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THE GOLDMAN SACHS GROUP, INC.
2015
ANNUAL REPORT

Table of contents

  • Page 1
    2015 ANNUAL REPORT THE GOLDMAN SACHS GROUP, INC.

  • Page 2
    ... the rapidly changing needs of our clients and to develop new services to meet those needs. We know that the world of finance will not stand still and that complacency can lead to extinction. We regularly receive confidential information as part of our normal client relationships. To breach...

  • Page 3
    ... and services. These factors culminated in record first-half results in Investment Banking and Investment Management, as well as the best first-half performance for Equities in six years. As the year progressed, increasing concerns about China, the first rate hike from the U.S. Federal Reserve in...

  • Page 4
    ... past four years, we have diversified our franchise while holding net revenues steady. We have increased our capital and liquidity, decreased our risk, and have stayed focused on efficiently and prudently managing our resources - all while helping our clients to execute their long-term goals and...

  • Page 5
    ...corporate clients to tap into public equity markets when conditions improve, particularly given that private financing conditions have generally tightened. A decline in debt underwriting net revenues in 2015 was largely due to a drop in leveraged finance activity. Goldman Sachs 2015 Annual Report...

  • Page 6
    ... in private companies alongside our clients. In other cases, we invest in public equity or in real estate, or we deploy capital to seed new funds. While the nature of our investing may change over time due to regulatory changes, and net revenues can ï¬,uctuate from quarter to quarter based on price...

  • Page 7
    ... at the start of 2012. This growth has been the direct result of robust net inï¬,ows, driven in part from market share gains, as clients place increasing value on asset managers like us that offer a broad array of products and services. In 2015, our $53 billion in organic, long-term net inï¬,ows...

  • Page 8
    ... helped us reduce vendor expenses for our workplace application infrastructure products and market data sources. Third, technology helps us meet new regulatory requirements, such as Dodd-Frank implementation and Basel III provisions. We have hired more technology 6 Goldman Sachs 2015 Annual Report

  • Page 9
    ...a business of relationships. This is the case not only in our work with clients, but also here within the firm. To that end, Goldman Sachs goes to great lengths to employ the best people with a wide range of experience and backgrounds. In 2015, we extended offers to 4 percent of applicants for open...

  • Page 10
    ... its limits in affecting economic outcomes - have gone from esoteric to mainstream. At Goldman Sachs, we grapple with these questions day in and day out. As managers of risk, we do our best to understand them, and to prepare our clients and our firm for even low-probability but highly consequential...

  • Page 11
    ...there were 422,349,543 shares of the registrant's common stock outstanding. Documents incorporated by reference: Portions of The Goldman Sachs Group, Inc.'s Proxy Statement for its 2016 Annual Meeting of Shareholders are incorporated by reference in the Annual Report on Form 10-K in response to Part...

  • Page 12
    ... Business Segments and Segment Operating Results Investment Banking Institutional Client Services Investing & Lending Investment Management Business Continuity and Information Security Employees Competition Regulation Available Information Cautionary Statement Pursuant to the U.S. Private Securities...

  • Page 13
    ..., see Note 25 to the consolidated financial statements in Part II, Item 8 of the 2015 Form 10-K. Our Business Segments and Segment Operating Results We report our activities in four business segments: Investment Banking, Institutional Client Services, Investing & Lending and Investment Management...

  • Page 14
    ...include mortgage-related securities and other asset-backed securities. Investment Banking Investment Banking serves public and private sector clients around the world. We provide financial advisory services and help companies raise capital to strengthen and grow their businesses. We seek to develop...

  • Page 15
    ... Institutional Client Services Institutional Client Services serves our clients who come to the firm to buy and sell financial products, raise funding and manage risk. We do this by acting as a market maker and offering market expertise on a global basis. Institutional Client Services makes markets...

  • Page 16
    ... rate swaps, options and other derivatives. ‰ Credit Products. Investment-grade corporate securities, high-yield securities, credit derivatives, bank and bridge loans, municipal securities, emerging market and distressed debt, and trade claims. ‰ Mortgages. Commercial mortgage-related securities...

  • Page 17
    ... private equity funds (including real estate funds), and separately managed accounts for institutional and individual investors. Other client assets include client assets invested with third-party managers, bank deposits and advisory relationships where we earn a fee for advisory and other services...

  • Page 18
    ...that make investments in securities, commodities, derivatives, real estate, loans and other financial assets. These entities include brokers and dealers, investment banking firms, commercial banks, insurance companies, investment advisers, mutual funds, hedge funds, private equity funds and merchant...

  • Page 19
    ... and limitations on activities that apply to us but may not apply to them. A number of our businesses are subject to intense price competition. Efforts by our competitors to gain market share have resulted in pricing pressure in our investment banking and client execution businesses and could result...

  • Page 20
    ... the Federal Reserve Board, the FDIC, the New York State Department of Financial Services and the Consumer Financial Protection Bureau (CFPB). A number of our activities are conducted partially or entirely through GS Bank USA and its subsidiaries, including: origination of bank loans; interest rate...

  • Page 21
    ...Committee's indicator for substitutability with a new indicator based on a U.S. G-SIB's use of shortterm wholesale funding. Under the Federal Reserve Board's final rules, G-SIBs are required to meet the capital surcharges on a phased-in basis beginning in 2016 through January 1, 2019. Goldman Sachs...

  • Page 22
    ...Results of Operations - Equity Capital Management and Regulatory Capital" in Part II, Item 7 of the 2015 Form 10-K and Note 20 to the consolidated financial statements in Part II, Item 8 of the 2015 Form 10-K for information about CET1, CET1 ratio, Tier 1 capital, Tier 1 capital ratio, Total capital...

  • Page 23
    ... Federal Reserve Board under the DoddFrank Act have required bank holding companies with $50 billion or more in total consolidated assets to comply with enhanced liquidity and overall risk management standards, including a buffer of highly liquid assets based on projected funding needs for 30 days...

  • Page 24
    ... Federal Reserve Board. These regulations generally limit the types and amounts of transactions (including credit extensions from GS Bank USA or its subsidiaries to Group Inc. or its other subsidiaries and affiliates) that may take place and generally require those transactions to be on market terms...

  • Page 25
    ... securities. The Federal Reserve Board has also indicated that it is considering imposing subsidiary TLAC requirements on material operating subsidiaries of U.S. G-SIBs. In November 2015, the Financial Stability Board issued a set of final principles and a final term sheet on a new minimum standard...

  • Page 26
    ... financial institution. The BRRD also subjects investment firms to MREL so that they can be resolved without causing financial instability and without recourse to public funds in the event of a failure. In July 2015, the European Banking Authority published final draft Regulatory Technical Standards...

  • Page 27
    ... and not to bank holding companies such as Group Inc. However, the Federal Reserve Board is authorized to take appropriate action at the holding company level, based upon the undercapitalized status of the holding company's depository institution subsidiaries. In certain instances relating to an...

  • Page 28
    ..., if a financial holding company or any of its U.S. depository institution subsidiaries ceases to maintain its status as well-capitalized or well-managed, the Federal Reserve Board may impose corrective capital and/or managerial requirements, as well as additional limitations or conditions. If the...

  • Page 29
    ... of Financial Condition and Results of Operations - Equity Capital Management and Regulatory Capital - Subsidiary Capital Requirements" in Part II, Item 7 of the 2015 Form 10-K for information about GSI's capital ratios. Goldman Sachs Japan Co., Ltd. (GSJCL), our regulated Japanese broker-dealer, is...

  • Page 30
    ... commodities; ‰ Mandated clearing through central counterparties and execution through regulated exchanges or electronic facilities for certain swaps and security-based swaps; ‰ New business conduct standards and other requirements for swap dealers, major swap participants, security-based swap...

  • Page 31
    ... the requirements, including registration of swap dealers, mandatory clearing and execution of certain swaps, business conduct standards and real-time public trade reporting, have taken effect already under CFTC rules, and the SEC and the CFTC have finalized the definitions of a number of key terms...

  • Page 32
    ... of client funds. Certain of our subsidiaries are registered with, and subject to oversight by, the SEC as investment advisers. The SEC recently adopted amendments to the rules that govern SECregistered money market mutual funds. The new rules require institutional prime money market funds to value...

  • Page 33
    ... prescribing minimum levels of daily and weekly liquidity, clear labeling of money market funds, a 3% capital buffer for constant net asset value funds and internal credit risk assessments. Compensation Practices Our compensation practices are subject to oversight by the Federal Reserve Board and...

  • Page 34
    ... covering a wider range of financial instruments and a reform of the equities markets. Commodities trading firms will be required to calculate their positions and adhere to specific limits. Other reforms introduce enhanced transaction reporting, the publication of best execution data by investment...

  • Page 35
    ... to our Investor Relations Department, are our certificate of incorporation and bylaws, charters for our Audit Committee, Risk Committee, Compensation Committee, Corporate Governance and Nominating Committee, and Public Responsibilities Committee, our Policy Regarding Director Independence...

  • Page 36
    ... statements about the effect of changes to the capital, leverage, liquidity, long-term debt and total loss-absorbing capacity rules applicable to banks and bank holding companies, the impact of the Dodd-Frank Act on our businesses and operations, and various legal proceedings or mortgage-related...

  • Page 37
    ... our market-making businesses. Our revenues and profitability and those of our competitors have been and will continue to be impacted by requirements relating to capital, additional loss-absorbing capacity, leverage, minimum liquidity and long-term funding levels, requirements related to resolution...

  • Page 38
    ... ratio, the net stable funding ratio, requirements relating to long-term debt and total loss-absorbing capacity and the prohibition on proprietary trading and the sponsorship of, or investment in, covered funds by the Volcker Rule may adversely affect our profitability and competitive position...

  • Page 39
    ... we have net "long" positions, receive fees based on the value of assets managed, or receive or post collateral. Many of our businesses have net "long" positions in debt securities, loans, derivatives, mortgages, equities (including private equity and real estate) and most other asset classes. These...

  • Page 40
    ...- Banking Supervision and Regulation - Total Loss-Absorbing Capacity" in Part I, Item 1 of the 2015 Form 10-K for more information about the Federal Reserve Board's proposed rules on loss-absorbency requirements. Our market-making activities have been and may be affected by changes in the levels of...

  • Page 41
    ... but complementary financial, credit, operational, compliance and legal reporting systems, internal controls, management review processes and other mechanisms. Our risk management process seeks to balance our ability to profit from market-making, investing or lending positions with our exposure...

  • Page 42
    ...and Analysis of Financial Condition and Results of Operations - Risk Management - Liquidity Risk Management - Credit Ratings" in Part II, Item 7 of the 2015 Form 10-K. Our liquidity, profitability and businesses may be adversely affected by an inability to access the debt capital markets or to sell...

  • Page 43
    ... changes, including new guidance on the treatment of brokered deposits and the capital, leverage and resolution and recovery frameworks applicable to large financial institutions, as well as proposals relating to minimum long-term debt requirements and TLAC, including limitations on the terms...

  • Page 44
    ... to effect transactions, service our clients, manage our exposure to risk or expand our businesses or result in financial loss or liability to our clients, impairment of our liquidity, disruption of our businesses, regulatory intervention or reputational damage. 32 Goldman Sachs 2015 Form 10-K

  • Page 45
    ...highly publicized cases involving financial services and consumer-based companies reporting the unauthorized disclosure of client or customer information in recent years, as well as cyber attacks involving the dissemination, theft and destruction of corporate information or other assets, as a result...

  • Page 46
    ... and additional limitations on the use of funds on deposit in bank or brokerage accounts, as well as lower earnings, can reduce the amount of funds available to meet the obligations of Group Inc., including under the Federal Reserve Board's source of strength policy, and even require Group Inc...

  • Page 47
    ...may cause a number of governments and regulators to take additional steps to "ring fence" or maintain internal total loss-absorbing capacity at such entities in order to protect clients and creditors of such entities in the event of financial difficulties involving such entities. The result has been...

  • Page 48
    ... - Total Loss-Absorbing Capacity" in Part I, Item 1 of the 2015 Form 10-K for more information about the Federal Reserve Board's proposed rules on loss-absorbency requirements. In addition, certain jurisdictions, including the United Kingdom and the EU, have implemented, or are considering, changes...

  • Page 49
    ... in a worse position than if the strategy had not been implemented. In all cases, any payments to debt holders are dependent on our ability to make such payments and are therefore subject to our credit risk. In August 2014, the Federal Reserve Board and the FDIC indicated that Group Inc., along with...

  • Page 50
    ... and countries, we routinely execute a high volume of transactions with counterparties engaged in financial services activities, including brokers and dealers, commercial banks, clearing houses, exchanges and investment funds. This has resulted in significant credit concentration with respect to...

  • Page 51
    ... could face additional compliance, legal and regulatory risk, increased reputational risk and increased operational risk due to, among other things, higher transaction volumes and significantly increased retention and transmission of customer and client information. Goldman Sachs 2015 Form 10-K 39

  • Page 52
    ... Practices" in Part I, Item 1 of the 2015 Form 10-K, our compensation practices are subject to review by, and the standards of, the Federal Reserve Board. As a large global financial and banking institution, we are subject to limitations on compensation practices (which may or may not affect our...

  • Page 53
    ...legal risks in our businesses, and the volume of claims and amount of damages and penalties claimed in litigation and regulatory proceedings against financial institutions remain high. See Note 27 to the consolidated financial statements in Part II, Item 8 of the 2015 Form 10-K for information about...

  • Page 54
    ...credits, coal, freight and related products and indices. In our investing and lending businesses, we make investments in and finance entities that engage in the production, storage and transportation of numerous commodities, including many of the commodities referenced above. 42 Goldman Sachs 2015...

  • Page 55
    ... affect our reputation. In addition, there have been a number of highly publicized cases around the world, involving actual or alleged fraud or other misconduct by employees in the financial services industry in recent years, and we run the risk that employee misconduct could occur. This misconduct...

  • Page 56
    ... to remain high. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Use of Estimates" in Part II, Item 7 of the 2015 Form 10-K. See Note 27 to the consolidated financial statements in Part II, Item 8 of the 2015 Form 10-K for information about certain...

  • Page 57
    ... in June 2012. From 2006 to June 2012, he was Chairman of MissionPoint Capital Partners, an investment firm he co-founded. Michael S. Sherwood, 50 Mr. Sherwood has been a Vice Chairman of Goldman Sachs since February 2008 and co-chief executive officer of Goldman Sachs International since 2005. He...

  • Page 58
    ... the Exchange Act), of our common stock during the fourth quarter of 2015. Information relating to compensation plans under which our equity securities are authorized for issuance is presented in Part III, Item 12 of the 2015 Form 10-K. Total Number of Shares Purchased as Part of Publicly Announced...

  • Page 59
    ... Analysis of Financial Condition and Results of Operations INDEX Introduction Executive Overview Business Environment Critical Accounting Policies Recent Accounting Developments Use of Estimates Results of Operations Balance Sheet and Funding Sources Equity Capital Management and Regulatory Capital...

  • Page 60
    ... in New York and maintains offices in all major financial centers 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...

  • Page 61
    ... 2013, as higher net revenues in both Investment Management and Investment Banking, reflecting strong performances in these businesses, were largely offset by slightly lower net revenues in both Institutional Client Services and Investing & Lending. Operating expenses were $22.17 billion for 2014...

  • Page 62
    ...U.S. Federal Reserve increased its target interest rate, while policy remained accommodative in the Euro area and Japan. In addition, oil prices declined by 30%, and there were concerns about the debt situation in Greece earlier in the year and China's growth outlook later in the year. In investment...

  • Page 63
    ... 2015 and December 2014, level 3 financial assets represented 2.8% and 4.2%, respectively, of our total assets. See Notes 5 through 8 to the consolidated financial statements for further information about level 3 financial assets, including changes in level 3 financial assets and related fair value...

  • Page 64
    ... trades in order to provide evidence of market-clearing levels. ‰ Backtesting. Valuations are corroborated comparison to values realized upon sales. by See Notes 5 through 8 to the consolidated financial statements for further information about fair value measurements. Review of Net Revenues...

  • Page 65
    ... test could cause the estimated fair value of our reporting units to decline, which could result in an impairment of goodwill in the future. See Note 13 to the consolidated financial statements for further information about our goodwill and our quantitative goodwill test. Goldman Sachs 2015 Form...

  • Page 66
    ... of the position. See Note 24 to the consolidated financial statements for further information about accounting for income taxes. We also estimate and record an allowance for credit losses related to our loans receivable and lending commitments held for investment. Management's estimate of loan...

  • Page 67
    ...in our Institutional Client Services and Investment Management segments. ‰ "Market making" is comprised 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...

  • Page 68
    ... the U.S. Federal Reserve's interest rate policy, along with lower global equity prices, widening high-yield credit spreads and declining commodity prices, contributed to lower levels of client activity, particularly in mortgages and credit, and more difficult market-making conditions. The operating...

  • Page 69
    ...products. Other principal transactions revenues on the consolidated statements of earnings were $6.59 billion for 2014, 6% lower than 2013. Revenues from investments in equity securities were lower due to a significant decrease in net gains from investments in public equities, as movements in global...

  • Page 70
    ... by, among other factors, the level of net revenues, overall financial performance, prevailing labor markets, business mix, the structure of our sharebased compensation programs and the external environment. In addition, see "Use of Estimates" for additional information about expenses that may arise...

  • Page 71
    ... in relation to the cash generated by, or funding requirements of, such underlying positions. See Note 25 to the consolidated financial statements for further information about our business segments. The cost drivers of Goldman Sachs taken as a whole - compensation, headcount and levels of business...

  • Page 72
    ... high level of mergers and acquisitions activity. Estimated net revenues from potential equity underwriting transactions were slightly higher compared with the end of 2014. 2015 2014 2013 Financial Advisory Equity underwriting Debt underwriting Total Underwriting Total net revenues Operating...

  • Page 73
    ... rate swaps, options and other derivatives. ‰ Credit Products. Investment-grade corporate securities, high-yield securities, credit derivatives, bank and bridge loans, municipal securities, emerging market and distressed debt, and trade claims. ‰ Mortgages. Commercial mortgage-related securities...

  • Page 74
    ... about the U.S. Federal Reserve's interest rate policy, along with lower global equity prices, widening high-yield credit spreads and declining commodity prices, contributed to lower levels of client activity, particularly in mortgages and credit, and more difficult market-making conditions. If...

  • Page 75
    ... R I E S Management's Discussion and Analysis 2014 versus 2013. Net revenues in Institutional Client Services were $15.20 billion for 2014, 3% lower than 2013. Results for 2014 included a gain of $289 million ($270 million of which was recorded at extinguishment in the third quarter) related to the...

  • Page 76
    ... of which are consolidated, directly and indirectly through funds and separate accounts 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...

  • Page 77
    ... private equity funds (including real estate funds), and separately managed accounts for institutional and individual investors. Other client assets include client assets invested with third-party managers, bank deposits and advisory relationships where we earn a fee for advisory and other services...

  • Page 78
    ... 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. 2015 2014 2013 Balance, beginning of year Net inflows/(outflows) Alternative investments Equity Fixed income Long-term AUS net inflows...

  • Page 79
    ...aged inventory, limit utilization, risk and performance measures, and capital usage. Our consolidated quarterly plan, including our balance sheet plans by business, funding projections, and projected key metrics, is reviewed and approved by the Firmwide Finance Committee. See "Overview and Structure...

  • Page 80
    ... 2015 and December 2014, respectively, of direct loans primarily extended to corporate and private wealth management clients that are accounted for at fair value. 2. See Note 9 to the consolidated financial statements for further information about loans receivable. 68 Goldman Sachs 2015 Form...

  • Page 81
    ... GAAP balance sheet. In the tables below: ‰ Total assets for Institutional Client Services and Investing & Lending represent inventory and related assets. These amounts differ from total assets by business segment disclosed in Note 25 to the consolidated financial statements because total assets...

  • Page 82
    ... 1 leverage ratio included in Note 20 to the consolidated financial statements. ‰ The debt to equity ratio equals unsecured long-term borrowings divided by total shareholders' equity. The table below presents information about our shareholders' equity and book value per common share, including the...

  • Page 83
    ...-grade corporate debt securities, equities and convertible debentures and emerging market securities. Assets that are classified as level 3 in the fair value hierarchy are generally funded on an unsecured basis. See Notes 5 and 6 to the consolidated financial statements for further information about...

  • Page 84
    ...unsecured short-term borrowings, including the current portion of unsecured long-term borrowings, were $42.79 billion and $44.54 billion, respectively. See Note 15 to the consolidated financial statements for further information about our unsecured short-term borrowings. 72 Goldman Sachs 2015 Form...

  • Page 85
    ... factors such as rating agency guidelines, subsidiary capital requirements, the business environment and conditions in the financial markets. We manage our capital requirements and the levels of our capital usage principally by setting limits on balance sheet assets and/or limits on risk, in each...

  • Page 86
    ... attributed to our Institutional Client Services segment and substantially all of the remaining RWAs were attributed to our Investing & Lending segment. We manage the levels of our capital usage based upon balance sheet and risk limits, as well as capital return analyses of our businesses based on...

  • Page 87
    ...by the Federal Reserve Board. See "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" in Part II, Item 5 of the 2015 Form 10-K and Note 19 to the consolidated financial statements for additional information about our share repurchase program...

  • Page 88
    ... by quarterly average adjusted total assets (which includes adjustments for goodwill and identifiable intangible assets, and certain investments in nonconsolidated financial institutions). 3. In order to meet the quantitative requirements for being "well-capitalized" under the Federal Reserve Board...

  • Page 89
    ... for additional information about our subordinated debt. See Note 20 to the consolidated financial statements for information about our transitional capital ratios, which represent the ratios that are applicable to us as of December 2015 and December 2014. 2015 2014 Common shareholders' equity...

  • Page 90
    ...the Revised Capital Framework. See Note 20 to the consolidated financial statements for further information about the Revised Capital Framework as it relates to GS Bank USA, including GS Bank USA's capital ratios and required minimum ratios. In addition, under Federal Reserve Board rules, commencing...

  • Page 91
    ....S. denominated debt. See Note 7 to the consolidated financial statements for information about our net investment hedges, which are used to hedge this risk. Guarantees of Subsidiaries. Group Inc. has guaranteed the payment obligations of GS&Co., GS Bank USA, and Goldman Sachs Execution & Clearing...

  • Page 92
    ... as described in "Business - Regulation" in Part I, Item 1 of the 2015 Form 10-K. Covered funds include our private equity funds, certain of our credit and real estate funds, our hedge funds and certain other investment structures. The limitation on investments in covered funds requires us to reduce...

  • Page 93
    ... 1 of the 2015 Form 10-K for further information on the Federal Reserve Board's proposed TLAC rule. Other Developments In January 2016, the Basel Committee finalized a revised framework for calculating minimum capital requirements for market risk. The revisions constitute a fundamental change to the...

  • Page 94
    ...Management's Discussion and Analysis The table below presents where information about our various off-balance-sheet arrangements may be found in the 2015 Form 10-K. In addition, see Note 3 to the consolidated financial statements for information about our consolidation policies. Type of Off-Balance...

  • Page 95
    ... Note 24 to the consolidated financial statements for further information about our unrecognized tax benefits. ‰ Unsecured long-term borrowings includes $8.34 billion of adjustments to the carrying value of certain unsecured long-term borrowings resulting from the application of hedge accounting...

  • Page 96
    ... of our risk management. First and foremost is our daily discipline of marking substantially all of our inventory to current market levels. Goldman Sachs carries its inventory at fair value, with changes in valuation reflected immediately in our risk management systems and in net revenues. We do...

  • Page 97
    ... information barriers are in place. Our primary risk committees, most of which also have additional subcommittees or working groups, are described below. In addition to these committees, we have other risk-oriented committees which provide oversight for different businesses, activities, products...

  • Page 98
    .... Corporate Oversight Board of Directors Board Committees Senior Management Oversight Chief Executive Officer President/Chief Operating Officer Chief Financial Officer Committee Oversight Management Committee Chief Administrative Officer Chief Risk Officer Firmwide Client and Business Standards...

  • Page 99
    ...and capital base, and credit ratings. This committee regularly reviews our liquidity, balance sheet, funding position and capitalization, approves related policies, and makes recommendations as to any adjustments to be made in light of current events, risks, exposures and regulatory requirements. As...

  • Page 100
    ... development and implementation of model risk controls, which includes governance, policies and procedures related to our reliance on financial models. This committee is chaired by a deputy chief risk officer, who is appointed as chair by the Firmwide Risk Committee. ‰ Global Business Resilience...

  • Page 101
    ...committee is chaired by the Investment Management Division's chief risk officer, who is appointed as chair by our chief risk officer. Conflicts Management Conflicts of interest and our approach to dealing with them are fundamental to our client relationships, our reputation and our long-term success...

  • Page 102
    ... debt balances than our businesses would otherwise require. We believe that our liquidity is stronger with greater balances of highly liquid unencumbered securities, even though it increases our total assets and our funding costs. We maintain our GCLA across major broker-dealer and bank subsidiaries...

  • Page 103
    ... analyze, and the Firmwide Finance Committee reviews, our consolidated total capital position (unsecured long-term borrowings plus total shareholders' equity) so that we maintain a level of longterm funding that is sufficient to meet our long-term financing requirements. In a liquidity crisis, we...

  • Page 104
    ...not limited to, an assessment of our potential intraday liquidity needs through an additional internal liquidity model, referred to as the Intraday Liquidity Model, the results of our long-term stress testing models, applicable regulatory requirements and a qualitative assessment of the condition of...

  • Page 105
    ... Contingent: Repurchases of our outstanding long-term debt, commercial paper and hybrid financial instruments in the ordinary course of business as a market maker. Exchange-Traded and OTC-cleared Derivatives ‰ Contingent: Variation margin postings required due to adverse changes in the value of...

  • Page 106
    ... the Board and the Firmwide Finance Committee approve liquidity risk limits at the firmwide level. Limits are reviewed frequently and amended, with required approvals, on a permanent and temporary basis, as appropriate, to reflect changing market or business conditions. Our liquidity risk limits are...

  • Page 107
    ... credit facilities. The table below presents the fair value of our GCLA by asset class. Average for the Year Ended December $ in millions We maintain our GCLA to enable us to meet current and potential liquidity requirements of our parent company, Group Inc., and its subsidiaries. Our Modeled...

  • Page 108
    ...outlook for GS Bank USA, GSIB, GS&Co. and GSI from positive to watch positive. Additionally, Rating and Investment Information, Inc. (R&I) downgraded the long-term debt ratings of Group Inc. from A+ to A and the subordinated debt ratings for Group Inc. from A to A-, and changed the outlook for Group...

  • Page 109
    ... reporting date by counterparties in the event of a one-notch and two-notch downgrade in our credit ratings. As of December $ in millions Short-term Debt R-1 (middle) F1 Long-term Debt 1 A (high) A Subordinated Debt A ATrust Preferred 2 A BBBPreferred Stock 3 BBB (high) BB+ Ratings Outlook Stable...

  • Page 110
    ... is accounted for at fair value and therefore fluctuates on a daily basis, with the related gains and losses included in "Market making" and "Other principal transactions." Categories of market risk include the following: ‰ Interest rate risk: results from exposures to changes in the level, slope...

  • Page 111
    ... of scenarios and the results are aggregated at product, business and firmwide levels. We use a variety of risk measures to estimate the size of potential losses for both moderate and more extreme market moves over both short-term and long-term time horizons. Our primary risk measures are VaR, which...

  • Page 112
    ...product) to govern risk appetite by controlling the size of our exposures to market risk. Limits are set based on VaR and on a range of stress tests relevant to our exposures. Limits are reviewed frequently and amended on a permanent or temporary basis to reflect changing market conditions, business...

  • Page 113
    ... benefit across risk categories. In addition, the currency rates and equity prices categories increased due to higher levels of volatility. During 2015, the firmwide VaR risk limit was temporarily raised on two occasions in order to facilitate client transactions. Separately, in March 2015...

  • Page 114
    ... asset value. Equity positions below relate to private and restricted public equity securities, including interests in funds that invest in corporate equities and real estate and interests in hedge funds, which are included in "Financial instruments owned, at fair value." Debt positions include...

  • Page 115
    ...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, both of which...

  • Page 116
    ... Risk Committee and the Credit Policy Committee prescribe the level of formal approval required for us to assume credit exposure to a counterparty across all product areas, taking into account any applicable netting provisions, collateral or other credit risk mitigants. 104 Goldman Sachs 2015 Form...

  • Page 117
    ... to clients and to facilitate the transfer and hedging of their risks. We also enter into derivatives to manage market risk exposures. We manage our credit exposure on OTC derivatives using the credit risk process, measures, limits and risk mitigants described above. Goldman Sachs 2015 Form 10...

  • Page 118
    ... the fair value of securities collateral, primarily U.S. government and federal agency obligations and non-U.S. government and agency obligations, received under credit support agreements, which management considers when determining credit risk, but such collateral is not eligible for netting under...

  • Page 119
    ... both netting agreements and collateral that management considers when determining credit risk. As of both December 2015 and December 2014, substantially all of our credit exposure related to securities financing transactions was with investmentgrade financial institutions, funds and governments...

  • Page 120
    ... quality. Cash as of December $ in millions Loans and Lending Commitments as of December $ in millions 2015 2014 2015 2014 Credit Exposure by Industry Funds Financial Institutions Sovereign Real Estate Total Credit Exposure by Region Americas EMEA Asia Total $ 176 12,799 62,130 - $75,105 $54...

  • Page 121
    ... response to specific market events that we deem significant. These stress tests are designed to estimate the direct impact of the event on our credit and market exposures resulting from shocks to risk factors including, but not limited to, currency rates, interest rates, and equity prices. We also...

  • Page 122
    ... 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. 110 Goldman Sachs 2015 Form 10...

  • Page 123
    ... Committee of the Board. In addition, our firmwide systems capture internal operational risk event data, key metrics such as transaction volumes, and statistical information such as performance trends. We use an internally-developed operational risk management application to aggregate and organize...

  • Page 124
    ...About Market Risk Quantitative and qualitative disclosures about market risk are set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview and Structure of Risk Management" in Part II, Item 7 of the 2015 Form 10-K. 112 Goldman Sachs 2015 Form...

  • Page 125
    ... Note 24. Income Taxes Note 25. Business Segments Note 26. Credit Concentrations Note 27. Legal Proceedings Note 28. Employee Benefit Plans Note 29. Employee Incentive Plans Note 30. Parent Company Supplemental Financial Information Quarterly Results Common Stock Price Range Common Stock Performance...

  • Page 126
    ...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 127
    Report of Independent Registered Public Accounting Firm To the Board of Directors and the Shareholders of The Goldman Sachs Group, Inc.: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of The ...

  • Page 128
    ...Consolidated Statements of Earnings Year Ended December in millions, except per share amounts 2015 2014 2013 Revenues Investment banking Investment management Commissions and fees Market making Other principal transactions Total non-interest revenues Interest income Interest expense Net interest...

  • Page 129
    ... . AN D S U B S I D I A R I E S Consolidated Statements of Comprehensive Income Year Ended December $ in millions 2015 2014 2013 Net earnings Other comprehensive income/(loss) adjustments, net of tax: Currency translation Pension and postretirement liabilities Available-for-sale securities Cash...

  • Page 130
    ...at fair value as of December 2015 and December 2014, respectively) Payables: Brokers, dealers and clearing organizations Customers and counterparties Financial instruments sold, but not yet purchased, at fair value Unsecured short-term borrowings, including the current portion of unsecured long-term...

  • Page 131
    ... S Consolidated Statements of Changes in Shareholders' Equity Year Ended December $ in millions 2015 2014 2013 Preferred stock Balance, beginning of year Issued Balance, end of year Common stock Balance, beginning of year Issued Balance, end of year Share-based awards Balance, beginning of year...

  • Page 132
    ... 2015 2014 2013 Cash flows from operating activities Net earnings Adjustments to reconcile net earnings to net cash provided by/(used for) operating activities Depreciation and amortization Deferred income taxes Share-based compensation Gain on sale of European insurance business Gain related...

  • Page 133
    ... are consolidated, directly and indirectly through funds and separate accounts that the firm manages, in debt securities and loans, public and private equity securities, and real estate entities. Investment Management The firm provides investment management services and offers investment products...

  • Page 134
    ...' 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 The...

  • Page 135
    ... at fair value." See Notes 6, 18 and 22 for further information about investments in funds. Use of Estimates Preparation of these consolidated financial statements requires management to make certain estimates and assumptions, the most important of which relate to fair value measurements, accounting...

  • Page 136
    ... the fair value option, with changes in fair value generally included in "Market making" revenues. See Note 8 for further information about receivables from customers and counterparties accounted for at fair value under the fair value option. In addition, as of December 2015 and December 2014, the...

  • Page 137
    ...prevailing on the date of the consolidated statements of financial condition and revenues and expenses are translated at average rates of exchange for the period. Foreign currency remeasurement gains or losses on transactions in nonfunctional currencies are recognized in earnings. Gains or losses on...

  • Page 138
    ... accounting changes and additional disclosures about certain transferred financial assets accounted for as sales were effective for the first interim and annual reporting periods beginning after December 15, 2014. The additional disclosures for certain securities financing transactions were required...

  • Page 139
    ...Notes to Consolidated Financial Statements Disclosures for Investments in Certain Entities That Calculate Net Asset Value (NAV) per Share (or Its Equivalent) (ASC 820). In May 2015, the FASB issued ASU No. 2015-07, "Fair Value Measurement (Topic 820) - Disclosures for Investments in Certain Entities...

  • Page 140
    ... Year Ended December 2015 2014 2013 $ in millions Financial Instruments Owned Product Type 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 Loans and securities...

  • Page 141
    ... 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 142
    ... trading volume and the number of days with trading activity. Level 2 Cash Instruments Level 2 cash instruments include commercial paper, certificates of deposit, time deposits, most government agency obligations, certain non-U.S. government obligations, most corporate debt securities, commodities...

  • Page 143
    ... other money market instruments 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) Goldman Sachs 2015 Form 10...

  • Page 144
    ... debentures (including private equity investments and investments in real estate entities) ‰ Increases in yield, discount rate, capitalization rate, duration or cumulative loss rate used in the valuation of the firm's level 3 cash instruments would result in a lower fair value measurement, while...

  • Page 145
    ...-U.S. government and agency obligations (19,256) (1,244) Loans and securities backed by commercial real estate - (1) Bank loans and bridge loans - (286) Corporate debt securities - (5,741) Other debt obligations - - Equities and convertible debentures (27,587) (722) Commodities - (1,224) Total cash...

  • Page 146
    ... $92 million, reflecting transfers of public equity securities due to increased market activity in these instruments. See level 3 rollforward below for information about transfers between level 2 and level 3. Level 3 Rollforward The table below presents changes in fair value for all cash instrument...

  • Page 147
    ... by company-specific events and strong corporate performance. Transfers into level 3 during 2015 primarily reflected transfers of certain bank loans and bridge loans, private equity investments and loans and securities backed by commercial real estate from level 2, principally due to reduced price...

  • Page 148
    ...Total $5,414 611 560 1,172 $7,757 $2,057 344 - 296 $2,697 As of December 2014 $ in millions Fair Value of Investments Unfunded Commitments Private equity funds Credit funds Hedge funds Real estate funds Total $6,307 1,008 863 1,432 $9,610 $2,175 383 - 310 $2,868 136 Goldman Sachs 2015 Form...

  • Page 149
    ... same business segment as the related revenues. In addition, the firm may enter into derivatives designated as hedges under U.S. GAAP. These derivatives are used to manage interest rate exposure in certain fixedrate unsecured long-term and short-term borrowings, and deposits, and to manage foreign...

  • Page 150
    ... rates OTC-cleared Bilateral OTC Total currencies Subtotal Total gross fair value/notional amount of derivatives Amounts that have been offset in the consolidated statements of financial condition Exchange-traded OTC-cleared Bilateral OTC Total counterparty netting OTC-cleared Bilateral OTC Total...

  • Page 151
    .... Conversely, even highly structured products may at times have trading volumes large enough to provide observability of prices and other inputs. See Note 5 for an overview of the firm's fair value measurement policies. Level 1 Derivatives Level 1 derivatives include short-term contracts for...

  • Page 152
    ...options that are long-dated and/or have strike prices that differ significantly from current market prices. In addition, the valuation of certain structured trades requires the use of level 3 correlation inputs, such as the correlation of the price performance of two or more individual stocks or the...

  • Page 153
    ... example, option pricing models and discounted cash flows models are typically used together to determine fair value. Therefore, the level 3 balance encompasses both of these techniques. Range of Significant Unobservable Inputs (Average / Median) Level 3 Derivative Product Type Interest rates ($398...

  • Page 154
    ... index due to differences in quality or delivery location) or price results in a higher fair value measurement. Due to the distinctive nature of each of the firm's level 3 derivatives, the interrelationship of inputs is not necessarily uniform within each product type. 142 Goldman Sachs 2015 Form...

  • Page 155
    ...085) (985,841) Level 1 Level 2 Level 3 Total Assets Interest rates Credit Currencies Commodities Equities Gross fair value of derivative assets Counterparty netting within levels Subtotal Cross-level counterparty netting Cash collateral netting Fair value included in financial instruments owned...

  • Page 156
    ... I E S Notes to Consolidated Financial Statements Level 3 Rollforward The table below presents changes in fair value for all derivatives categorized as level 3 as of the end of the year. In the table below: ‰ If a derivative was transferred to level 3 during a reporting period, its entire gain or...

  • Page 157
    ...S Notes to Consolidated Financial Statements Level 3 Rollforward Commentary Year Ended December 2015. The net unrealized gain on level 3 derivatives of $679 million for 2015 was primarily attributable to gains on certain credit derivatives, reflecting the impact of wider credit spreads, and changes...

  • Page 158
    ... the notional amount of these junior tranches, any excess loss is covered by the next most senior tranche in the capital structure. ‰ Total Return Swaps. A total return swap transfers the risks relating to economic performance of a reference obligation from the protection buyer to the protection...

  • Page 159
    ... recorded at fair value, primarily consist of interest rate, equity and commodity products and are included in "Unsecured shortterm borrowings" and "Unsecured long-term borrowings" with the related borrowings. See Note 8 for further information. As of December $ in millions 2015 2014 Fair value...

  • Page 160
    ... and short-term borrowings and certain fixed-rate certificates of deposit and (ii) certain foreign currency forward contracts and foreign currency-denominated debt used to manage foreign currency exposures on the firm's net investment in certain non-U.S. operations. To qualify for hedge accounting...

  • Page 161
    ... 2015 and December 2014, the firm had designated $2.20 billion and $1.36 billion, respectively, of foreign currency-denominated debt, included in "Unsecured long-term borrowings" and "Unsecured shortterm borrowings," as hedges of net investments in non-U.S. subsidiaries. Goldman Sachs 2015 Form...

  • Page 162
    ... (e.g., transfers of financial instruments owned accounted for as financings are recorded at fair value whereas the related secured financing would be recorded on an accrual basis absent electing the fair value option); and ‰ Address simplification and cost-benefit considerations (e.g., accounting...

  • Page 163
    ... ranges of significant unobservable inputs used to value level 3 other secured financings are as follows: As of December 2015: ‰ Yield: 0.6% to 10.0% (weighted average: 2.7%) ‰ Duration: 1.6 to 8.8 years (weighted average: 2.8 years) As of December 2014: ‰ Funding spreads: 210 bps to 325 bps...

  • Page 164
    ... fair value hierarchy are reported at the beginning of the reporting period in which they occur. There were no transfers of other financial assets and financial liabilities between level 1 and level 2 during 2015 or 2014. The table below presents information about transfers between level 2 and level...

  • Page 165
    ... 45 Deposits $(1,065) Securities sold under agreements to repurchase (124) Other secured financings (1,091) Unsecured short-term borrowings (3,712) Unsecured long-term borrowings (2,585) Other liabilities and accrued expenses (715) Total other financial liabilities $(9,292) Year Ended December 2014...

  • Page 166
    ... due to changes in the market value of the related underlying investments, and certain hybrid financial instruments included in unsecured short-term borrowings, principally due to an increase in global equity prices. Transfers out of level 3 of other financial assets during 2014 primarily reflected...

  • Page 167
    ... See Note 18 for further information about lending commitments. Long-Term Debt Instruments The aggregate contractual principal amount of long-term other secured financings for which the fair value option was elected exceeded the related fair value by $362 million and $203 million as of December 2015...

  • Page 168
    ... and is recorded on an accrual basis. The table below presents details about loans receivable. As of December $ in millions 2015 2014 Corporate loans Loans to private wealth management clients Loans backed by commercial real estate Loans backed by residential real estate Other loans Total loans...

  • Page 169
    ... to loans backed by commercial real estate, residential real estate and other consumer loans, respectively). The outstanding principal balance and accretable yield related to such loans was $5.54 billion and $234 million, respectively, as of December 2015. The fair value, related expected cash flows...

  • Page 170
    ... or funding, and is included in "Other liabilities and accrued expenses" in the consolidated statements of financial condition. As of December 2015 and December 2014, substantially all of such lending commitments were evaluated for impairment at the portfolio level. The table below presents changes...

  • Page 171
    ...and makes delivery of financial instruments sold under repurchase agreements. To mitigate credit exposure, the firm monitors the market value of these financial instruments on a daily basis, and delivers or obtains additional collateral due to changes in the market value of the financial instruments...

  • Page 172
    ... Income, Currency and Commodities Client Execution are recorded at fair value under the fair value option. See Note 8 for further information about securities borrowed and loaned accounted for at fair value. Securities borrowed and loaned within Securities Services are recorded based on the amount...

  • Page 173
    .... See Note 8 for further information about other secured financings that are accounted for at fair value. Repurchase Securities agreements loaned Commercial paper, certificates of deposit, time deposits and other money market instruments $ 806 U.S. government and federal agency obligations 54...

  • Page 174
    ...primarily classified in level 2 as of December 2015 and December 2014. The tables below present information about other secured financings. $ in millions In the tables above: ‰ Short-term secured financings include financings maturing within one year of the financial statement date and financings...

  • Page 175
    ...position of the firm's investment in the capital structure of the securitization vehicle and the market yield for the security. Substantially all of these interests are accounted for at fair value, are included in "Financial instruments owned, at fair value" and are classified in level 2 of the fair...

  • Page 176
    ... with secondary market-making activities, in securitization entities in which the firm also holds retained interests. ‰ Substantially all of the total outstanding principal amount and total fair value of retained interests as of December 2015 relate to securitizations during 2012 and thereafter...

  • Page 177
    ... sensitivity of this fair value to immediate adverse changes of 10% and 20% in those assumptions. As of December $ in millions Note 12. Variable Interest Entities VIEs generally finance the purchase of assets by issuing debt and equity securities that are either collateralized by or indexed to the...

  • Page 178
    ...I E S Notes to Consolidated Financial Statements 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...

  • Page 179
    ...by the firm related to real estate, credit-related and other investing VIEs are included in "Financial instruments owned, at fair value," "Loans receivable," and "Other assets." Substantially all liabilities held by the firm related to real estate, creditrelated and other investing VIEs are included...

  • Page 180
    ...firm. Note 13. 2015 2014 Real estate, credit-related and other investing Assets Cash and cash equivalents Cash and securities segregated for regulatory and other purposes Receivables from brokers, dealers and clearing organizations Loans receivable Financial instruments owned, at fair value Other...

  • Page 181
    ... currently applicable regulatory capital requirements. 2015 2014 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...

  • Page 182
    ... estimated fair value. During 2015, the firm recorded impairments of $103 million, substantially all of which were attributable to consolidated investments and included in the firm's Investing & Lending segment. The impairments generally reflected challenging market conditions for certain companies...

  • Page 183
    ...2015 2014 U.S. offices Non-U.S. offices Total $81,920 15,599 $97,519 $69,142 13,738 $82,880 See Note 10 for information about other secured financings. Unsecured short-term borrowings include the portion of unsecured long-term borrowings maturing within one year of the financial statement date...

  • Page 184
    ...not accounted for at fair value into floating-rate obligations. Accordingly, excluding the cumulative impact of changes in the firm's credit spreads, the carrying value of unsecured long-term borrowings approximated fair value as of December 2015 and December 2014. See Note 7 for further information...

  • Page 185
    ... to make those payments. As such, the $1.58 billion and the $500 million of junior subordinated debt held by the 2012 Trusts for the benefit of investors, included in "Unsecured long-term borrowings" and "Unsecured short-term borrowings," respectively, in the consolidated statements of financial...

  • Page 186
    ... in full. Note 17. Other Liabilities and Accrued Expenses The table below presents other liabilities and accrued expenses by type. As of December $ in millions 2015 2014 Compensation and benefits Noncontrolling interests 1 Income tax-related liabilities Employee interests in consolidated funds...

  • Page 187
    ...in millions 2015 2014 Commitments to extend credit Commercial lending: Investment-grade Non-investment-grade Warehouse financing Total commitments to extend credit Contingent and forward starting resale and securities borrowing agreements Forward starting repurchase and secured lending agreements...

  • Page 188
    ... 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. Sumitomo Mitsui Financial Group, Inc. (SMFG...

  • Page 189
    ...E S Notes to Consolidated Financial Statements Contingencies Legal Proceedings. See Note 27 for information about legal proceedings, including certain mortgage-related matters, and agreements the firm has entered into to toll the statute of limitations. Certain Mortgage-Related Contingencies. There...

  • Page 190
    ...above. In addition, see Note 7 for information about credit derivatives that meet the definition of a guarantee, which are not included in the tables above. Derivatives are accounted for at fair value and therefore the carrying value is considered the best indication of payment/ performance risk for...

  • Page 191
    ...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 losses, relating to assets held...

  • Page 192
    ... by the firm's current and projected capital position, but which may also be influenced by general market conditions and the prevailing price and trading volumes of the firm's common stock. Prior to repurchasing common stock, the firm must receive confirmation that the Federal Reserve Board does not...

  • Page 193
    ... 2016 to preferred shareholders of record on January 26, 2016. In addition, the firm declared dividends of $1,011.11 per each share of Series E Preferred Stock and Series F Preferred Stock, to be paid on March 1, 2016 to preferred shareholders of record on February 15, 2016. Goldman Sachs 2015 Form...

  • Page 194
    ...) and a financial holding company under amendments to the BHC Act. As a bank holding company, the firm is subject to consolidated regulatory capital requirements which are calculated in accordance with the revised risk-based capital and leverage regulations of the Federal Reserve Board, subject to...

  • Page 195
    ... of positive net current exposure and a percentage of the notional amount of each derivative. The exposure measure for securities financing transactions was based on the carrying value without the application of potential price volatility adjustments required under the Standardized Capital Rules...

  • Page 196
    ... the Federal Reserve Board's regulatory capital rules require that intraday activity be excluded from daily trading net revenues when calculating regulatory VaR exceptions. Intraday activity includes bid/ offer net revenues, which are more likely than not to be positive by their nature. As a result...

  • Page 197
    ..., net of deferred tax liabilities Deductions for investments in nonconsolidated financial institutions Other adjustments Common Equity Tier 1 Perpetual non-cumulative preferred stock Junior subordinated debt issued to trusts Deduction for investments in covered funds Other adjustments Tier 1 capital...

  • Page 198
    ...assets, net of deferred tax liabilities Change in deduction for investments in nonconsolidated financial institutions Change in other adjustments Balance, December 31, 2014 Tier 1 capital Balance, December 31, 2013 Change in CET1 related to the transition to the Revised Capital Framework 1 Change in...

  • Page 199
    ... 2015 2014 Standardized Basel III Advanced Credit RWAs Derivatives Commitments, guarantees and loans Securities financing transactions 1 Equity investments Other 2 Total Credit RWAs Market RWAs Regulatory VaR Stressed VaR Incremental risk Comprehensive risk Specific risk Total Market RWAs Total...

  • Page 200
    ... regulations of the Federal Reserve Board that were based on the Basel Committee's Basel I Capital Accord, including the revised market risk capital requirements. $ in millions Period Ended December 2014 Risk-weighted assets Balance, December 31, 2013 Credit RWAs Change related to the transition...

  • Page 201
    ... to GS Bank USA as of December 2015. The capital ratios that apply to GS Bank USA can change in future reporting periods as a result of these regulatory requirements. As of December 2014, GS Bank USA was required to calculate each of the CET1, Tier 1 capital and Total capital ratios in accordance...

  • Page 202
    ... subsidiary would satisfy the equity capital requirements applicable to it after giving effect to the dividend. For example, the Federal Reserve Board, the FDIC and the New York State Department of Financial Services have authority to prohibit or to limit the payment of dividends by the banking...

  • Page 203
    ... addition, in the ordinary 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...

  • Page 204
    ... income tax rate. Year Ended December $ in millions 2015 2014 2013 Interest income Deposits with banks Securities borrowed, securities purchased under agreements to resell and federal funds sold 1 Financial instruments owned, at fair value Loans receivable Other interest 2 Total interest income...

  • Page 205
    ... with U.S. federal, state and local and foreign net operating loss carryforwards. The firm also recorded a valuation allowance of $24 million and $26 million as of December 2015 and December 2014, respectively, related to these net operating loss carryforwards. Goldman Sachs 2015 Form 10-K 193

  • Page 206
    ...2008 through calendar 2010 have been finalized, but the settlement is subject to review by the Joint Committee of Taxation. The examinations of 2011 and 2012 began in 2013. The firm has been accepted into the Compliance Assurance Process program by the IRS for the 2013, 2014, 2015 and 2016 tax years...

  • Page 207
    ... E S Notes to Consolidated 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...

  • Page 208
    ... expense by segment included in pre-tax earnings. Year Ended December $ in millions Net revenues Americas Europe, Middle East and Africa Asia Total net revenues 2015 2014 2013 Investment Banking Institutional Client Services Investing & Lending Investment Management Total depreciation and...

  • Page 209
    ... 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 subject to a concentration of credit risk...

  • Page 210
    ... 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 about mortgage-related contingencies. 198 Goldman Sachs 2015 Form 10-K

  • Page 211
    ...A R I E S Notes to Consolidated Financial Statements Mortgage-Related Matters. Beginning in April 2010, a number of purported securities law class actions were filed in the U.S. District Court for the Southern District of New York challenging the adequacy of Group Inc.'s public disclosure of, among...

  • Page 212
    .... Group Inc., Litton Loan Servicing LP (Litton), Ocwen Financial Corporation and Arrow Corporate Member Holdings LLC (Arrow), a former subsidiary of Group Inc., are defendants in a putative class action pending since January 23, 2013 in the U.S. District Court for the Southern District of New York...

  • Page 213
    ... for class certification. On January 6, 2016, FireEye and its director and officer defendants filed a motion for judgment on the pleadings for lack of subject matter jurisdiction. GS&Co. underwrote 2,100,000 shares for a total offering price of approximately $172 million. Goldman Sachs 2015 Form 10...

  • Page 214
    ... 12, 2016. GS&Co. underwrote 3,450,000 shares of common stock and $150 million principal amount of notes for an aggregate offering price of approximately $187 million. 202 Goldman Sachs 2015 Form 10-K Employment-Related Matters. On September 15, 2010, a putative class action was filed in the...

  • Page 215
    ... banks, including Group Inc., involved in the European Commission's investigation, announced in April 2011, of numerous financial services companies in connection with the supply of data related to credit default swaps and in connection with profit sharing and fee arrangements for clearing of credit...

  • Page 216
    ... E S Notes to Consolidated Financial Statements Commodities-Related Litigation. GS&Co., GSI, J. Aron & Company and Metro, a previously consolidated subsidiary of Group Inc. that was sold in the fourth quarter of 2014, are among the defendants in a number of putative class actions filed beginning on...

  • Page 217
    ...C . AN D S U B S I D I A R I E S Notes to Consolidated Financial Statements Group Inc., GS&Co. and Goldman Sachs Canada Inc. are among the defendants named in putative class actions related to trading in foreign exchange markets, filed beginning in September 2015 in the Superior Court of Justice in...

  • Page 218
    ... under the 2015 SIP. Shares available for grant are also subject to adjustment for certain changes in corporate structure as permitted under the 2015 SIP. The 2015 SIP is scheduled to terminate on the date of the annual meeting of shareholders that occurs in 2019. 206 Goldman Sachs 2015 Form 10-K

  • Page 219
    ... I E S Notes to Consolidated Financial Statements Restricted Stock Units The firm grants RSUs to employees under the 2015 SIP, which are valued based on the closing price of the underlying shares on the date of grant after taking into account a liquidity discount for any applicable post-vesting and...

  • Page 220
    ...AN D S U B S I D I A R I E S Notes to Consolidated Financial Statements Note 30. Parent Company Group Inc. - Condensed Statements of Earnings Year Ended December $ in millions Group Inc. - Condensed Statements of Cash Flows 2014 2013 $ in millions 2015 Year Ended December 2015 2014 2013 $ 6,083...

  • Page 221
    ... 5, 2016, the last reported sales price for the firm's common stock on the New York Stock Exchange was $156.47 per share. Common Stock Performance The following graph and table compare the performance of an investment in the firm's common stock from December 31, 2010 (the last trading day before...

  • Page 222
    ... Financial Data Year Ended or as of December 2015 2014 2013 2012 2011 Income statement data ($ in millions) Non-interest revenues Interest income Interest expense Net interest income Net revenues, including net interest income Compensation and benefits Non-compensation expenses Pre-tax earnings...

  • Page 223
    ... and average total liabilities of $402 million and $382 million for the year ended December 2014 and December 2013, respectively. See Note 3 to the consolidated financial statements for further information about ASU No. 2015-03. 4. Interest rates include the effects of interest rate swaps accounted...

  • Page 224
    ...) due to change in: Volume Rate Net Change Volume Rate Net Change Interest-earning assets U.S. Non-U.S. Total deposits with banks U.S. Non-U.S. Total securities borrowed, securities purchased under agreements to resell and federal funds sold U.S. Non-U.S. Total financial instruments owned...

  • Page 225
    ... one year of the financial statement date. As of December $ in millions U.S. Corporate loans Loans to private wealth management clients Loans backed by commercial real estate Loans backed by residential real estate Other loans Total U.S. Non-U.S. Corporate loans Loans to private wealth management...

  • Page 226
    ... Rates as of December 2015 Less than 1 year $ 1,382 9,742 284 440 74 11,922 411 1,137 15 - - 1,563 13,485 16 13,469 $13,485 $ in millions U.S. Corporate loans Loans to private wealth management clients Loans backed by commercial real estate Loans backed by residential real estate Other loans Total...

  • Page 227
    ...the Report of Independent Registered Public Accounting Firm are set forth in Part II, Item 8 of the 2015 Form 10-K. Item 11. Executive Compensation Information relating to our executive officer and director compensation and the compensation committee of the Board will be in the 2016 Proxy Statement...

  • Page 228
    ... Annual Meeting of Shareholders and was a successor plan to The Goldman Sachs 1999 Stock Incentive Plan (1999 SIP), which was approved by our shareholders immediately prior to our initial public offering in May 1999. Item 13. Certain Relationships and Related Transactions, and Director Independence...

  • Page 229
    ... October 10, 2008 (incorporated by reference to Exhibit 4.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2014). Ninth Supplemental Subordinated Debt Indenture, dated as of May 20, 2015, between The Goldman Sachs Group, Inc. and The Bank of New York Mellon, as...

  • Page 230
    ...'s Current Report on Form 8-K, filed on August 26, 2005). 10.21 General Guarantee Agreement, dated January 30, 2006, made by The Goldman Sachs Group, Inc. relating to certain obligations of Goldman, Sachs & Co. (incorporated by reference to Exhibit 10.45 to the Registrant's Annual Report on Form 10...

  • Page 231
    ... 10.43 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2014). †10.39 General Guarantee Agreement, dated March 2, 2010, made by The Goldman Sachs Group, Inc. relating to the obligations of Goldman Sachs Execution & Clearing, L.P. (incorporated by reference to...

  • Page 232
    ....41 The Goldman Sachs Long-Term Performance Incentive Plan, dated December 17, 2010 (incorporated by reference to the Registrant's Current Report on Form 8-K, filed on December 23, 2010). †10.42 Form of Performance-Based Restricted Stock Unit Award Agreement (pre-2015) (incorporated by reference...

  • Page 233
    ... duly authorized. THE GOLDMAN SACHS GROUP, INC. By: /s/ Harvey M. Schwartz Name: Harvey M. Schwartz Title: Chief Financial Officer Date: February 19, 2016 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the...

  • Page 234
    ...Mark O. Winkelman Mark O. Winkelman Director Chief Financial Officer (Principal Financial Officer) February 19, 2016 February 19, 2016 /s/ Harvey M. Schwartz Harvey M. Schwartz /s/ Sarah E. Smith Sarah E. Smith Principal Accounting Officer February 19, 2016 II-2 Goldman Sachs 2015 Form 10-K

  • Page 235
    ... 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." Shareholder Inquiries Information about the firm, including all quarterly earnings releases and financial filings with the U.S. Securities and Exchange...

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