Goldman Sachs 2009 Annual Report Download - page 153

NOTE 18
Business Segments
In reporting to management, the  rm’s operating results
are categorized into the following three business segments:
Investment Banking, Trading and Principal Investments, and
Asset Management and Securities Services.
Basis of Presentation
In reporting segments, certain of the  rm’s business lines
have been aggregated where they have similar economic
characteristics and are similar in each of the following areas:
(i)the nature of the services they provide, (ii)their methods
of distribution, (iii)the types of clients they serve and (iv)the
regulatory environments in which they operate.
The cost drivers of the  rm taken as a whole — compensation,
headcount and levels of business activity — are broadly similar in
each of the  rm’s business segments. Compensation and bene ts
expenses within the  rm’s segments re ect, among other factors,
the overall performance of the  rm as well as the performance of
individual business units. Consequently, pre-tax margins in one
segment of the  rm’s business may be signi cantly affected by the
performance of the  rm’s other business segments.
The  rm allocates revenues and expenses among the three
business segments. Due to the integrated nature of these
segments, estimates and judgments have been made in
allocating certain revenue and expense items. Transactions
between segments are based on speci c criteria or approximate
third-party rates. Total operating expenses include corporate
items that have not been allocated to individual business
segments. The allocation process is based on the manner in
which management views the business of the  rm.
The segment information presented in the table below is
prepared according to the following methodologies:
▪
Revenues and expenses directly associated with each
segment are included in determining pre-tax earnings.
▪
Net revenues in the  rm’s segments include allocations of
interest income and interest expense to speci c securities,
commodities and other positions in relation to the cash
generated by, or funding requirements of, such underlying
positions. Net interest is included within segment
net revenues as it is consistent with the way in which
management assesses segment performance.
▪
Overhead expenses not directly allocable to speci c segments
are allocated ratably based on direct segment expenses.
capital is less than $5billion. As of December2009
and November2008, GS&Co. had tentative net capital
and net capital in excess of both the minimum and the
noti cationrequirements.
The  rm has U.S. insurance subsidiaries that are subject
to state insurance regulation and oversight in the states in
which they are domiciled and in the other states in which
they are licensed. In addition, certain of the  rm’s insurance
subsidiaries outside of the U.S. are part of the Lloyd’s
market (which is regulated by the U.K.’s Financial Services
Authority (FSA)) and certain are regulated by the Bermuda
Monetary Authority. The  rm’s insurance subsidiaries were
in compliance with all regulatory capital requirements as of
December2009 and November2008.
The  rm’s principal non-U.S. regulated subsidiaries include
Goldman Sachs International (GSI) and Goldman Sachs
Japan Co., Ltd. (GSJCL). GSI, the  rm’s regulated U.K.
broker-dealer, is subject to the capital requirements of the
FSA. GSJCL, the  rm’s regulated Japanese broker-dealer,
is subject to the capital requirements imposed by Japan’s
Financial Services Agency. As of December2009 and
November2008, GSI and GSJCL were in compliance with
their local capital adequacy requirements. Certain other
non-U.S. subsidiaries of the  rm are also subject to capital
adequacy requirements promulgated by authorities of the
countries in which they operate. As of December2009 and
November2008, these subsidiaries were in compliance with
their local capital adequacy requirements.
The regulatory requirements referred to above restrict
Group Inc.’s ability to withdraw capital from its regulated
subsidiaries. As of December2009 and November2008,
approximately $23.49billion and $26.92billion, respectively,
of net assets of regulated subsidiaries were restricted as to the
payment of dividends to Group Inc. In addition to limitations
on the payment of dividends imposed by federal and state laws,
the Federal Reserve Board, the FDIC and the NYSBD have
authority to prohibit or to limit the payment of dividends by
the banking organizations they supervise (including GSBank
USA) if, in the relevant regulator’s opinion, payment of a
dividend would constitute an unsafe or unsound practice in the
light of the  nancial condition of the banking organization.
Goldman Sachs 2009 Annual Report
151
Notes to Consolidated Financial Statements