Goldman Sachs 2012 Annual Report Download - page 139

Notes to Consolidated Financial Statements
Level 3 Derivative Assets and Liabilities at Fair Value for the Year Ended December 2011
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
Net
transfers
in and/or
(out) of
level 3
Asset/
(liability)
balance,
end of
year
Interest rates — net $ 194 $ (38) $ (305) $ 23 $ (29) $ 84 $(300) $ (371)
Credit — net 7,040 46 2,525 348 (1,310) (1,713) (636) 6,300
Currencies — net 1,098 (26) (351) 29 (25) (54) 171 842
Commodities — net 220 (35) 259 125 (835) 150 (489) (605)
Equities — net (990) 184 151 382 (683) 159 365 (432)
Total derivatives — net $7,562 $131 1$2,279 1, 2 $907 $(2,882) $(1,374) $(889) $5,734
1. The aggregate amounts include approximately $2.35 billion and $62 million reported in “Market making” and “Other principal transactions,” respectively.
2. Principally resulted from changes in level 2 inputs.
The net unrealized gain on level 3 derivatives of
$2.28 billion for the year ended December 2011 was
primarily attributable to the impact of changes in interest
rates and exchange rates underlying certain credit
derivatives. Unrealized gains on level 3 derivatives were
substantially offset by unrealized losses on derivatives
classified within level 2 which economically hedge
derivatives classified within level 3.
Significant transfers in or out of level 3 derivatives during
the year ended December 2011 included:
‰Credit — net: net transfer out of level 3 of $636 million,
primarily reflecting transfers to level 2 of certain credit
derivative assets principally due to unobservable inputs
no longer being significant to the valuation of these
derivatives, and transfers into level 3 of certain credit
derivative liabilities due to reduced transparency of the
correlation inputs used to value these derivatives. The
impact of these transfers was partially offset by transfers
into level 3 of certain credit and mortgage derivative
assets, primarily due to reduced transparency of the
correlation inputs used to value these derivatives.
‰Commodities — net: net transfer out of level 3 of
$489 million, primarily reflecting transfers to level 2, due
to increased transparency of market prices used to value
certain commodity derivative assets as a result of market
activity in similar instruments, and unobservable inputs
becoming less significant to the valuation of other
commodity derivative assets. In addition, certain
commodity derivative liabilities were transferred into
level 3 due to reduced transparency of volatility inputs
used to value these derivatives.
Impact of Credit Spreads on Derivatives
On an ongoing basis, the firm realizes gains or losses
relating to changes in credit risk through the unwind of
derivative contracts and changes in credit mitigants.
The net gain/(loss), including hedges, attributable to the
impact of changes in credit exposure and credit spreads
(counterparty and the firm’s) on derivatives was
$(735) million, $573 million and $68 million for the years
ended December 2012, December 2011 and
December 2010, respectively.
Bifurcated Embedded Derivatives
The table below presents the fair value and the notional
amount of derivatives that have been bifurcated from their
related borrowings. These derivatives, which are recorded
at fair value, primarily consist of interest rate, equity and
commodity products and are included in “Unsecured
short-term borrowings” and “Unsecured long-term
borrowings.” See Note 8 for further information.
As of December
in millions 2012 2011
Fair value of assets $ 320 $ 422
Fair value of liabilities 398 304
Net asset/(liability) $ (78) $ 118
Notional amount $10,567 $9,530
Goldman Sachs 2012 Annual Report 137