Goldman Sachs 2015 Annual Report Download - page 37

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
We face a variety of risks that are substantial and inherent
in our businesses, including market, liquidity, credit,
operational, legal, regulatory and reputational risks. The
following are some of the more important factors that
could affect our businesses.
Our businesses have been and may continue to be
adversely affected by conditions in the global
financial markets and economic conditions generally.
Our businesses, by their nature, do not produce predictable
earnings, and all of our businesses are materially affected by
conditions in the global financial markets and economic
conditions generally, both directly and through their impact
on client activity levels. These conditions can change
suddenly and negatively.
Our financial performance is highly dependent on the
environment in which our businesses operate. A favorable
business environment is generally characterized by, among
other factors, high global gross domestic product growth,
regulatory and market conditions which result in
transparent, liquid and efficient capital markets, low
inflation, high business and investor confidence, stable
geopolitical conditions, clear regulations and strong
business earnings. Unfavorable or uncertain economic and
market conditions can be caused by: concerns about
sovereign defaults; uncertainty in U.S. federal fiscal or
monetary policy, the U.S. federal debt ceiling and the
continued funding of the U.S. government; the extent of
and uncertainty about the timing and nature of regulatory
reforms; declines in economic growth, business activity or
investor or business confidence; limitations on the
availability or increases in the cost of credit and capital;
illiquid markets; increases in inflation, interest rates,
exchange rate or basic commodity price volatility or default
rates; outbreaks of hostilities or other geopolitical
instability; corporate, political or other scandals that reduce
investor confidence in capital markets; extreme weather
events or other natural disasters or pandemics; or a
combination of these or other factors.
In 2008 and through early 2009, the financial services
industry and the securities markets generally were
materially and adversely affected by significant declines in
the values of nearly all asset classes and by a serious lack of
liquidity. Since 2011, concerns about European sovereign
debt risk and its impact on the European banking system,
and about changes in interest rates and other market
conditions or actual changes in interest rates and other
market conditions, including market conditions in China,
have resulted, at times, in significant volatility while
negatively impacting the levels of client activity.
General uncertainty about economic, political and market
activities, and the scope, timing and final implementation of
regulatory reform, as well as weak consumer, investor and
CEO confidence resulting in large part from such
uncertainty, continues to negatively impact client activity,
which adversely affects many of our businesses. Periods of
low volatility and periods of high volatility combined with
a lack of liquidity, have at times had an unfavorable impact
on 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 and recovery planning,
derivatives clearing and margin rules and levels of
regulatory oversight, as well as limitations on whether and
how certain business activities may be carried out by
financial institutions. Although interest rates are at or near
historically low levels, financial institution returns have
also been negatively impacted by increased funding costs
due in part to the withdrawal of perceived government
support of such institutions in the event of future financial
crises. In addition, liquidity in the financial markets has also
been negatively impacted as market participants and
market practices and structures adjust to new regulations.
The degree to which these and other changes resulting from
the financial crisis will have a long-term impact on the
profitability of financial institutions will depend on the final
interpretation and implementation of new regulations, the
manner in which markets, market participants and
financial institutions adapt to the new landscape, and the
prevailing economic and financial market conditions.
However, there is a significant risk that such changes will,
at least in the near term, continue to negatively impact the
absolute level of revenues, profitability and return on equity
at our firm and at other financial institutions.
Goldman Sachs 2015 Form 10-K 25