Goldman Sachs 2015 Annual Report Download - page 83

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
In the table above:
‰Tangible common shareholders’ equity equals total
shareholders’ equity less preferred stock, goodwill and
identifiable intangible assets. We believe that tangible
common shareholders’ equity is meaningful because it is a
measure that we and investors use to assess capital
adequacy. Tangible common shareholders’ equity is a
non-GAAP measure and may not be comparable to
similar non-GAAP measures used by other companies.
‰Book value per common share and tangible book value
per common share are based on common shares
outstanding, including restricted stock units (RSUs)
granted to employees with no future service requirements,
of 441.6 million and 451.5 million as of December 2015
and December 2014, respectively. We believe that
tangible book value per common share (tangible common
shareholders’ equity divided by common shares
outstanding, including RSUs granted to employees with
no future service requirements) is meaningful because it is
a measure that we and investors use to assess capital
adequacy. Tangible book value per common share is a
non-GAAP measure and may not be comparable to
similar non-GAAP measures used by other companies.
Funding Sources
Our primary sources of funding are secured financings,
unsecured long-term and short-term borrowings, and
deposits. We seek to maintain broad and diversified
funding sources globally across products, programs,
markets, currencies and creditors to avoid funding
concentrations.
We raise funding through a number of different products,
including:
‰Collateralized financings, such as repurchase agreements,
securities loaned and other secured financings;
‰Long-term unsecured debt (including structured notes)
through syndicated U.S. registered offerings, U.S.
registered and Rule 144A medium-term note programs,
offshore medium-term note offerings and other debt
offerings;
‰Savings and demand deposits through deposit sweep
programs and time deposits through internal and third-
party broker-dealers; and
‰Short-term unsecured debt at the subsidiary level through
U.S. and non-U.S. hybrid financial instruments,
commercial paper and promissory note issuances and
other methods.
Our funding is primarily raised in U.S. dollar, Euro, British
pound and Japanese yen. We generally distribute our
funding products through our own sales force and third-
party distributors to a large, diverse creditor base in a
variety of markets in the Americas, Europe and Asia. We
believe that our relationships with our creditors are critical
to our liquidity. Our creditors include banks, governments,
securities lenders, pension funds, insurance companies,
mutual funds and individuals. We have imposed various
internal guidelines to monitor creditor concentration across
our funding programs.
Secured Funding. We fund a significant amount of
inventory on a secured basis. Secured funding is less
sensitive to changes in our credit quality than unsecured
funding, due to our posting of collateral to our lenders.
Nonetheless, we continually analyze the refinancing risk of
our secured funding activities, taking into account trade
tenors, maturity profiles, counterparty concentrations,
collateral eligibility and counterparty rollover probabilities.
We seek to mitigate our refinancing risk by executing term
trades with staggered maturities, diversifying
counterparties, raising excess secured funding, and pre-
funding residual risk through our GCLA.
We seek to raise secured funding with a term appropriate
for the liquidity of the assets that are being financed, and we
seek longer maturities for secured funding collateralized by
asset classes that may be harder to fund on a secured basis
especially during times of market stress. Substantially all of
our secured funding, excluding funding collateralized by
liquid government obligations, is executed for tenors of one
month or greater. Assets that may be harder to fund on a
secured basis during times of market stress include certain
financial instruments in the following categories: mortgage
and other asset-backed loans and securities, non-
investment-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 the classification of financial
instruments in the fair value hierarchy and “Unsecured
Long-Term Borrowings” below for further information
about the use of unsecured long-term borrowings as a
source of funding.
The weighted average maturity of our secured funding,
excluding funding collateralized by highly liquid securities
eligible for inclusion in our GCLA, exceeded 120 days as of
December 2015.
Goldman Sachs 2015 Form 10-K 71