Goldman Sachs 2012 Annual Report Download - page 138

Notes to Consolidated Financial Statements
Level 3 Rollforward
If a derivative was transferred to level 3 during a reporting
period, its entire gain or loss for the period is included in
level 3. Transfers between levels are reported at the
beginning of the reporting period in which they occur.
Gains and losses on level 3 derivatives should be considered
in the context of the following:
‰A derivative with level 1 and/or level 2 inputs is classified
in level 3 in its entirety if it has at least one significant
level 3 input.
‰If there is one significant level 3 input, the entire gain or
loss from adjusting only observable inputs (i.e., level 1
and level 2 inputs) is classified as level 3.
‰Gains or losses that have been reported in level 3 resulting
from changes in level 1 or level 2 inputs are frequently
offset by gains or losses attributable to level 1 or level 2
derivatives and/or level 1, level 2 and level 3 cash
instruments. As a result, gains/(losses) included in the
level 3 rollforward below do not necessarily represent the
overall impact on the firm’s results of operations,
liquidity or capital resources.
The tables below present changes in fair value for all
derivatives categorized as level 3 as of the end of the year.
Level 3 Derivative Assets and Liabilities at Fair Value for the Year Ended December 2012
in millions
Asset/
(liability)
balance,
beginning
of year
Net
realized
gains/
(losses)
Net unrealized
gains/(losses)
relating to
instruments
still held at
year-end Purchases Sales Settlements
Transfers
into
level 3
Transfers
out of
level 3
Asset/
(liability)
balance,
end of
year
Interest rates — net $ (371) $ (60) $ 19 $ 7 $ (28) $ 71 $ 68 $ (61) $ (355)
Credit — net 6,300 246 (701) 138 (270) (1,597) 2,503 (391) 6,228
Currencies — net 842 (17) (502) 17 (5) (144) 65 (221) 35
Commodities — net (605) (11) 228 63 (410) 307 (41) 3165 4(304)
Equities — net (432) (80) (276) 123 (724) 267 (50) 3(76) (1,248)
Total derivatives — net $5,734 $ 78 1$(1,232) 1, 2 $348 $(1,437) $(1,096) $2,545 $(584) $4,356
1. The aggregate amounts include approximately $(903) million and $(251) million reported in “Market making” and “Other principal transactions,” respectively.
2. Principally resulted from changes in level 2 inputs.
3. Reflects a net transfer to level 3 of derivative liabilities.
4. Reflects a net transfer to level 2 of derivative liabilities.
The net unrealized loss on level 3 derivatives of
$1.23 billion for the year ended December 2012 was
primarily attributable to the impact of tighter credit
spreads, changes in foreign exchange rates and increases in
global equity prices on certain derivatives, partially offset
by the impact of a decline in volatility on certain
commodity derivatives.
Transfers into level 3 derivatives during the year ended
December 2012 primarily reflected transfers from level 2 of
certain credit derivative assets, principally due to
unobservable inputs becoming significant to the valuation
of these derivatives, and transfers from level 2 of other
credit derivative assets, principally due to reduced
transparency of correlation inputs used to value
these derivatives.
Transfers out of level 3 derivatives during the year ended
December 2012 primarily reflected transfers to level 2 of
certain credit derivative assets, principally due to
unobservable inputs no longer being significant to the
valuation of these derivatives, transfers to level 2 of certain
currency derivative assets, principally due to unobservable
correlation inputs no longer being significant to the
valuation of these derivatives, and transfers to level 2 of
certain commodity derivative liabilities, principally due to
increased transparency of volatility inputs used to value
these derivatives.
136 Goldman Sachs 2012 Annual Report