Goldman Sachs 2009 Annual Report Download - page 117

Goldman Sachs 2009 Annual Report
115
Notes to Consolidated Financial Statements
The  rm also has embedded derivatives that have been
bifurcated from related borrowings. Such derivatives,
which are classi ed in unsecured short-term and unsecured
long-term borrowings in the  rm’s consolidated statements
of  nancial condition, had a net asset carrying value of
$96million and $774million as of December2009 and
November2008, respectively. The net asset as of December2009,
which represented 297 contracts, included gross assets
of $478million (primarily comprised of equity and interest
rate derivatives) and gross liabilities of $382million
(primarily comprised of equity and interest rate derivatives).
See Notes 6 and 7 for further information regarding the
 rm’s unsecuredborrowings.
As of December2009 and November2008, the  rm has
designated $3.38billion and $3.36billion, respectively, of
foreign currency-denominated debt, included in unsecured
long-term borrowings and unsecured short-term borrowings
in the  rm’s consolidated statements of  nancial condition,
as hedges of net investments in non-U.S. subsidiaries. For
the year ended December2009 and one month ended
December2008, the gain/(loss) on these debt instruments was
$106million and $(186)million, respectively. Such amounts
are included in “Currency translation adjustment, net of tax”
in the consolidated statements of comprehensive income.
The gain/(loss) related to ineffectiveness and the gain/(loss)
reclassi ed to earnings from accumulated other comprehensive
income was not material for the year ended December2009 or
one month ended December2008.
The following table sets forth by major product type the
 rm’s gains/(losses) related to trading activities, including
both derivative and nonderivative  nancial instruments,
for the year ended December2009 and one month ended
December2008. These gains/(losses) are not representative of
the  rm’s individual business unit results because many of the
 rm’s trading strategies utilize  nancial instruments across
various product types. Accordingly, gains or losses in one
product type frequently offset gains or losses in other product
types. For example, most of the  rm’s longer-term derivative
contracts are sensitive to changes in interest rates and may
be economically hedged with interest rate swaps. Similarly, a
signi cant portion of the  rm’s cash and derivatives trading
inventory has exposure to foreign currencies and may be
economically hedged with foreign currency contracts. The
gains/(losses) set forth below are included in “Trading
and principal investments” in the consolidated statements
of earnings and exclude related interest income and
interestexpense.
Year Ended One Month Ended
(inmillions) December2009 December2008
Interest rates $ 6,670 $ 2,226
Credit 6,225 (1,437)
Currencies
(1) (682) (2,256)
Equities 6,632 130
Commodities and other 5,341 887
Total $24,186 $ (450)
(1) Includes gains/(losses) on currency contracts used to economically hedge
positions included in other product types in this table.
Certain of the  rm’s derivative instruments have been
transacted pursuant to bilateral agreements with certain
counterparties that may require the  rm to post collateral or
terminate the transactions based on the  rm’s long-term credit
ratings. As of December2009, the aggregate fair value of such
derivative contracts that were in a net liability position was
$20.85billion, and the aggregate fair value of assets posted
by the  rm as collateral for these derivative contracts was
$14.48billion. As of December2009, additional collateral or
termination payments pursuant to bilateral agreements with
certain counterparties of approximately $1.12billion and
$2.36billion could have been called by counterparties in the
event of a one-notch and two-notch reduction, respectively, in
the  rm’s long-term credit ratings.
The  rm enters into a broad array of credit derivatives to
facilitate client transactions, to take proprietary positions
and as a means of risk management. The  rm uses each of
the credit derivatives described below for these purposes.
These credit derivatives are entered into by various trading
desks around the world, and are actively managed based on
the underlying risks. These activities are frequently part of a
broader trading strategy and are dynamically managed based
on the net risk position. As individually negotiated contracts,
credit derivatives can have numerous settlement and payment
conventions. The more common types of triggers include
bankruptcy of the reference credit entity, acceleration of
indebtedness, failure to pay, restructuring, repudiation and
dissolution of the entity.