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Notes to Consolidated Financial Statements
During the year ended November 2007, the firm securitized
$81.40 billion of financial assets ($24.95 billion of residential
mortgages, $19.50 billion of commercial mortgages and
$36.95 billion of other financial assets, primarily in connection
with collateralized debt and loan obligations (CDOs and CLOs)).
During the year ended November 2006, the firm securitized
$103.92 billion of financial assets ($67.73 billion of residential
mortgages, $12.78 billion of commercial mortgages and
$23.41 billion of other financial assets, primarily in connection
with CDOs and CLOs). Cash flows received on retained interests
were approximately $705 million and $801 million for the
years ended November 2007 and November 2006, respectively.
As of November 2007 and November 2006, the firm held
$4.57 billion and $7.08 billion of retained interests, respectively,
from these securitization activities, including $2.72 billion and
$5.18 billion, respectively, held in QSPEs.
assumptions to the change in fair value is not usually linear. In
addition, the impact of a change in a particular assumption is
calculated independently of changes in any other assumption.
In practice, simultaneous changes in assumptions might magnify
or counteract the sensitivities disclosed above.
Securitization Activities
The firm securitizes commercial and residential mortgages,
home equity and auto loans, government and corporate bonds
and other types of financial assets. The firm acts as underwriter
of the beneficial interests that are sold to investors. The firm
derecognizes financial assets transferred in securitizations
provided it has relinquished control over such assets.
Transferred assets are accounted for at fair value prior to
securitization. Net revenues related to these underwriting
activities are recognized in connection with the sales of the
underlying beneficial interests to investors.
The firm may retain interests in securitized financial assets,
primarily in the form of senior or subordinated securities,
including residual interests. Retained interests are accounted
for at fair value and are included in “Total financial instruments
owned, at fair value” in the consolidated statements of
financial condition.
The preceding table does not give effect to the offsetting benefit
of other financial instruments that are held to mitigate risks
inherent in these retained interests. Changes in fair value based
on an adverse variation in assumptions generally cannot
be extrapolated because the relationship of the change in
The following table sets forth the weighted average key economic assumptions used in measuring the fair value of the firm’s
retained interests and the sensitivity of this fair value to immediate adverse changes of 10% and 20% in those assumptions:
As of November 2007 As of November 2006
Type of Retained Interests Type of Retained Interests
Mortgage- CDOs and Corporate Mortgage- CDOs and Corporate
($ in millions) Backed CLOs
(3) Debt Backed CLOs
(3) Debt
(4)
Fair value of retained interests $3,378 $1,188 $— $4,013 $1,973 $1,097
Weighted average life (years) 6.6 2.7 — 6.0 7.0 2.2
Constant prepayment rate 15.1% 11.9% N/A 21.2% 24.5% N/A
Impact of 10% adverse change $ (50) $ (43) $— $ (121) $ (2) $ —
Impact of 20% adverse change (91) (98) — (221) (6) —
Anticipated credit losses
(1) 4.3% N/A N/A 2.0% N/A N/A
Impact of 10% adverse change
(2) $ (45) $ — $— $ (81) $ — $ —
Impact of 20% adverse change
(2) (72) — — (155) — —
Discount rate 8.4% 23.1% N/A 9.4% 6.9% 3.9%
Impact of 10% adverse change $ (89) $ (46) $— $ (136) $ (38) $ (9)
Impact of 20% adverse change (170) (92) — (266) (74) (17)
(1) Anticipated credit losses are computed only on positions for which expected credit loss is a key assumption in the determination of fair value or positions for which
expected credit loss is not reflected within the discount rate.
(2) The impacts of adverse change take into account credit mitigants incorporated in the retained interests, including over-collateralization and subordination provisions.
(3) Includes $905 million and $1.26 billion as of November 2007 and November 2006, respectively, of retained interests related to transfers of securitized assets that were
accounted for as secured financings rather than sales under SFAS No. 140.
(4) Includes retained interests in bonds and other types of financial assets that are not subject to prepayment risk.
105Goldman Sachs 2007 Annual Report