Goldman Sachs 2013 Annual Report Download - page 171

Notes to Consolidated Financial Statements
VIE Consolidation Analysis
A variable interest in a VIE is an investment (e.g., debt or
equity securities) or other interest (e.g., derivatives or loans
and lending commitments) in a VIE that will absorb
portions of the VIE’s expected losses and/or receive
portions of the VIE’s expected residual returns.
The firm’s variable interests in VIEs include senior and
subordinated debt in residential and commercial mortgage-
backed and other asset-backed securitization entities,
CDOs and CLOs; loans and lending commitments; limited
and general partnership interests; preferred and common
equity; derivatives that may include foreign currency,
equity and/or credit risk; guarantees; and certain of the fees
the firm receives from investment funds. Certain interest
rate, foreign currency and credit derivatives the firm enters
into with VIEs are not variable interests because they create
rather than absorb risk.
The enterprise with a controlling financial interest in a VIE
is known as the primary beneficiary and consolidates the
VIE. The firm determines whether it is the primary
beneficiary of a VIE by performing an analysis that
principally considers:
‰which variable interest holder has the power to direct the
activities of the VIE that most significantly impact the
VIE’s economic performance;
‰which variable interest holder has the obligation to
absorb losses or the right to receive benefits from the VIE
that could potentially be significant to the VIE;
‰the VIE’s purpose and design, including the risks the VIE
was designed to create and pass through to its variable
interest holders;
‰the VIE’s capital structure;
‰the terms between the VIE and its variable interest holders
and other parties involved with the VIE; and
‰related-party relationships.
The firm reassesses its initial evaluation of whether an
entity is a VIE when certain reconsideration events occur.
The firm reassesses its determination of whether it is the
primary beneficiary of a VIE on an ongoing basis based on
current facts and circumstances.
Nonconsolidated VIEs
The firm’s exposure to the obligations of VIEs is generally
limited to its interests in these entities. In certain instances,
the firm provides guarantees, including derivative
guarantees, to VIEs or holders of variable interests in VIEs.
The tables below present information about
nonconsolidated VIEs in which the firm holds variable
interests. Nonconsolidated VIEs are aggregated based on
principal business activity. The nature of the firm’s variable
interests can take different forms, as described in the rows
under maximum exposure to loss. In the tables below:
‰The maximum exposure to loss excludes the benefit of
offsetting financial instruments that are held to mitigate
the risks associated with these variable interests.
‰For retained and purchased interests, and loans and
investments, the maximum exposure to loss is the
carrying value of these interests.
‰For commitments and guarantees, and derivatives, the
maximum exposure to loss is the notional amount, which
does not represent anticipated losses and also has not
been reduced by unrealized losses already recorded. As a
result, the maximum exposure to loss exceeds liabilities
recorded for commitments and guarantees, and
derivatives provided to VIEs.
The carrying values of the firm’s variable interests in
nonconsolidated VIEs are included 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 asset-
backed, and investment fund VIEs are included in
“Financial instruments owned, at fair value.”
Substantially all liabilities held by the firm related to
corporate CDO and CLO and other asset-backed VIEs
are included in “Financial instruments sold, but not yet
purchased, at fair value.”
‰Assets held by the firm related to real estate, credit-related
and other investing VIEs are primarily included in
“Financial instruments owned, at fair value” and
“Receivables from customers and counterparties,” and
liabilities are substantially all included in “Financial
Instruments sold, but not yet purchased, at fair value.”
‰Assets held by the firm related to power-related VIEs are
primarily included in “Financial instruments owned, at
fair value” and “Other assets.”
Goldman Sachs 2013 Annual Report 169