Goldman Sachs 2015 Annual Report Download - page 119

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Lending and Financing Activities. We manage our
lending and financing activities using the credit risk process,
measures, limits and risk mitigants described above. Other
lending positions, including secondary trading positions,
are risk-managed as a component of market risk.
‰Lending Activities. Our lending activities include
lending to investment-grade and non-investment-grade
corporate borrowers. Loans and lending commitments
associated with these activities are principally used for
operating liquidity and general corporate purposes or in
connection with contingent acquisitions. Our 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 with these lending activities.
‰Securities Financing Transactions. We enter into
securities financing transactions in order to, among other
things, facilitate client activities, invest excess cash,
acquire securities to cover short positions and finance
certain firm activities. We bear credit risk related to resale
agreements and securities borrowed only to the extent
that cash advanced or the value of securities pledged or
delivered to the counterparty exceeds the value of the
collateral received. We also have credit exposure on
repurchase agreements and securities loaned to the extent
that the value of securities pledged or delivered to the
counterparty for these transactions exceeds the amount of
cash or collateral received. Securities collateral obtained
for securities financing transactions primarily includes
U.S. government and federal agency obligations and non-
U.S. government and agency obligations. We had
approximately $27 billion and $36 billion as of
December 2015 and December 2014, respectively, of
credit exposure related to securities financing transactions
reflecting 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 investment-
grade financial institutions, funds and governments,
primarily located in the Americas and EMEA.
‰Other Credit Exposures. We are exposed to credit risk
from our receivables from brokers, dealers and clearing
organizations and customers and counterparties.
Receivables from brokers, dealers and clearing
organizations are primarily comprised of initial margin
placed with clearing organizations and receivables related
to sales of securities which have traded, but not yet
settled. These receivables generally have minimal credit
risk due to the low probability of clearing organization
default and the short-term nature of receivables related to
securities settlements. Receivables from customers and
counterparties are generally comprised of collateralized
receivables related to customer securities transactions and
generally have minimal credit risk due to both the value of
the collateral received and the short-term nature of these
receivables. Our net credit exposure related to these
activities was approximately $33 billion and $26 billion
as of December 2015 and December 2014, respectively,
and was primarily comprised of initial margin (both cash
and securities) placed with investment-grade clearing
organizations. The regional breakdown of our net credit
exposure related to these activities was approximately
44% and 48% in the Americas, approximately 45% and
39% in EMEA, and approximately 11% and 13% in Asia
as of December 2015 and December 2014, respectively.
In addition, we extend other loans and lending
commitments to our private wealth management clients
that are primarily secured by residential real estate,
securities or other assets. We also purchase performing
and distressed loans backed by residential real estate and
consumer loans. The gross exposure related to such loans
and lending commitments was approximately $28 billion
and $17 billion as of December 2015 and
December 2014, respectively, and was substantially all
concentrated in the Americas region. The fair value of the
collateral received against such loans and lending
commitments generally exceeded the gross exposure as of
both December 2015 and December 2014.
Goldman Sachs 2015 Form 10-K 107