Goldman Sachs 2013 Annual Report Download - 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 the termination of
the independent foreclosure review under the Order and
calls for Group Inc. and GS Bank USA collectively to:
(i) make cash payments into a settlement fund for
distribution to eligible borrowers; and (ii) provide other
assistance for foreclosure prevention and loss mitigation
through January 2015. The other provisions of the Order
will remain in effect.
Guarantees
The firm enters into various derivatives that meet the
definition of a guarantee under U.S. GAAP, including
written equity and commodity put options, written
currency contracts and interest rate caps, floors and
swaptions. Disclosures about derivatives are not required if
they may be cash settled and the firm has no basis to
conclude it is probable that the counterparties held the
underlying instruments at inception of the contract. The
firm has concluded that these conditions have been met for
certain large, internationally active commercial and
investment bank counterparties, central clearing
counterparties and certain other counterparties.
Accordingly, the firm has not included such contracts in the
table below.
The firm, in its capacity as an agency lender, indemnifies
most of its securities lending customers against losses
incurred in the event that borrowers do not return securities
and the collateral held is insufficient to cover the market
value of the securities borrowed.
In the ordinary course of business, the firm provides other
financial guarantees of the obligations of third parties (e.g.,
standby letters of credit and other guarantees to enable
clients to complete transactions and fund-related
guarantees). These guarantees represent obligations to
make payments to beneficiaries if the guaranteed party fails
to fulfill its obligation under a contractual arrangement
with that beneficiary.
The table below presents certain information about
derivatives that meet the definition of a guarantee and
certain other guarantees. The maximum payout in the table
below is based on the notional amount of the contract and
therefore does not represent anticipated losses. See Note 7
for further information about credit derivatives that meet
the definition of a guarantee which are not included below.
Because derivatives are accounted for at fair value, the
carrying value is considered the best indication of payment/
performance risk for individual contracts. However, the
carrying values below exclude the effect of a legal right of
setoff that may exist under an enforceable netting
agreement and the effect of netting of collateral posted
under enforceable credit support agreements.
As of December 2013
Maximum Payout/Notional Amount by Period of Expiration
in millions
Carrying
Value of
Net Liability 2014
2015-
2016
2017-
2018
2019-
Thereafter Total
Derivatives 1$7,634 $517,634 $180,543 $39,367 $57,736 $795,280
Securities lending indemnifications 2— 26,384 — — — 26,384
Other financial guarantees 3213 1,361 620 1,140 1,046 4,167
1. These derivatives are risk managed together with derivatives that do not meet the definition of a guarantee, and therefore these amounts do not reflect the firm’s
overall risk related to its derivative activities. As of December 2012, the carrying value of the net liability and the notional amount related to derivative guarantees
were $8.58 billion and $663.15 billion, respectively.
2. Collateral held by the lenders in connection with securities lending indemnifications was $27.14 billion as of December 2013. Because the contractual nature of
these arrangements requires the firm to obtain collateral with a market value that exceeds the value of the securities lent to the borrower, there is minimal
performance risk associated with these guarantees. As of December 2012, the maximum payout and collateral held related to securities lending indemnifications
were $27.12 billion and $27.89 billion, respectively.
3. Other financial guarantees excludes certain commitments to issue standby letters of credit that are included in “Commitments to extend credit.” See table in
“Commitments” above for a summary of the firm’s commitments. As of December 2012, the carrying value of the net liability and the maximum payout related to
other financial guarantees were $152 million and $3.48 billion, respectively.
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