Goldman Sachs 2009 Annual Report Download - page 132

Goldman Sachs 2009 Annual Report
130
Notes to Consolidated Financial Statements
The  rm has established trusts, including GoldmanSachs
CapitalI, II and III, and other entities for the limited purpose
of issuing securities to third parties, lending the proceeds
to the  rm and entering into contractual arrangements
with the  rm and third parties related to this purpose. See
Note7 for information regarding the transactions involving
GoldmanSachs CapitalI, II and III. The  rm effectively
provides for the full and unconditional guarantee of the
securities issued by these entities, which are not consolidated
for accounting purposes. Timely payment by the  rm of
amounts due to these entities under the borrowing, preferred
stock and related contractual arrangements will be suf cient
to cover payments due on the securities issued by these entities.
Management believes that it is unlikely that any circumstances
will occur, such as nonperformance on the part of paying
agents or other service providers, that would make it necessary
for the  rm to make payments related to these entities other
than those required under the terms of the borrowing, preferred
stock and related contractual arrangements and in connection
with certain expenses incurred by these entities. Group Inc.
also fully and unconditionally guarantees the securities issued
by GS Finance Corp., a wholly owned  nance subsidiary of the
 rm, which is consolidated for accounting purposes.
In the ordinary course of business, the  rm indemni es and
guarantees certain service providers, such as clearing and
custody agents, trustees and administrators, against speci ed
potential losses in connection with their acting as an agent
of, or providing services to, the  rm or its af liates. The  rm
Guarantees
The  rm enters into various derivative contracts that meet the de nition of a guarantee under ASC 460. Disclosures about
derivative contracts are not required if such contracts may be cash settled and the  rm has no basis to conclude it is probable
that the counterparties held, at inception, the underlying instruments related to the derivative contracts. The  rm has concluded
that these conditions have been met for certain large, internationally active commercial and investment bank counterparties and
certain other counterparties. Accordingly, the  rm has not included such contracts in the tables below.
The  rm, in its capacity as an agency lender, indemni es most of its securities lending customers against losses incurred in the event
that borrowers do not return securities and the collateral held is insuf cient to cover the market value of the securities borrowed.
In the ordinary course of business, the  rm provides other  nancial guarantees of the obligations of third parties
(e.g.,performance bonds, standby letters of credit and other guarantees to enable clients to complete transactions and merchant
banking fund-related guarantees). These guarantees represent obligations to make payments to bene ciaries if the guaranteed
party fails to ful ll its obligation under a contractual arrangement with that bene ciary.
The following table sets forth certain information about the  rm’s derivative contracts that meet the de nition of a guarantee
and certain other guarantees as of December2009. Derivative contracts set forth below include written equity and commodity
put options, written currency contracts and interest rate caps,  oors and swaptions. See Note3 for information regarding credit
derivative contracts that meet the de nition of a guarantee, which are not included below.
As of December2009
Maximum Payout/Notional Amount by Period of Expiration (1)
Carrying Value of 2015–
(inmillions) Net Liability 2010 2011–2012 2013–2014 Thereafter Total
Derivatives
(2) $7,221 $145,126 $105,744 $48,350 $66,965 $366,185
Securities lending indemni cations
(3) – 27,314 – – – 27,314
Other  nancial guarantees
(4) 207 357 352 358 1,010 2,077
(1) Such amounts do not represent the anticipated losses in connection with these contracts.
(2) Because derivative contracts are accounted for at fair value, carrying value is considered the best indication of payment/performance risk for individual
contracts. However, the carrying value excludes the effect of a legal right of setoff that may exist under an enforceable netting agreement and the effect
of netting of cash paid pursuant to credit support agreements. These derivative contracts are risk managed together with derivative contracts that do not
meet the de nition of a guarantee under ASC 460 and, therefore, these amounts do not re ect the  rm’s overall risk related to its derivative activities.
As of November2008, the carrying value of the net liability related to derivative guarantees was $17.46billion.
(3) Collateral held by the lenders in connection with securities lending indemni cations was $28.07billion and $19.95billion as of December2009 and
November2008, respectively. Because the contractual nature of these arrangements requires the  rm to obtain collateral with a market value that exceeds
the value of the securities on loan from the borrower, there is minimal performance risk associated with these guarantees.
(4) As of November2008, the carrying value of the net liability related to other  nancial guarantees was $235million.