CLO, other assetbacked, and investment fund VIEs are included in "Financial instruments owned, at fair value." Substantially all liabilities...

  • Page 172
    Notes to Consolidated Financial Statements Nonconsolidated VIEs As of December 2013 Corporate CDOs and CLOs 2 in millions Mortgagebacked Real estate, credit-related and other investing Other assetbacked Powerrelated Investment funds Total Assets in VIE Carrying Value of the Firm's Variable ...

  • Page 173
    ... of December 2012 Real estate, credit-related and other investing CDOs, mortgagebacked and other assetbacked in millions Principalprotected notes Total Assets Cash and cash equivalents Cash and securities segregated for regulatory and other purposes Receivables from brokers, dealers and clearing...

  • Page 174
    ... an impairment loss prior to the sale of an asset if the carrying value of the asset exceeds its estimated fair value. Primarily as a result of a decline in the market conditions in which certain of the firm's consolidated investments operate, during 2013 and 2012, the firm determined certain assets...

  • Page 175
    ... 2013 2012 Investment Banking: Financial Advisory Underwriting Institutional Client Services: Fixed Income, Currency and Commodities Client Execution Equities Client Execution Securities Services Investing & Lending Investment Management Total Goodwill is assessed annually in the fourth quarter...

  • Page 176
    ... negative changes to the firm's overall cost structure since the 2012 quantitative goodwill test was performed. ‰ Overall financial performance. During 2013, the firm's net earnings, pre-tax margin, diluted earnings per share, return on average common shareholders' equity and book value per...

  • Page 177
    ... quarter of 2013 and total proceeds received approximated carrying value. 3. These assets were related to the firm's Americas reinsurance business, in which a majority stake was sold in April 2013. See Note 3 for further information about this sale. 4. Primarily includes the firm's exchange-traded...

  • Page 178
    Notes to Consolidated Financial Statements Note 14. Deposits The table below presents deposits held in U.S. and non-U.S. offices, substantially all of which were interest-bearing. Substantially all U.S. deposits were held at Goldman Sachs Bank USA (GS Bank USA) as of December 2013 and December 2012...

  • Page 179
    ...by Group Inc. 2. The weighted average interest rates for these borrowings include the effect of hedging activities and exclude financial instruments accounted for at fair value under the fair value option. See Note 7 for further information about hedging activities. Goldman Sachs 2013 Annual Report...

  • Page 180
    ...) and 2.47% (5.26% related to fixed-rate obligations and 1.98% related to floating-rate obligations) as of December 2013 and December 2012, respectively. These rates exclude financial instruments accounted for at fair value under the fair value option. 178 Goldman Sachs 2013 Annual Report

  • Page 181
    ... The 2012 Trusts purchased the junior subordinated debt from Goldman Sachs Capital II and Goldman Sachs Capital III (APEX Trusts). The APEX Trusts used the proceeds from such sales to purchase shares of Group Inc.'s Perpetual Non-Cumulative Preferred Stock, Series E (Series E Preferred Stock) and...

  • Page 182
    ...information about income taxes. 4. Includes $14.62 billion of liabilities classified as held for sale as of December 2012 related to the firm's Americas reinsurance business, in which a majority stake was sold in April 2013. See Note 12 for further information. 180 Goldman Sachs 2013 Annual Report

  • Page 183
    ... other types of corporate lending as well as commercial real estate financing. Commitments that are extended for contingent acquisition financing are often intended to be short-term in nature, as borrowers often seek to replace them with other funding sources. Goldman Sachs 2013 Annual Report 181

  • Page 184
    ..., governmental agencies and others within the mortgage market that may impact originators, issuers, servicers and investors. There remains significant uncertainty surrounding the nature and extent of any potential exposure for participants in this market. 182 Goldman Sachs 2013 Annual Report

  • Page 185
    ... to each loan in the portfolio and addressed matters relating to the property, the borrower and the note. These representations generally included, but were not limited to, the following: (i) certain attributes of the borrower's financial status; (ii) loan-to-value ratios, owner occupancy status and...

  • Page 186
    ... have a material adverse effect on the firm's financial condition. On September 1, 2011, Group Inc. and GS Bank USA entered into a Consent Order (the Order) with the Federal Reserve Board relating to the servicing of residential mortgage loans. The terms of the Order were substantially similar and...

  • Page 187
    Notes to Consolidated Financial Statements In February 2013, Group Inc. and GS Bank USA entered into a settlement with the Federal Reserve Board relating to the servicing of residential mortgage loans and foreclosure processing. This settlement amends the Order which is described above, provides for...

  • Page 188
    Notes to Consolidated Financial Statements Guarantees of Securities Issued by Trusts. The firm has established trusts, including Goldman Sachs Capital I, the APEX Trusts, the 2012 Trusts, and other entities for the limited purpose of issuing securities to third parties, lending the proceeds to the ...

  • Page 189
    ... of Goldman, Sachs & Co. (GS&Co.), GS Bank USA and Goldman Sachs Execution & Clearing, L.P. (GSEC), subject to certain exceptions. In November 2008, the firm contributed subsidiaries into GS Bank USA, and Group Inc. agreed to guarantee the reimbursement of certain losses, including credit-related...

  • Page 190
    Notes to Consolidated Financial Statements Preferred Equity The table below presents perpetual preferred stock issued and outstanding as of December 2013. Redemption Value (in millions) Series Shares Authorized Shares Issued Shares Outstanding Dividend Rate A B C D E F I J 50,000 50,000 25,...

  • Page 191
    ... on securities held by the firm's Americas reinsurance business, in which a majority stake was sold in April 2013. See Note 12 for further information about this sale. 1. Excludes preferred dividends related to the redemption of the firm's Series G Preferred Stock. Goldman Sachs 2013 Annual Report...

  • Page 192
    ...'s other broker-dealer subsidiaries, are subject to separate regulation and capital requirements as described below. Group Inc. As of December 2013, Federal Reserve Board regulations required bank holding companies to maintain a minimum Tier 1 capital ratio of 4% and a minimum Total capital ratio of...

  • Page 193
    Notes to Consolidated Financial Statements The table below presents information regarding Group Inc.'s regulatory capital ratios and Tier 1 leverage ratio under Basel I, as implemented by the Federal Reserve Board. The information as of December 2013 reflects the revised market risk regulatory ...

  • Page 194
    ... 2013, were based on Basel I and also reflected the revised market risk regulatory capital requirements as implemented by the Federal Reserve Board. Beginning January 1, 2014, the Federal Reserve Board implemented the Revised Capital Framework discussed above. 192 Goldman Sachs 2013 Annual Report

  • Page 195
    ...As noted in the table below, GS Bank USA was in compliance with these minimum capital requirements as of December 2013 and December 2012. The table below presents information regarding GS Bank USA's regulatory capital ratios under Basel I, as implemented by the Federal Reserve Board. The information...

  • Page 196
    ... of dividends by the banking organizations they supervise (including GS Bank USA) if, in the relevant regulator's opinion, payment of a dividend would constitute an unsafe or unsound practice in the light of the financial condition of the banking organization. 194 Goldman Sachs 2013 Annual Report

  • Page 197
    ... support to alleviate liquidity constraints during the financial crisis and to enable them to fund certain investment opportunities. As of December 2013 and December 2012, the firm had no outstanding commitments to extend credit or other guarantees to its funds. Goldman Sachs 2013 Annual Report...

  • Page 198
    ... course of business, the firm may also engage in other activities with its affiliated funds including, among others, securities lending, trade execution, market making, custody, and acquisition and bridge financing. See Note 18 for the firm's investment commitments related to these funds. Note 23...

  • Page 199
    ... 392 204 1,001 2013 2012 (188) (643) 683 67 38 24 150 249 19 29 (356) 726 $3,697 $3,732 $1,727 Year Ended December 2013 2012 2011 U.S. federal statutory income tax rate State and local taxes, net of U.S. federal income tax effects Tax credits Non-U.S. operations 1 Tax-exempt income, including...

  • Page 200
    Notes to Consolidated Financial Statements The firm has recorded deferred tax assets of $232 million and $222 million as of December 2013 and December 2012, respectively, in connection with U.S. federal, state and local and foreign net operating loss carryforwards. The firm also recorded a valuation...

  • Page 201
    .... The firm was accepted into the program again for the 2014 tax year. 2. If recognized, the net tax benefit would reduce the firm's effective income tax rate. Regulatory Tax Examinations The firm is subject to examination by the U.S. Internal Revenue Service (IRS) and other taxing authorities in...

  • Page 202
    ... Financial Statements Note 25. Business Segments The firm reports its activities in the following four business segments: Investment Banking, Institutional Client Services, Investing & Lending and Investment Management. Basis of Presentation In reporting segments, certain of the firm's business...

  • Page 203
    ...2012 2011 Investment Banking Financial Advisory Equity underwriting Debt underwriting Total Underwriting Total net revenues Operating expenses Pre-tax earnings Segment assets Fixed Income, Currency and Commodities Client Execution Equities client execution Commissions and fees Securities services...

  • Page 204
    ... market for the underlying security. ‰ Investing & Lending: Investing: location of the investment; Lending: location of the client. ‰ Investment Management: location of the sales team. 2013 2012 2011 Investment Banking Institutional Client Services Investing & Lending Investment Management...

  • Page 205
    ... in equity markets in Asia during 2011. 2. Consists of charitable contributions of $155 million for 2013, $169 million for 2012 and $103 million for 2011; and real estate-related exit costs of $19 million for 2013, $17 million for 2012 and $14 million for 2011. Goldman Sachs 2013 Annual Report 203

  • Page 206
    ... and counterparties, the firm routinely executes a high volume of transactions with asset managers, investment funds, commercial banks, brokers and dealers, clearing houses and exchanges, which results in significant credit concentrations. In the ordinary course of business, the firm may also be...

  • Page 207
    ... firm's financial condition, though the outcomes could be material to the firm's operating results for any particular period, depending, in part, upon the operating results for such period. See Note 18 for further information on mortgagerelated contingencies. Goldman Sachs 2013 Annual Report 205

  • Page 208
    ... subjects, the firm's mortgage servicing and foreclosure activities, participation in federal programs providing assistance to financial institutions and homeowners, loan sales to Fannie Mae and Freddie Mac, mortgage-related activities and conflicts management. 206 Goldman Sachs 2013 Annual Report

  • Page 209
    Notes to Consolidated Financial Statements GS&Co., Goldman Sachs Mortgage Company (GSMC) and GS Mortgage Securities Corp. (GSMSC) and three current or former Goldman Sachs employees are defendants in a putative class action commenced on December 11, 2008 in the U.S. District Court for the Southern ...

  • Page 210
    ... regulatory and other investigations and actions with respect to mortgage-related offerings, loan sales, CDOs, and servicing and foreclosure activities. See Note 18 for information regarding mortgage-related contingencies not described in this Note 27. 208 Goldman Sachs 2013 Annual Report

  • Page 211
    ... laws. The complaint seeks class action status, injunctive relief and unspecified amounts of compensatory, punitive and other damages. On July 17, 2012, the district court issued a decision granting in part Group Inc.'s and GS&Co.'s motion to strike certain of Goldman Sachs 2013 Annual Report...

  • Page 212
    ... 1, 2013, the European Commission issued to those financial services companies a Statement of Objections alleging that they colluded to limit competition in the trading of exchange-traded unfunded credit derivatives and exchange trading of credit default 210 Goldman Sachs 2013 Annual Report swaps...

  • Page 213
    ... information regarding private company and governmental developments and the effectiveness of the firm's insider trading controls and information barriers. Goldman Sachs is cooperating with all such regulatory investigations and reviews. management and financial Goldman Sachs 2013 Annual Report...

  • Page 214
    ... results of operations. The firm recognizes the funded status of its defined benefit pension and postretirement plans, measured as the difference between the fair value of the plan assets and the benefit obligation, in the consolidated statements of financial condition. As of December 2013...

  • Page 215
    ...cash settled. 4. Includes restricted stock subject to future service requirements as of December 2013 and December 2012 of 4,768 and 276,317 shares, respectively. 271,549 shares of restricted stock vested during 2013. In the first quarter of 2014, the firm granted to its employees 13.8 million year...

  • Page 216
    Notes to Consolidated Financial Statements The table below presents the activity related to stock options. Aggregate Intrinsic Value (in millions) Weighted Average Remaining Life (years) Options Outstanding Weighted Average Exercise Price Outstanding, December 2012 Exercised Forfeited Expired ...

  • Page 217
    ... Financial Statements Note 30. Parent Company Group Inc. - Condensed Statements of Earnings Year Ended December in millions Group Inc. - Condensed Statements of Cash Flows Year Ended December in millions 2013 2012 2011 2013 2012 2011 Revenues Dividends from bank subsidiaries Dividends...

  • Page 218
    ... per share data December 2012 September 2012 June 2012 March 2012 Non-interest revenues Interest income Interest expense Net interest income Net revenues, including net interest income Operating expenses 1 Pre-tax earnings Provision for taxes Net earnings Preferred stock dividends Net earnings...

  • Page 219
    Supplemental Financial Information Common Stock Price Range The table below presents the high and low sales prices per share of the firm's common stock. Year Ended December 2013 High Low High 2012 Low High 2011 Low First quarter Second quarter Third quarter Fourth quarter $159.00 168.20 170.00 177...

  • Page 220
    ... of future performance. The Goldman Sachs Group, Inc. S&P 500 Index S&P 500 Financials Index The table below shows the cumulative total returns in dollars of the firm's common stock, the S&P 500 Index and the S&P 500 Financials Index for Goldman Sachs' last five fiscal year ends, assuming...

  • Page 221
    ... Book value per common share 1 Average common shares outstanding Basic Diluted Selected data (unaudited) Total staff Americas Non-Americas Total staff Assets under supervision (in billions) Asset class Alternative investments Equity Fixed income Long-term assets under supervision Liquidity products...

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    Supplemental Financial Information Statistical Disclosures Distribution of Assets, Liabilities and Shareholders' Equity The table below presents a summary of consolidated average balances and interest rates. For the Year Ended December 2013 in millions, except rates 2012 Average rate Average ...

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    ... swaps accounted for as hedges. 5. Primarily consists of certain payables to customers and counterparties. 6. Assets, liabilities and interest are attributed to U.S. and non-U.S. based on the location of the legal entity in which the assets and liabilities are held. Goldman Sachs 2013 Annual Report...

  • Page 224
    ...) due to change in: Net change Volume Rate Net change in millions Volume Rate Interest-earning assets Deposits with banks U.S. Non-U.S. Securities borrowed, securities purchased under agreements to resell and federal funds sold U.S. Non-U.S. Financial instruments owned, at fair value U.S. Non...

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    ... Value Available-for-sale securities, December 2012 Commercial paper, certificates of deposit, time deposits and other money market instruments U.S. government and federal agency obligations Non-U.S. government and agency obligations Mortgage and other asset-backed loans and securities Corporate...

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    ... below presents selected financial ratios. Year Ended December 2013 2012 2011 Net earnings to average assets Return on average common shareholders' equity 1 Return on average total shareholders' equity 2 Total average equity to average assets Dividend payout ratio 3 0.9% 0.8% 0.5% 11.0 10.4 8.2 13...

  • Page 227
    ... with a clearing house which are secured by collateral. 2. Primarily comprised of interests in and receivables from funds domiciled in Ireland, but whose underlying investments are primarily located outside of Ireland, and secured lending transactions. Goldman Sachs 2013 Annual Report 225

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    ... from funds domiciled in Ireland, but whose underlying investments are primarily located outside of Ireland, and secured lending transactions. 3. Primarily comprised of secured lending transactions which are primarily secured by German government obligations. 226 Goldman Sachs 2013 Annual Report

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    ... Insurance Group Ltd. Debora L. Spar President of Barnard College Mark E. Tucker Executive Director, Group Chief Executive and President of AIA Group Limited David A. Viniar Former Chief Financial Officer of The Goldman Sachs Group, Inc. John F.W. Rogers Secretary to the Board Management Committee...

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    ...A. Fishman Orit Freedman Weissman Naosuke Fujita Enrico S. Gaglioti Mary L. Harmon Edward A. Hazel Sean C. Hoover Kenneth L....Alan M. Cohen Michiel P. Lap Helena Koo Stefan R. Bollinger Gregory B. Carey Paul R. Aaron Andrew W. Alford Fareed T. Ali William... Member 228 Goldman Sachs 2013 Annual Report

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    ...March 20, 2014 Robert C.... Byron Marguarite A. Carmody Stuart A. Cash Denis P. Coleman, III Richard N. ...Bhavsar Christopher E. Blume Shane M. Bolton William C. Bousquette, Jr. Janet A. ...C. Mazarakis Penny A. McSpadden Celine-Marie G. Mechain Simon H. Moseley Jeff...Goldman Sachs 2013 Annual Report 2 2 9

  • Page 232
    ... M. Brickwood Michael G. Broadbery Michael R. Brooke Shoqat Bunglawala David Castelblanco Michael L. Chandler Toby J. Chapman Omar J. Chaudhary Hyung-Jin Chung Giacomo Ciampolini Samara P. Cohen Stephanie E. Cohen Richard Cohn *Partnership Committee Member 230 Goldman Sachs 2013 Annual Report

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    ...20, 2014 James... C. Marsh Robert A. McEvoy William T. McIntire Christopher G. Mckey... M. Kelsey Anita K. Kerr Michael Kirch Marie Louise Kirk Katharina Koenig Tatiana A. Kotchoubey ...Leite da Costa Luca M. Lombardi Joseph W. Long Todd D. Lopez Galia V. Loya Peter R....Goldman Sachs 2013 Annual Report 231

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    ... Officers and Directors as of March 20, 2014 Heather K. Miner Gregory P. Minson Hironobu Moriyama Edward... M.D. Den Hoedt Johannes P. Fritze Richard Gostling Jeffrey S. Isaacs William Shope, Jr. Steven K. Barg Guido Filippa Kathleen Hughes Michael ... R. McDermott 232 Goldman Sachs 2013 Annual Report

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    ... Sean Walsh David Watts Dion Werbeloff Jeremy Williams Vaishali Kasture Robert G. Burke Charles Cheng Jia Ming Hu Sanjiv Shah John Clappier Huw R. Pill Alan P. Konevsky PV Krishna Suk Yoon Choi ... David J. Curtis Keith L. Cynar Simon Dangoor Jennifer L. Davis Goldman Sachs 2013 Annual Report 233

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    ... March 20, 2014 Thomas Degn-Petersen...Weigang Li Gloria W. Lio Chang Lee Liow Matthew Liste Edmund Lo Justin Lomheim David...Andrea Skarbek Spencer Sloan William Smiley Taylor Smisson Gary...Buddin Paul H. Burchard Caroline Carr Marie-Ange Causse Daniel Cepeda Jean-Baptiste...Goldman Sachs 2013 Annual Report

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    ...2014 Anthony Dewell Joshua A. Dickstein Kuniaki Doi Jessica Douieb Martine Doyon Dexter D'Souza David Dubner Amy Elliott Theodore Enders Aidan Farrell Raymond Filocoma Andrea Finan Jeffrey Fine... Weir Chris Wells Geoffrey M. Williams Neil Wolitzer Willie W. Wong ...Goldman Sachs 2013 Annual Report 235

  • Page 238
    ... Jonathan D. Matz Patricia M. McCarthy Michael McGinn Alan S. Mclean Olympia S. McNerney Scott R. Mehling ...Williams Stephen E. Withnell Audrey Woon Chiharu Yamagami Suzzanne Yao Rana Yared Bervan Y. Yeh Tony Yip Emi Yoshibe Vladimir M. Zakharov Kalyana Kommineni 236 Goldman Sachs 2013 Annual Report

  • Page 239
    ...Hall Chang-Po Yang Peter D. Sutherland KCMG Chairman of Goldman Sachs International ...Salt Lake City San Francisco Santiago São Paulo Seattle Seoul Shanghai Singapore Stockholm Sydney Taipei Tampa Tel Aviv Tokyo Toronto Warsaw Washington, D.C. West Palm Beach Zurich Goldman Sachs 2013 Annual Report...

  • Page 240
    ... Army in World War II. He returned to the firm in 1948 to join our first retail securities sales group, selling stocks and bonds to individual and institutional clients. In the mid-1950s, when Goldman Sachs became the first firm on Wall Street to set up a sales group dedicated to institutional...

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    Shareholder Information Executive Offices The Goldman Sachs Group, Inc. 200 West Street New York, New York 10282 1-212-902-1000 www.goldmansachs.com Common Stock The common stock of The Goldman Sachs Group, Inc. is listed on the New York Stock Exchange and trades under the ticker symbol "GS." ...

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