Goldman Sachs 2009 Annual Report Download - page 65

to certain exceptions) are similar to those applicable to bank
holding companies. GSBank USA and its subsidiaries are
subject to the regulatory framework for prompt corrective
action (PCA). GSBank USA computes its capital ratios in
accordance with the regulatory capital guidelines currently
applicable to state member banks, which are based on
BaselI as implemented by the Federal Reserve Board, for
purposes of assessing the adequacy of its capital. GSBank
USA’s capital levels and PCA classi cation are subject to
qualitative judgments by its regulators about components,
risk weightings and other factors.
GS&Co. and Goldman Sachs Execution & Clearing, L.P.
are registered U.S. broker-dealers and futures commission
merchants, and are subject to regulatory capital requirements,
including those imposed by the SEC, the Commodity
Futures Trading Commission, the Chicago Board of Trade,
the Financial Industry Regulatory Authority, Inc. and the
National Futures Association. Goldman Sachs International
(GSI) and Goldman Sachs Japan Co., Ltd., our principal non-
U.S. regulated broker-dealer subsidiaries, are subject to the
capital requirements of the U.K.’s Financial Services Authority
and Japan’s Financial Services Agency, respectively.
See Note17 to the consolidated  nancial statements for
information regarding GSBank USA’s capital ratios under
Basel I as implemented by the Federal Reserve Board, and for
further information regarding the capital requirements of our
other regulated subsidiaries.
Subsidiaries not subject to separate regulatory capital
requirements may hold capital to satisfy local tax guidelines,
rating agency requirements (for entities with assigned credit
ratings) or internal policies, including policies concerning the
minimum amount of capital a subsidiary should hold based
on its underlying level of risk. In certain instances, Group Inc.
may be limited in its ability to access capital held at certain
subsidiaries as a result of regulatory, tax or other constraints.
As of December2009, Group Inc.’s equity investment in
subsidiaries was $65.74billion compared with its total
shareholders’ equity of $70.71billion.
Group Inc. has guaranteed the payment obligations of
GS&Co., GSBank USA and GSBank Europe, subject to
certain exceptions. In November2008, we contributed
subsidiaries into GSBank USA, and Group Inc. agreed to
guarantee certain losses, including credit-related losses,
relating to assets held by the contributed entities. In
connection with this guarantee, Group Inc. also agreed to
pledge to GSBank USA certain collateral, including interests
in subsidiaries and other illiquid assets.
Our capital invested in non-U.S. subsidiaries is generally
exposed to foreign exchange risk, substantially all of which is
managed through a combination of derivative contracts and
non-U.S. denominated debt.
Rating Agency Guidelines
The credit rating agencies assign credit ratings to the
obligations of Group Inc., which directly issues or guarantees
substantially all of the  rm’s senior unsecured obligations.
GSBank USA has also been assigned a long-term issuer
rating as well as ratings on its long-term and short-term bank
deposits. In addition, credit rating agencies have assigned
ratings to debt obligations of certain other subsidiaries of
Group Inc.
The level and composition of our equity capital are among
the many factors considered in determining our credit
ratings. Each agency has its own de nition of eligible
capital and methodology for evaluating capital adequacy,
and assessments are generally based on a combination of
factors rather than a single calculation. See “— Liquidity
and Funding Risk — Credit Ratings” below for further
information regarding our credit ratings.
Equity Capital Management
Our objective is to maintain a suf cient level and optimal
composition of equity capital. We principally manage our
capital through issuances and repurchases of our common
stock. We may also, from time to time, issue or repurchase our
preferred stock, junior subordinated debt issued to trusts and
other subordinated debt as business conditions warrant. We
manage our capital requirements principally by setting limits
on balance sheet assets and/or limits on risk, in each case at
both the consolidated and business unit levels. We attribute
capital usage to each of our business units based upon our
internal risk-based capital framework and manage the levels of
usage based upon the balance sheet and risk limits established.
Stock Offering. During the second quarter of 2009, we
completed a public offering of 46.7million common shares at
$123.00per share for total proceeds of $5.75billion.
Goldman Sachs 2009 Annual Report
63
Management’s Discussion and Analysis