Goldman Sachs 2013 Annual Report Download - page 146

Notes to Consolidated Financial Statements
Level 3 Derivative Assets and Liabilities at Fair Value for the Year Ended December 2012
in millions
Asset/
(liability)
balance,
beginning
of year
Net
realized
gains/
(losses)
Net unrealized
gains/(losses)
relating to
instruments
still held at
year-end Purchases Sales Settlements
Transfers
into
level 3
Transfers
out of
level 3
Asset/
(liability)
balance,
end of
year
Interest rates — net $ (371) $ (60) $ 19 $ 7 $ (28) $ 71 $ 68 $ (61) $ (355)
Credit — net 6,300 246 (701) 138 (270) (1,597) 2,503 (391) 6,228
Currencies — net 842 (17) (502) 17 (5) (144) 65 (221) 35
Commodities — net (605) (11) 228 63 (410) 307 (41) 165 (304)
Equities — net (432) (80) (276) 123 (724) 267 (50) (76) (1,248)
Total derivatives — net $5,734 $ 78 1$(1,232) 1$348 $(1,437) $(1,096) $2,545 $(584) $ 4,356
1. The aggregate amounts include losses of approximately $903 million and $251 million reported in “Market making” and “Other principal transactions,” respectively.
The net unrealized loss on level 3 derivatives of
$1.23 billion for 2012 principally resulted from changes in
level 2 inputs and was primarily attributable to the impact
of tighter credit spreads, changes in foreign exchange rates
and increases in global equity prices on certain derivatives,
partially offset by the impact of a decline in volatility on
certain commodity derivatives.
Transfers into level 3 derivatives during 2012 primarily
reflected transfers from level 2 of certain credit derivative
assets, principally due to unobservable inputs becoming
significant to the valuation of these derivatives, and
transfers from level 2 of other credit derivative assets,
principally due to reduced transparency of correlation
inputs used to value these derivatives.
Transfers out of level 3 derivatives during 2012 primarily
reflected transfers to level 2 of certain credit derivative
assets, principally due to unobservable inputs no longer
being significant to the valuation of these derivatives,
transfers to level 2 of certain currency derivative assets,
principally due to unobservable correlation inputs no
longer being significant to the valuation of these derivatives,
and transfers to level 2 of certain commodity derivative
liabilities, principally due to increased transparency of
volatility inputs used to value these derivatives.
Impact of Credit Spreads on Derivatives
On an ongoing basis, the firm realizes gains or losses
relating to changes in credit risk through the unwind of
derivative contracts and changes in credit mitigants.
The net gain/(loss), including hedges, attributable to the
impact of changes in credit exposure and credit spreads
(counterparty and the firm’s) on derivatives was
$(66) million for 2013, $(735) million for 2012 and
$573 million for 2011.
Bifurcated Embedded Derivatives
The table below presents the fair value and the notional
amount of derivatives that have been bifurcated from their
related borrowings. These derivatives, which are recorded
at fair value, primarily consist of interest rate, equity and
commodity products and are included in “Unsecured short-
term borrowings” and “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 $ 285 $ 320
Fair value of liabilities 373 398
Net liability $ 88 $ 78
Notional amount $7,580 $10,567
144 Goldman Sachs 2013 Annual Report