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GOLDMAN฀SAC H S ฀ 2004฀ A N N U A L ฀ R E P ORT ฀ ฀ ฀ 9 1
notes฀to฀consolidated฀financial฀statements
GOLDMAN฀SAC H S ฀ 2004฀ A N N U A L ฀ R E P ORT ฀ ฀ ฀ 9 1
In the normal course of its business, the firm indemnifies and
guarantees certain service providers, such as clearing and
custody agents, trustees and administrators, against specified
potential losses in connection with their acting as an agent of,
or providing services to, the firm or its affiliates. The firm also
indemnifies some clients against potential losses incurred in
the event specified third-party service providers, including
subcustodians and third-party brokers, improperly execute
transactions. In addition, the firm is a member of payment,
clearing and settlement networks as well as securities
exchanges around the world that may require the firm to meet
the obligations of such networks and exchanges in the event of
member defaults. In connection with its prime brokerage and
clearing businesses, the firm may agree to clear and settle on
behalf of its clients the transactions entered into by them with
other brokerage firms. The firm’s obligations in respect of such
transactions are secured by the assets in the client’s account as
well as any proceeds received from the transactions cleared
and settled by the firm on behalf of the client. In connection
with joint venture investments, the firm may issue loan guar-
antees under which it may be liable in the event of fraud,
misappropriation, environmental liabilities and certain other
matters involving the borrower. The firm is unable to develop
an estimate of the maximum payout under these guarantees
and indemnifications. However, management believes that it is
unlikely the firm will have to make material payments under
these arrangements, and no liabilities related to these guaran-
tees and indemnifications have been recognized in the consoli-
dated statements of financial condition as of November 2004
and November 2003.
The following tables set forth certain information about the firm’s derivative contracts that meet the definition of a guarantee and
certain other guarantees as of November 2004 and November 2003:
฀ ฀ AS฀OF฀NOVEMBER฀2004
฀ ฀ MAXIMUM฀PAYOUT/NOTIONAL฀AMOUNT฀BY฀PERIOD฀OF฀EXPIRATION(4)฀
฀฀฀ CARRYING฀ ฀ 2006-฀ 2008-฀ 2010-
(IN฀MILLIONS)฀ VALUE฀ 2005฀ 2007฀฀ ฀2009฀฀ THEREAFTER฀ TOTAL
Derivatives(1) $6,752฀ $269,246฀ $96,829฀ $175,910฀ $349,789฀ ฀฀$891,774
Securities lending indemnifications(2)฀ —฀ 14,737฀ —฀ —฀ —฀ 14,737
Guarantees of trust preferred beneficial interest(3) —฀ 174฀ 349฀ 349฀ 7,025฀ 7,897
Guarantee of the collection of
contractual cash flows 16฀ 47฀ 162฀ 57฀ 20฀ 286
Merchant banking fund-related commitments —฀ 19฀ 41฀ —฀ 5฀ 65
Letters of credit and other guarantees 44฀ 93฀ 123฀ 9฀ 80฀ 305
(1)฀฀The฀carrying฀value฀of฀$6.75฀billion฀excludes฀the฀effect฀of฀a฀legal฀right฀of฀setoff฀that฀may฀exist฀under฀an฀enforceable฀netting฀agreement.
(2)฀฀Collateral฀held฀in฀connection฀with฀securities฀lending฀indemnifications฀was฀$15.28฀billion฀as฀of฀November฀2004.
(3)฀฀Includes฀the฀guarantee฀of฀all฀payments฀scheduled฀to฀be฀made฀over฀the฀life฀of฀the฀Trust,฀which฀could฀be฀shortened฀in฀the฀event฀the฀firm฀redeemed฀the฀junior฀
subordinated฀debentures฀issued฀to฀fund฀the฀Trust฀(see฀Note฀5฀for฀further฀information฀regarding฀the฀Trust).
(4)฀฀Such฀amounts฀do฀not฀represent฀the฀anticipated฀losses฀in฀connection฀with฀these฀contracts.
฀ ฀ AS฀OF฀NOVEMBER฀2003
฀ ฀ MAXIMUM฀PAYOUT/NOTIONAL฀AMOUNT฀BY฀PERIOD฀OF฀EXPIRATION(3)฀
฀ ฀ ฀ CARRYING฀ ฀ 2005-฀ 2007-฀ 2009-
(IN฀MILLIONS)฀ VALUE฀ 2004฀ ฀2006฀฀ 2008฀฀ THEREAFTER฀ TOTAL
Derivatives(1) $7,639฀ $216,038฀ $87,843฀ $126,385฀ $163,721฀ $593,987
Securities lending indemnifications(2)฀ —฀ 7,955฀ —฀ —฀ —฀ 7,955
Guarantee of the collection of
contractual cash flows 16฀ 827฀ 708฀ 3฀ 5฀ 1,543
Merchant banking fund-related commitments —฀ 44฀ 20฀ 2฀ 2฀ 68
Letters of credit and other guarantees 89฀ 89฀ 25฀ 1฀ 82฀ 197
(1)฀฀The฀carrying฀value฀of฀$7.64฀billion฀excludes฀the฀effect฀of฀a฀legal฀right฀of฀setoff฀that฀may฀exist฀under฀an฀enforceable฀netting฀agreement.
(2)฀฀Collateral฀held฀in฀connection฀with฀securities฀lending฀indemnifications฀was฀$8.23฀billion฀as฀of฀November฀2003.
(3)฀฀Such฀amounts฀do฀not฀represent฀the฀anticipated฀losses฀in฀connection฀with฀these฀contracts.
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