Goldman Sachs 2002 Annual Report Download - page 77

Variable Interest Entities (VIEs)
The firm, in the ordinary course of its business, utilizes VIEs such as trusts, limited partnerships and limited liability
companies to securitize commercial and residential mortgages and home equity loans, government and corporate bonds,
and other types of financial instruments. Prior to the issuance of FIN No. 46, VIEs were commonly referred to as SPEs.
The firm holds variable interests in such entities in the form of senior and subordinated debt, preferred and common
stock, interest rate, foreign currency and credit derivatives as well as residual interests in asset-backed securitizations.
The following table summarizes the firm’s maximum exposure to loss as a result of its significant variable interests in
consolidated and non-consolidated VIEs as well as the total assets of such VIEs:
AS OF NOVEMBER 2002
VARIABLE INTEREST ENTITIES(1)
(IN MILLIONS) CONSOLIDATED(2) NON-CONSOLIDATED
Maximum exposure to loss
Mortgages $73 $ 265
Other asset-backed 197 630
Total maximum exposure to loss $ 270 $ 895
VIE assets
Mortgages $ 651 $5,176
Other asset-backed 1,095 3,540
Total VIE assets $1,746 $8,716
(1) Excludes qualifying special-purpose entities (QSPEs), in accordance with FIN No. 46.
(2) Consolidated total VIE assets in excess of total maximum exposure to loss represents variable interests held by third parties that have no recourse
to the general credit of the firm.
the firm sold or repledged $272.5 billion and
$224.4 billion, respectively.
The firm also pledges its own assets to collateralize repur-
chase agreements and other secured financings. As of
November 2002 and November 2001, the carrying value
of securities included in “Financial instruments owned, at
fair value” that had been loaned or pledged to counter-
parties that did not have the right to sell or repledge was
$34.7 billion and $22.3 billion, respectively.
N O T E 5
SHORT-TERM BORROWINGS
The firm obtains unsecured short-term borrowings
through issuance of promissory notes, commercial paper
and bank loans. Short-term borrowings also include the
portion of long-term borrowings maturing within one
year. The carrying value of these short-term obligations
approximates fair value due to their short-term nature.
Secured Borrowing and Lending Activities
The firm obtains secured short-term financing principally
through the use of repurchase agreements and securities
lending agreements to obtain securities for settlement, to
finance inventory positions and to meet customers’ needs.
In these transactions, the firm either provides or receives
collateral, including U.S. government, federal agency,
mortgage-backed, investment-grade foreign sovereign
obligations and equity securities.
The firm receives collateral in connection with resale
agreements, securities lending transactions, derivative
transactions, customer margin loans and other secured
lending activities. In many cases, the firm is permitted to
sell or repledge securities held as collateral. These securi-
ties may be used to secure repurchase agreements, enter
into securities lending or derivative transactions, or cover
short positions. As of November 2002 and November
2001, the fair value of securities received as collateral by
the firm that it was permitted to sell or repledge was
$316.3 billion and $267.7 billion, respectively, of which
N otes to Consolidated Financial Statem ents
74 G O L D M A N SA CH S 2002 AN N UA L R EPO RT