Goldman Sachs 2002 Annual Report Download - page 62

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GO L D M A N SA CH S 2002 A N N UAL R EPO RT 59
Managem ent’s D iscussion and A nalysis
SUBSEQUENT EVENTS
Research Settlement
On December 20, 2002, as part of a proposed global set-
tlement involving the leading securities firms operating in
the United States, agreements in principle were announced
among Goldman Sachs’ U.S. broker-dealer subsidiary
Goldman, Sachs & Co. and various regulatory authorities
to resolve their investigations of Goldman, Sachs & Co.
relating to investment research analysts’ conflicts of inter-
est. Pursuant to the agreements in principle, Goldman,
Sachs & Co. has agreed, among other things, to (i) pay
$50 million in retrospective relief, (ii) contribute $50 mil-
lion over five years to provide independent third-party
research to clients, (iii) contribute $10 million for investor
education and (iv) adopt internal structural and other
safeguards to further ensure the integrity of Goldman,
Sachs & Co. investment research. The cost of the agree-
ments in principle has been provided for in our consoli-
dated financial statements. In connection with the
agreements, we also expect to be joining the other leading
securities firms who are part of the proposed global set-
tlement in an initiative that generally will prohibit the allo-
cation of shares in initial public offerings to executives and
directors of public companies. Current or future civil law-
suits implicating investment research analysts’ conflicts of
interest were not settled as part of the agreements in prin-
ciple. Our total potential liability in respect of such civil
cases cannot be reasonably estimated but could be mate-
rial to results of operations in a given period.
Transactions with Sumitomo Mitsui
Financial Group, Inc.
On February 7, 2003, Goldman Sachs and Sumitomo
Mitsui Financial Group, Inc. (together with its sub-
sidiaries, “SMFG”) entered into a series of related trans-
actions with three primary components: (i) the purchase
by Goldman Sachs of convertible preferred stock of
SMFG having a liquidation preference equal to ¥150.3
billion ($1.25 billion); (ii) the provision by SMFG to
Goldman Sachs’ affiliates of first loss credit protection up
to an aggregate of $1 billion and additional second loss
credit protection of up to $1.125 billion, in exchange for
the underlying commitment fees, to mitigate in part the
credit risk to Goldman Sachs associated with certain
credit extensions to its investment-grade clients; and (iii)
the enhancement and development of certain business
cooperation understandings between SMFG and
Goldman Sachs.