☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
For the quarterly period ended | March 31, 2021 | |||||||
or | ||||||||
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
For the transition period from | to |
Delaware | 13-4019460 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
200 West Street, New York, | 10282 | |
(Address of principal executive offices) | (Zip Code) |
Title of each class | Trading symbol Symbol | Exchange on which registered | ||
Common stock, par value $.01 per share | GS | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate Non-Cumulative Preferred Stock, Series A | GS PrA | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate Non-Cumulative Preferred Stock, Series C | GS PrC | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate Non-Cumulative Preferred Stock, Series D | GS PrD | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of 5.50% Fixed-to-Floating Non-Cumulative Preferred Stock, Series J | GS PrJ | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of 6.375% Fixed-to-Floating Non-Cumulative Preferred Stock, Series K | GS PrK | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of 6.30% Non-Cumulative Preferred Stock, Series N | GS PrN | NYSE | ||
5.793% Fixed-to-Floating | GS/43PE | NYSE | ||
Floating Rate Normal Automatic Preferred Enhanced Capital Securities of Goldman Sachs Capital III | GS/43PF | NYSE | ||
Medium-Term Notes, Series E, | ||||
FRLG | NYSE Arca |
Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☐ | Emerging growth company ☐ |
Form 10-Q Item Number | Page No. | |||
PART I | ||||
1 | ||||
Item 1 | ||||
1 | ||||
1 | ||||
1 | ||||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
5 | ||||
5 | ||||
6 | ||||
11 | ||||
16 | ||||
17 | ||||
Page No. | ||||
Item 2 | ||||
Item 3 | ||||
Item 4 | ||||
PART II | ||||
Item 1 | ||||
Item 2 | ||||
Item 6 | ||||
Goldman Sachs |
Three Months Ended September | Nine Months Ended September | Three Months Ended March | ||||||||||||||||||||||||
in millions, except per share amounts | 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | ||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||
Investment banking | $ 1,934 | $1,587 | $ 6,409 | $ 4,966 | $ 3,566 | $1,742 | ||||||||||||||||||||
Investment management | 1,689 | 1,562 | 5,092 | 4,518 | 1,796 | 1,768 | ||||||||||||||||||||
Commissions and fees | 804 | 748 | 2,699 | 2,301 | 1,073 | 1,020 | ||||||||||||||||||||
Market making | 3,327 | 2,476 | 12,796 | 7,678 | 5,893 | 3,682 | ||||||||||||||||||||
Other principal transactions | 1,943 | 942 | 2,482 | 3,831 | 3,894 | (782 | ) | |||||||||||||||||||
Total non-interest revenues | 9,697 | 7,315 | 29,478 | 23,294 | 16,222 | 7,430 | ||||||||||||||||||||
Interest income | 2,932 | 5,459 | 10,716 | 16,816 | 3,054 | 4,750 | ||||||||||||||||||||
Interest expense | 1,848 | 4,451 | 7,375 | 13,519 | 1,572 | 3,437 | ||||||||||||||||||||
Net interest income | 1,084 | 1,008 | 3,341 | 3,297 | 1,482 | 1,313 | ||||||||||||||||||||
Total net revenues | 10,781 | 8,323 | 32,819 | 26,591 | 17,704 | 8,743 | ||||||||||||||||||||
Provision for credit losses | 278 | 291 | 2,805 | 729 | (70 | ) | 937 | |||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||
Compensation and benefits | 3,117 | 2,731 | 10,830 | 9,307 | 6,043 | 3,235 | ||||||||||||||||||||
Brokerage, clearing, exchange and distribution fees | 911 | 853 | 2,831 | 2,438 | ||||||||||||||||||||||
Transaction based | 1,256 | 1,030 | ||||||||||||||||||||||||
Market development | 70 | 169 | 312 | 539 | 80 | 153 | ||||||||||||||||||||
Communications and technology | 340 | 283 | 1,006 | 859 | 375 | 321 | ||||||||||||||||||||
Depreciation and amortization | 468 | 473 | 1,404 | 1,240 | 498 | 437 | ||||||||||||||||||||
Occupancy | 235 | 252 | 706 | 711 | 247 | 238 | ||||||||||||||||||||
Professional fees | 298 | 350 | 956 | 950 | 360 | 347 | ||||||||||||||||||||
Other expenses | 765 | 505 | 5,031 | 1,556 | 578 | 697 | ||||||||||||||||||||
Total operating expenses | 6,204 | 5,616 | 23,076 | 17,600 | 9,437 | 6,458 | ||||||||||||||||||||
Pre-tax earnings | 4,299 | 2,416 | 6,938 | 8,262 | 8,337 | 1,348 | ||||||||||||||||||||
Provision for taxes | 932 | 539 | 1,985 | 1,713 | 1,501 | 135 | ||||||||||||||||||||
Net earnings | 3,367 | 1,877 | 4,953 | 6,549 | 6,836 | 1,213 | ||||||||||||||||||||
Preferred stock dividends | 134 | 84 | 400 | 376 | 125 | 90 | ||||||||||||||||||||
Net earnings applicable to common shareholders | $ 3,233 | $1,793 | $ 4,553 | $ 6,173 | $ 6,711 | $1,123 | ||||||||||||||||||||
Earnings per common share | ||||||||||||||||||||||||||
Basic | $ 9.07 | $ 4.83 | $ 12.71 | $ 16.43 | $ 18.80 | $ 3.12 | ||||||||||||||||||||
Diluted | $ 8.98 | $ 4.79 | $ 12.65 | $ 16.32 | $ 18.60 | $ 3.11 | ||||||||||||||||||||
Average common shares | ||||||||||||||||||||||||||
Basic | 355.9 | 370.0 | 356.5 | 374.7 | 356.6 | 358.0 | ||||||||||||||||||||
Diluted | 359.9 | 374.3 | 360.0 | 378.2 | 360.9 | 361.1 |
Three Months Ended September | Nine Months Ended September | Three Months Ended March | ||||||||||||||||||||||||
$ in millions | 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | ||||||||||||||||||||
Net earnings | $ 3,367 | $1,877 | $ 4,953 | $ 6,549 | $ 6,836 | $1,213 | ||||||||||||||||||||
Other comprehensive income/(loss) adjustments, net of tax: | ||||||||||||||||||||||||||
Currency translation | (13 | ) | (9 | ) | (74 | ) | 2 | 0 | (17 | ) | ||||||||||||||||
Debt valuation adjustment | (268 | ) | 278 | 428 | (1,450 | ) | (19 | ) | 2,914 | |||||||||||||||||
Pension and postretirement liabilities | (2 | ) | (5 | ) | 1 | (14 | ) | 7 | 7 | |||||||||||||||||
Available-for-sale | (11 | ) | 67 | 494 | 285 | (628 | ) | 517 | ||||||||||||||||||
Other comprehensive income/(loss) | (294 | ) | 331 | 849 | (1,177 | ) | (640 | ) | 3,421 | |||||||||||||||||
Comprehensive income | $ 3,073 | $2,208 | $ 5,802 | $ 5,372 | $ 6,196 | $4,634 |
1 | Goldman Sachs |
As of | As of | |||||||||||||||
$ in millions | September 2020 | December 2019 | | March 2021 | December 2020 | |||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | $ 153,201 | $133,546 | $ | $ 155,842 | ||||||||||||
Collateralized agreements: | ||||||||||||||||
Securities purchased under agreements to resell (at fair value) | 101,277 | 85,691 | 146,084 | 108,060 | ||||||||||||
Securities borrowed (includes $31,680 | 127,391 | 136,071 | ||||||||||||||
Customer and other receivables (includes $60 | 111,181 | 74,605 | ||||||||||||||
Trading assets (at fair value and includes $80,268 | 408,400 | 355,332 | ||||||||||||||
Investments (includes $74,714 $14,244 | 80,792 | 63,937 | ||||||||||||||
Loans (net of allowance of $3,714 $13,881 | 111,843 | 108,904 | ||||||||||||||
Securities borrowed (includes $31,554 at fair value) | 178,245 | 142,160 | ||||||||||||||
Customer and other receivables (includes $49 | 164,658 | 121,331 | ||||||||||||||
Trading assets (at fair value and includes $62,415 69,031 pledged as collateral) | 374,218 | 393,630 | ||||||||||||||
Investments (includes $82,364 $15,800 | 88,016 | 88,445 | ||||||||||||||
Loans (net of allowance of $3,515 $13,482 | 121,261 | 116,115 | ||||||||||||||
Other assets | 37,974 | 34,882 | 37,911 | 37,445 | ||||||||||||
Total assets | $1,132,059 | $992,968 | $1,301,548 | $1,163,028 | ||||||||||||
Liabilities and shareholders’ equity | ||||||||||||||||
Deposits (includes $18,401 | $ 261,234 | $190,019 | ||||||||||||||
Deposits (includes $32,229 | $ | $ 259,962 | ||||||||||||||
Collateralized financings: | ||||||||||||||||
Securities sold under agreements to repurchase (at fair value) | 101,279 | 117,756 | 130,607 | 126,571 | ||||||||||||
Securities loaned (includes $1,060 | 17,288 | 14,985 | ||||||||||||||
Other secured financings (includes $23,565 | 24,981 | 19,277 | ||||||||||||||
Securities loaned (includes $3,678 | 34,345 | 21,621 | ||||||||||||||
Other secured financings (includes $26,197 | 27,668 | 25,755 | ||||||||||||||
Customer and other payables | 187,357 | 174,817 | 224,268 | 190,658 | ||||||||||||
Trading liabilities (at fair value) | 162,141 | 108,835 | 200,807 | 153,727 | ||||||||||||
Unsecured short-term borrowings (includes $25,930 | 48,028 | 48,287 | ||||||||||||||
Unsecured long-term borrowings (includes $40,328 | 213,936 | 207,076 | ||||||||||||||
Other liabilities (includes $336 | 23,165 | 21,651 | ||||||||||||||
Unsecured short-term borrowings (includes $30,485 | 58,463 | 52,870 | ||||||||||||||
Unsecured long-term borrowings (includes $39,902 | 219,044 | 213,481 | ||||||||||||||
Other liabilities (includes $160 | 22,664 | 22,451 | ||||||||||||||
Total liabilities | 1,039,409 | 902,703 | 1,203,884 | 1,067,096 | ||||||||||||
Commitments, contingencies and guarantees | 0 | 0 | ||||||||||||||
Shareholders’ equity | ||||||||||||||||
Preferred stock; aggregate liquidation preference of $11,203 | 11,203 | 11,203 | ||||||||||||||
Common stock; 901,631,819 344,070,790 | 9 | 9 | ||||||||||||||
Preferred stock; aggregate liquidation preference of $9,203 | 9,203 | 11,203 | ||||||||||||||
Common stock; 906,270,681 340,018,220 | 9 | 9 | ||||||||||||||
Share-based awards | 3,308 | 3,195 | 3,608 | 3,468 | ||||||||||||
Nonvoting common stock; no shares issued and outstanding | 0 | 0 | 0 | 0 | ||||||||||||
Additional paid-in capital | 55,662 | 54,883 | 56,340 | 55,679 | ||||||||||||
Retained earnings | 109,033 | 106,465 | 119,210 | 112,947 | ||||||||||||
Accumulated other comprehensive income/(loss) | (635 | ) | (1,484 | ) | ||||||||||||
Stock held in treasury, at cost; 557,561,031 | (85,930 | ) | (84,006 | ) | ||||||||||||
Accumulated other comprehensive loss | (2,074 | ) | (1,434 | ) | ||||||||||||
Stock held in treasury, at cost; 566,252,463 | (88,632 | ) | (85,940 | ) | ||||||||||||
Total shareholders’ equity | 92,650 | 90,265 | 97,664 | 95,932 | ||||||||||||
Total liabilities and shareholders’ equity | $1,132,059 | $992,968 | $1,301,548 | $1,163,028 |
Goldman Sachs | 2 |
Three Months Ended September | Nine Months Ended September | Three Months Ended March | ||||||||||||||||||||||||
$ in millions | 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | ||||||||||||||||||||
Preferred stock | ||||||||||||||||||||||||||
Beginning balance | $ 11,203 | $ 11,203 | $ 11,203 | $ 11,203 | $ 11,203 | $ 11,203 | ||||||||||||||||||||
Issued | 0 | 0 | 350 | 500 | 0 | 350 | ||||||||||||||||||||
Redeemed | 0 | 0 | (350 | ) | (500 | ) | (2,000 | ) | (350 | ) | ||||||||||||||||
Ending balance | 11,203 | 11,203 | 11,203 | 11,203 | 9,203 | 11,203 | ||||||||||||||||||||
Common stock | ||||||||||||||||||||||||||
Beginning balance | 9 | 9 | 9 | 9 | 9 | 9 | ||||||||||||||||||||
Issued | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Ending balance | 9 | 9 | 9 | 9 | 9 | 9 | ||||||||||||||||||||
Share-based awards | ||||||||||||||||||||||||||
Beginning balance | 3,203 | 2,930 | 3,195 | 2,845 | 3,468 | 3,195 | ||||||||||||||||||||
Issuance and amortization of share-based awards | 176 | 181 | 1,770 | 1,888 | 1,759 | 1,397 | ||||||||||||||||||||
Delivery of common stock underlying share-based awards | (33 | ) | (20 | ) | (1,597 | ) | (1,617 | ) | (1,597 | ) | (1,547 | ) | ||||||||||||||
Forfeiture of share-based awards | (38 | ) | (39 | ) | (60 | ) | (64 | ) | (22 | ) | (8 | ) | ||||||||||||||
Ending balance | 3,308 | 3,052 | 3,308 | 3,052 | 3,608 | 3,037 | ||||||||||||||||||||
Additional paid-in capital | ||||||||||||||||||||||||||
Beginning balance | 55,637 | 54,865 | 54,883 | 54,005 | 55,679 | 54,883 | ||||||||||||||||||||
Delivery of common stock underlying share-based awards | 34 | 22 | 1,607 | 1,610 | 1,590 | 1,541 | ||||||||||||||||||||
Cancellation of share-based awards in satisfaction of withholding tax requirements | (9 | ) | (8 | ) | (828 | ) | (739 | ) | (937 | ) | (803 | ) | ||||||||||||||
Preferred stock issuance costs, net of reversals upon redemption | 0 | 0 | 0 | 3 | ||||||||||||||||||||||
Issuance costs of redeemed preferred stock | 7 | 0 | ||||||||||||||||||||||||
Other | 1 | 0 | ||||||||||||||||||||||||
Ending balance | 55,662 | 54,879 | 55,662 | 54,879 | 56,340 | 55,621 | ||||||||||||||||||||
Retained earnings | ||||||||||||||||||||||||||
Beginning balance, as previously reported | 106,248 | 103,867 | 106,465 | 100,100 | 112,947 | 106,465 | ||||||||||||||||||||
Cumulative effect of change in accounting principle for: | ||||||||||||||||||||||||||
Current expected credit losses, net of tax | 0 | 0 | (638 | ) | 0 | |||||||||||||||||||||
Leases, net of tax | 0 | 0 | 0 | 12 | ||||||||||||||||||||||
Cumulative effect of change in accounting principle for current expected credit losses, net of tax | 0 | (638 | ) | |||||||||||||||||||||||
Beginning balance, adjusted | 106,248 | 103,867 | 105,827 | 100,112 | 112,947 | 105,827 | ||||||||||||||||||||
Net earnings | 3,367 | 1,877 | 4,953 | 6,549 | 6,836 | 1,213 | ||||||||||||||||||||
Dividends and dividend equivalents declared on common stock and share-based awards | (448 | ) | (466 | ) | (1,347 | ) | (1,091 | ) | (448 | ) | (449 | ) | ||||||||||||||
Dividends declared on preferred stock | (134 | ) | (84 | ) | (399 | ) | (369 | ) | (104 | ) | (89 | ) | ||||||||||||||
Preferred stock redemption premium | 0 | 0 | (1 | ) | (7 | ) | (21 | ) | (1 | ) | ||||||||||||||||
Ending balance | 109,033 | 105,194 | 109,033 | 105,194 | 119,210 | 106,501 | ||||||||||||||||||||
Accumulated other comprehensive income/(loss) | ||||||||||||||||||||||||||
Beginning balance | (341 | ) | (815 | ) | (1,484 | ) | 693 | (1,434 | ) | (1,484 | ) | |||||||||||||||
Other comprehensive income/(loss) | (294 | ) | 331 | 849 | (1,177 | ) | (640 | ) | 3,421 | |||||||||||||||||
Ending balance | (635 | ) | (484 | ) | (635 | ) | (484 | ) | (2,074 | ) | 1,937 | |||||||||||||||
Stock held in treasury, at cost | ||||||||||||||||||||||||||
Beginning balance | (85,930 | ) | (81,167 | ) | (84,006 | ) | (78,670 | ) | (85,940 | ) | (84,006 | ) | ||||||||||||||
Repurchased | 0 | (673 | ) | (1,928 | ) | (3,173 | ) | (2,700 | ) | (1,928 | ) | |||||||||||||||
Reissued | 1 | 1 | 11 | 12 | 10 | 10 | ||||||||||||||||||||
Other | (1 | ) | (2 | ) | (7 | ) | (10 | ) | (2 | ) | (5 | ) | ||||||||||||||
Ending balance | (85,930 | ) | (81,841 | ) | (85,930 | ) | (81,841 | ) | (88,632 | ) | (85,929 | ) | ||||||||||||||
Total shareholders’ equity | $ 92,650 | $ 92,012 | $ 92,650 | $ 92,012 | $ 97,664 | $ 92,379 |
3 | Goldman Sachs |
Nine Months Ended September | Three Months Ended March | |||||||||||||||
$ in millions | 2020 | 2019 | 2021 | 2020 | ||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net earnings | $ 4,953 | $ 6,549 | $ 6,836 | $ 1,213 | ||||||||||||
Adjustments to reconcile net earnings to net cash used for operating activities: | ||||||||||||||||
Depreciation and amortization | 1,404 | 1,240 | 498 | 437 | ||||||||||||
Share-based compensation | 1,737 | 1,852 | 1,759 | 1,395 | ||||||||||||
Gain related to extinguishment of unsecured borrowings | (1 | ) | 0 | 0 | (1 | ) | ||||||||||
Provision for credit losses | 2,805 | 729 | (70 | ) | 937 | |||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Customer and other receivables and payables, net | (24,045 | ) | 3,083 | (9,722 | ) | (7,961 | ) | |||||||||
Collateralized transactions (excluding other secured financings), net | (21,080 | ) | 28,039 | (57,349 | ) | (55,249 | ) | |||||||||
Trading assets | (50,937 | ) | (67,507 | ) | 15,373 | (20,580 | ) | |||||||||
Trading liabilities | 53,306 | 7,588 | 46,777 | 27,523 | ||||||||||||
Loans held for sale, net | 2,264 | (696 | ) | (656 | ) | 2,624 | ||||||||||
Other, net | (148 | ) | (6,840 | ) | (8,629 | ) | (3,369 | ) | ||||||||
Net cash used for operating activities | (29,742 | ) | (25,963 | ) | (5,183 | ) | (53,031 | ) | ||||||||
Cash flows from investing activities | ||||||||||||||||
Purchase of property, leasehold improvements and equipment | (4,906 | ) | (6,397 | ) | (1,312 | ) | (2,843 | ) | ||||||||
Proceeds from sales of property, leasehold improvements and equipment | 1,272 | 4,561 | 192 | 397 | ||||||||||||
Net cash used for business acquisitions | (226 | ) | (803 | ) | ||||||||||||
Purchase of investments | (37,516 | ) | (26,175 | ) | (12,848 | ) | (10,214 | ) | ||||||||
Proceeds from sales and paydowns of investments | 23,200 | 13,757 | 15,319 | 3,889 | ||||||||||||
Loans (excluding loans held for sale), net | (7,257 | ) | (5,859 | ) | (3,838 | ) | (23,565 | ) | ||||||||
Net cash used for investing activities | (25,433 | ) | (20,916 | ) | (2,487 | ) | (32,336 | ) | ||||||||
Cash flows from financing activities | ||||||||||||||||
Unsecured short-term borrowings, net | 6,567 | 1,137 | 3,788 | 2,915 | ||||||||||||
Other secured financings (short-term), net | 1,629 | (2,705 | ) | 2,555 | 16,307 | |||||||||||
Proceeds from issuance of other secured financings (long-term) | 6,016 | 5,095 | 1,695 | 2,969 | ||||||||||||
Repayment of other secured financings (long-term), including the current portion | (2,019 | ) | (6,431 | ) | (727 | ) | (445 | ) | ||||||||
Purchase of Trust Preferred securities | (11 | ) | (61 | ) | 0 | (11 | ) | |||||||||
Proceeds from issuance of unsecured long-term borrowings | 36,120 | 18,613 | 26,426 | 26,506 | ||||||||||||
Repayment of unsecured long-term borrowings, including the current portion | (41,042 | ) | (26,887 | ) | (11,764 | ) | (16,175 | ) | ||||||||
Derivative contracts with a financing element, net | 1,022 | 2,710 | 303 | 134 | ||||||||||||
Deposits, net | 70,654 | 23,931 | 26,522 | 28,381 | ||||||||||||
Preferred stock redemption | (350 | ) | (500 | ) | (2,000 | ) | (350 | ) | ||||||||
Common stock repurchased | (1,928 | ) | (3,173 | ) | (2,700 | ) | (1,928 | ) | ||||||||
Settlement of share-based awards in satisfaction of withholding tax requirements | (829 | ) | (741 | ) | (938 | ) | (804 | ) | ||||||||
Dividends and dividend equivalents paid on common stock, preferred stock and share-based awards | (1,744 | ) | (1,460 | ) | (551 | ) | (538 | ) | ||||||||
Proceeds from issuance of preferred stock, net of issuance costs | 349 | 499 | 0 | 349 | ||||||||||||
Other financing, net | 396 | 399 | 374 | 0 | ||||||||||||
Net cash provided by financing activities | 74,830 | 10,426 | 42,983 | 57,310 | ||||||||||||
Net increase/(decrease) in cash and cash equivalents | 19,655 | (36,453 | ) | 35,313 | (28,057 | ) | ||||||||||
Cash and cash equivalents, beginning balance | 133,546 | 130,547 | 155,842 | 133,546 | ||||||||||||
Cash and cash equivalents, ending balance | $153,201 | $ 94,094 | $191,155 | $105,489 | ||||||||||||
Supplemental disclosures: | ||||||||||||||||
Cash payments for interest, net of capitalized interest | $ 7,648 | $ 14,132 | $ 1,896 | $ 4,041 | ||||||||||||
Cash payments for income taxes, net | $ 1,904 | $ 946 | $ | $ 474 |
Goldman Sachs | 4 |
5 | Goldman Sachs |
Fair Value Measurements | Note 4 | |||
Trading Assets and Liabilities | Note 5 | |||
Trading Cash Instruments | Note 6 | |||
Derivatives and Hedging Activities | Note 7 | |||
Investments | Note 8 | |||
Loans | Note 9 | |||
Fair Value Option | Note 10 | |||
Collateralized Agreements and Financings | Note 11 | |||
Other Assets | Note 12 | |||
Deposits | Note 13 | |||
Unsecured Borrowings | Note 14 | |||
Other Liabilities | Note 15 | |||
Securitization Activities | Note 16 | |||
Variable Interest Entities | Note 17 | |||
Commitments, Contingencies and Guarantees | Note 18 | |||
Shareholders’ Equity | Note 19 | |||
Regulation and Capital Adequacy | Note 20 | |||
Earnings Per Common Share | Note 21 | |||
Transactions with Affiliated Funds | Note 22 | |||
Interest Income and Interest Expense | Note 23 | |||
Income Taxes | Note 24 | |||
Business Segments | Note 25 | |||
Credit Concentrations | Note 26 | |||
Legal Proceedings | Note 27 |
Goldman Sachs | 6 |
7 | Goldman Sachs |
Goldman Sachs | 8 |
9 | Goldman Sachs |
Goldman Sachs March 2021 Form 10-Q | 10 |
11 | Goldman Sachs |
Goldman Sachs | 12 |
13 | Goldman Sachs |
Goldman Sachs | 14 |
15 | Goldman Sachs |
As of | ||||||||||||
$ in millions | September 2020 | June 2020 | | December 2019 | | |||||||
Total level 1 financial assets | $ | $ 275,444 | $242,562 | |||||||||
Total level 2 financial assets | 391,698 | 406,880 | 325,259 | |||||||||
Total level 3 financial assets | 27,677 | 29,426 | 23,068 | |||||||||
Investments in funds at NAV | 3,517 | 3,710 | 4,206 | |||||||||
Counterparty and cash collateral netting | (74,547 | ) | (73,749 | ) | (55,527 | ) | ||||||
Total financial assets at fair value | $ | $ 641,711 | $539,568 | |||||||||
Total assets | $1,132,059 | $1,141,523 | $992,968 | |||||||||
Total level 3 financial assets divided by: | ||||||||||||
Total assets | 2.4% | 2.6% | 2.3% | |||||||||
Total financial assets at fair value | 4.4% | 4.6% | 4.3% | |||||||||
Total level 1 financial liabilities | $ | $ 98,901 | $ 54,790 | |||||||||
Total level 2 financial liabilities | 299,520 | 298,915 | 293,902 | |||||||||
Total level 3 financial liabilities | 32,329 | 30,106 | 25,938 | |||||||||
Counterparty and cash collateral netting | (53,446 | ) | (57,098 | ) | (41,671 | ) | ||||||
Total financial liabilities at fair value | $ | $ 370,824 | $332,959 | |||||||||
Total liabilities | $1,039,409 | $1,051,494 | $902,703 | |||||||||
Total level 3 financial liabilities divided by: | ||||||||||||
Total liabilities | 3.1% | 2.9% | 2.9% | |||||||||
Total financial liabilities at fair value | 8.7% | 8.1% | 7.8% |
Goldman Sachs March 2021 Form 10-Q | 6 |
7 | Goldman Sachs March 2021 Form 10-Q |
Goldman Sachs March 2021 Form 10-Q | 8 |
9 | Goldman Sachs March 2021 Form 10-Q |
Goldman Sachs March 2021 Form 10-Q | 10 |
11 | Goldman Sachs March 2021 Form 10-Q |
Goldman Sachs March 2021 Form 10-Q | 12 |
13 | Goldman Sachs March 2021 Form 10-Q |
Goldman Sachs March 2021 Form 10-Q | 14 |
15 | Goldman Sachs March 2021 Form 10-Q |
As of | ||||||||||||
$ in millions | September 2020 | June 2020 | | December 2019 | | |||||||
Trading assets: | ||||||||||||
Trading cash instruments | $ | $ 1,804 | $ 1,242 | |||||||||
Derivatives | 6,311 | 7,047 | 4,654 | |||||||||
Investments | 17,274 | 17,916 | 15,282 | |||||||||
Loans | 2,827 | 2,659 | 1,890 | |||||||||
Total | $ | $ 29,426 | $ 23,068 |
$ in millions | Trading Assets | | Trading Liabilities | | ||||
As of September 2020 | ||||||||
Trading cash instruments | $343,880 | $105,443 | ||||||
Derivatives | 64,520 | 56,698 | ||||||
Total | $408,400 | $162,141 | ||||||
As of December 2019 | ||||||||
Trading cash instruments | $310,080 | $ 65,033 | ||||||
Derivatives | 45,252 | 43,802 | ||||||
Total | $355,332 | $108,835 |
Three Months Ended September | Nine Months Ended September | |||||||||||||||||
$ in millions | 2020 | 2019 | 2020 | 2019 | ||||||||||||||
Interest rates | $1,732 | $ (613 | ) | $ 3,784 | $1,379 | |||||||||||||
Credit | 578 | 245 | 3,571 | 700 | ||||||||||||||
Currencies | (981 | ) | 2,127 | (1,674 | ) | 3,549 | ||||||||||||
Equities | 1,391 | 788 | 5,022 | 1,963 | ||||||||||||||
Commodities | 607 | (71 | ) | 2,093 | 87 | |||||||||||||
Total | $3,327 | $2,476 | $12,796 | $7,678 |
$ in millions | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
As of September 2020 | ||||||||||||||||
Assets | ||||||||||||||||
Government and agency obligations: | ||||||||||||||||
U.S. | $ 97,256 | $ 39,289 | $ – | $ 136,545 | ||||||||||||
Non-U.S. | 60,431 | 9,991 | 16 | 70,438 | ||||||||||||
Loans and securities backed by: | ||||||||||||||||
Commercial real estate | – | 897 | 196 | 1,093 | ||||||||||||
Residential real estate | – | 5,503 | 180 | 5,683 | ||||||||||||
Corporate debt instruments | 809 | 31,666 | 782 | 33,257 | ||||||||||||
State and municipal obligations | – | 325 | – | 325 | ||||||||||||
Other debt obligations | 278 | 2,318 | 27 | 2,623 | ||||||||||||
Equity securities | 82,638 | 2,322 | 64 | 85,024 | ||||||||||||
Commodities | – | 8,892 | – | 8,892 | ||||||||||||
Total | $241,412 | $101,203 | $1,265 | $ 343,880 | ||||||||||||
Liabilities | ||||||||||||||||
Government and agency obligations: | ||||||||||||||||
U.S. | $ | ) | $ | ) | $ – | $ (22,089 | ) | |||||||||
Non-U.S. | (27,700 | ) | (1,572 | ) | (1 | ) | (29,273 | ) | ||||||||
Loans and securities backed by: | ||||||||||||||||
Commercial real estate | – | (7 | ) | – | (7 | ) | ||||||||||
Residential real estate | – | (1 | ) | – | (1 | ) | ||||||||||
Corporate debt instruments | (25 | ) | (8,173 | ) | (240 | ) | (8,438 | ) | ||||||||
Equity securities | (44,772 | ) | (836 | ) | (27 | ) | (45,635 | ) | ||||||||
Total | $ | ) | $ | ) | $ | ) | $(105,443 | ) | ||||||||
As of December 2019 | ||||||||||||||||
Assets | ||||||||||||||||
Government and agency obligations: | ||||||||||||||||
U.S. | $108,200 | $ 34,714 | $ 21 | $ | ||||||||||||
Non-U.S. | 33,709 | 11,108 | 22 | 44,839 | ||||||||||||
Loans and securities backed by: | ||||||||||||||||
Commercial real estate | – | 2,031 | 191 | 2,222 | ||||||||||||
Residential real estate | – | 5,794 | 231 | 6,025 | ||||||||||||
Corporate debt instruments | 1,313 | 26,768 | 692 | 28,773 | ||||||||||||
State and municipal obligations | – | 680 | – | 680 | ||||||||||||
Other debt obligations | 409 | 1,074 | 10 | 1,493 | ||||||||||||
Equity securities | 78,782 | 489 | 75 | 79,346 | ||||||||||||
Commodities | – | 3,767 | – | 3,767 | ||||||||||||
Total | $222,413 | $ 86,425 | $1,242 | $ | ||||||||||||
Liabilities | ||||||||||||||||
Government and agency obligations: | ||||||||||||||||
U.S. | $ | ) | $ (47 | ) | $ | $ | ) | |||||||||
Non-U.S. | (21,213 | ) | (2,205 | ) | (6 | ) | (23,424 | ) | ||||||||
Loans and securities backed by: | ||||||||||||||||
Commercial real estate | – | (31 | ) | (1 | ) | (32 | ) | |||||||||
Residential real estate | – | (2 | ) | – | (2 | ) | ||||||||||
Corporate debt instruments | (115 | ) | (7,494 | ) | (253 | ) | (7,862 | ) | ||||||||
State and municipal obligations | – | (2 | ) | – | (2 | ) | ||||||||||
Equity securities | (23,519 | ) | (212 | ) | (13 | ) | (23,744 | ) | ||||||||
Commodities | – | (6 | ) | – | (6 | ) | ||||||||||
Total | $ | ) | $ | ) | $ (273 | ) | $ | ) |
Level 3 Assets and Range of Significant Unobservable Inputs (Weighted Average) as of | ||||||||
$ in millions | September 2020 | December 2019 | | |||||
Loans and securities backed by commercial real estate | ||||||||
Level 3 assets | $196 | $191 | ||||||
Yield | 2.0% to 22.0% (9.9% | ) | 2.7% to 21.7% (13.5% | ) | ||||
Recovery rate | 19.7% to 93.8% (61.4% | ) | 11.4% to 81.1% (55.6% | ) | ||||
Duration (years) | 0.3 to 9.2 (5.3 | ) | 0.3 to 6.6 (2.8 | ) | ||||
Loans and securities backed by residential real estate | ||||||||
Level 3 assets | $180 | $231 | ||||||
Yield | 1.6% to 14.2% (5.9% | ) | 1.2% to 12.0% (5.8% | ) | ||||
Cumulative loss rate | 4.7% to 36.6% (19.3% | ) | 5.4% to 30.4% (16.3% | ) | ||||
Duration (years) | 1.2 to 14.8 (4.8 | ) | 2.3 to 12.4 (5.7 | ) | ||||
Corporate debt instruments | ||||||||
Level 3 assets | $782 | $692 | ||||||
Yield | 1.2% to 32.5% (11.9% | ) | 0.1% to 20.4% (7.2% | ) | ||||
Recovery rate | 0.0% to 69.9% (59.0% | ) | 0.0% to 69.7% (54.9% | ) | ||||
Duration (years) | 1.9 to 6.1 (3.3 | ) | 1.7 to 16.6 (5.1 | ) |
6 | ||||
Three Months Ended September | Nine Months Ended September | |||||||||||||||||
$ in millions | 2020 | 2019 | 2020 | 2019 | ||||||||||||||
Total trading cash instrument assets | ||||||||||||||||||
Beginning balance | $1,804 | $1,519 | $1,242 | $1,689 | ||||||||||||||
Net realized gains/(losses) | 15 | 3 | 59 | 50 | ||||||||||||||
Net unrealized gains/(losses) | 34 | (122 | ) | (146 | ) | (75 | ) | |||||||||||
Purchases | 244 | 162 | 685 | 547 | ||||||||||||||
Sales | (701 | ) | (207 | ) | (438 | ) | (735 | ) | ||||||||||
Settlements | (124 | ) | (80 | ) | (264 | ) | (185 | ) | ||||||||||
Transfers into level 3 | 157 | 367 | 313 | 280 | ||||||||||||||
Transfers out of level 3 | (164 | ) | (207 | ) | (186 | ) | (136 | ) | ||||||||||
Ending balance | $1,265 | $1,435 | $1,265 | $1,435 | ||||||||||||||
Total trading cash instrument liabilities | ||||||||||||||||||
Beginning balance | $ (156 | ) | $ (211 | ) | $ (273 | ) | $ (49 | ) | ||||||||||
Net realized gains/(losses) | – | (2 | ) | – | 1 | |||||||||||||
Net unrealized gains/(losses) | (79 | ) | (72 | ) | 18 | (207 | ) | |||||||||||
Purchases | 13 | 15 | 50 | 22 | ||||||||||||||
Sales | (20 | ) | (16 | ) | (35 | ) | (19 | ) | ||||||||||
Settlements | (3 | ) | 12 | (2 | ) | 30 | ||||||||||||
Transfers into level 3 | (34 | ) | (4 | ) | (28 | ) | (24 | ) | ||||||||||
Transfers out of level 3 | 11 | 38 | 2 | 6 | ||||||||||||||
Ending balance | $ (268 | ) | $ (240 | ) | $ (268 | ) | $ (240 | ) |
Three Months Ended September | Nine Months Ended September | |||||||||||||||||
$ in millions | 2020 | 2019 | 2020 | 2019 | ||||||||||||||
Loans and securities backed by commercial real estate | ||||||||||||||||||
Beginning balance | $ 430 | $ 268 | $ 191 | $ 332 | ||||||||||||||
Net realized gains/(losses) | 2 | 11 | 15 | 27 | ||||||||||||||
Net unrealized gains/(losses) | (2 | ) | (19 | ) | (36 | ) | (36 | ) | ||||||||||
Purchases | 7 | 1 | 77 | 40 | ||||||||||||||
Sales | (228 | ) | (35 | ) | (19 | ) | (127 | ) | ||||||||||
Settlements | (3 | ) | (20 | ) | (55 | ) | (61 | ) | ||||||||||
Transfers into level 3 | 7 | 19 | 30 | 57 | ||||||||||||||
Transfers out of level 3 | (17 | ) | (1 | ) | (7 | ) | (8 | ) | ||||||||||
Ending balance | $ 196 | $ 224 | $ 196 | $ 224 | ||||||||||||||
Loans and securities backed by residential real estate | ||||||||||||||||||
Beginning balance | $ 307 | $ 270 | $ 231 | $ 348 | ||||||||||||||
Net realized gains/(losses) | 4 | 5 | 7 | 8 | ||||||||||||||
Net unrealized gains/(losses) | 5 | 9 | 17 | 22 | ||||||||||||||
Purchases | 78 | 31 | 97 | 130 | ||||||||||||||
Sales | (177 | ) | (104 | ) | (79 | ) | (222 | ) | ||||||||||
Settlements | (11 | ) | (12 | ) | (33 | ) | (26 | ) | ||||||||||
Transfers into level 3 | 4 | 79 | 22 | 4 | ||||||||||||||
Transfers out of level 3 | (30 | ) | (36 | ) | (82 | ) | (22 | ) | ||||||||||
Ending balance | $ 180 | $ 242 | $ 180 | $ 242 | ||||||||||||||
Corporate debt instruments | ||||||||||||||||||
Beginning balance | $ 764 | $ 822 | $ 692 | $ 912 | ||||||||||||||
Net realized gains/(losses) | 10 | 18 | 28 | 39 | ||||||||||||||
Net unrealized gains/(losses) | 25 | (30 | ) | (102 | ) | 13 | ||||||||||||
Purchases | 139 | 69 | 455 | 218 | ||||||||||||||
Sales | (89 | ) | (55 | ) | (256 | ) | (346 | ) | ||||||||||
Settlements | (103 | ) | (42 | ) | (157 | ) | (71 | ) | ||||||||||
Transfers into level 3 | 129 | 126 | 214 | 92 | ||||||||||||||
Transfers out of level 3 | (93 | ) | (150 | ) | (92 | ) | (99 | ) | ||||||||||
Ending balance | $ 782 | $ 758 | $ 782 | $ 758 | ||||||||||||||
Other | ||||||||||||||||||
Beginning balance | $ 303 | $ 159 | $ 128 | $ 97 | ||||||||||||||
Net realized gains/(losses) | (1 | ) | (31 | ) | 9 | (24 | ) | |||||||||||
Net unrealized gains/(losses) | 6 | (82 | ) | (25 | ) | (74 | ) | |||||||||||
Purchases | 20 | 61 | 56 | 159 | ||||||||||||||
Sales | (207 | ) | (13 | ) | (84 | ) | (40 | ) | ||||||||||
Settlements | (7 | ) | (6 | ) | (19 | ) | (27 | ) | ||||||||||
Transfers into level 3 | 17 | 143 | 47 | 127 | ||||||||||||||
Transfers out of level 3 | (24 | ) | (20 | ) | (5 | ) | (7 | ) | ||||||||||
Ending balance | $ 107 | $ 211 | $ 107 | $ 211 |
As of September 2020 | As of December 2019 | |||||||||||||||||
$ in millions | Derivative Assets | Derivative Liabilities | Derivative Assets | | Derivative Liabilities | | ||||||||||||
Not accounted for as hedges | ||||||||||||||||||
Exchange-traded | $ | $ | $ 476 | $ 856 | ||||||||||||||
OTC-cleared | 17,102 | 15,395 | 9,958 | 8,618 | ||||||||||||||
Bilateral OTC | 346,474 | 312,065 | 266,387 | 242,046 | ||||||||||||||
Total interest rates | 364,240 | 328,343 | 276,821 | 251,520 | ||||||||||||||
OTC-cleared | 2,633 | 2,792 | 6,551 | 6,929 | ||||||||||||||
Bilateral OTC | 14,446 | 13,080 | 14,178 | 13,860 | ||||||||||||||
Total credit | 17,079 | 15,872 | 20,729 | 20,789 | ||||||||||||||
Exchange-traded | 71 | 10 | 35 | 10 | ||||||||||||||
OTC-cleared | 329 | 457 | 411 | 391 | ||||||||||||||
Bilateral OTC | 86,034 | 84,153 | 79,887 | 81,613 | ||||||||||||||
Total currencies | 86,434 | 84,620 | 80,333 | 82,014 | ||||||||||||||
Exchange-traded | 3,814 | 3,368 | 2,390 | 2,272 | ||||||||||||||
OTC-cleared | 243 | 227 | 180 | 243 | ||||||||||||||
Bilateral OTC | 10,498 | 14,002 | 8,568 | 13,034 | ||||||||||||||
Total commodities | 14,555 | 17,597 | 11,138 | 15,549 | ||||||||||||||
Exchange-traded | 28,592 | 32,863 | 13,499 | 16,976 | ||||||||||||||
Bilateral OTC | 42,649 | 46,668 | 36,162 | 39,531 | ||||||||||||||
Total equities | 71,241 | 79,531 | 49,661 | 56,507 | ||||||||||||||
Subtotal | 553,549 | 525,963 | 438,682 | 426,379 | ||||||||||||||
Accounted for as hedges | ||||||||||||||||||
OTC-cleared | 3 | – | – | – | ||||||||||||||
Bilateral OTC | 1,421 | – | 3,182 | 1 | ||||||||||||||
Total interest rates | 1,424 | – | 3,182 | 1 | ||||||||||||||
OTC-cleared | 10 | 19 | 16 | 57 | ||||||||||||||
Bilateral OTC | 18 | 96 | 16 | 153 | ||||||||||||||
Total currencies | 28 | 115 | 32 | 210 | ||||||||||||||
Subtotal | 1,452 | 115 | 3,214 | 211 | ||||||||||||||
Total gross fair value | $ 555,001 | $ 526,078 | $ 441,896 | $ 426,590 | ||||||||||||||
Offset in the consolidated balance sheets | ||||||||||||||||||
Exchange-traded | $ (29,075 | ) | $ (29,075 | ) | $ (14,159 | ) | $ (14,159 | ) | ||||||||||
OTC-cleared | (18,420 | ) | (18,420 | ) | (15,565 | ) | (15,565 | ) | ||||||||||
Bilateral OTC | (369,760 | ) | (369,760 | ) | (310,920 | ) | (310,920 | ) | ||||||||||
Counterparty netting | (417,255 | ) | (417,255 | ) | (340,644 | ) | (340,644 | ) | ||||||||||
OTC-cleared | (1,573 | ) | (336 | ) | (1,302 | ) | (526 | ) | ||||||||||
Bilateral OTC | (71,653 | ) | (51,789 | ) | (54,698 | ) | (41,618 | ) | ||||||||||
Cash collateral netting | (73,226 | ) | (52,125 | ) | (56,000 | ) | (42,144 | ) | ||||||||||
Total amounts offset | $(490,481 | ) | $(469,380 | ) | $(396,644 | ) | $(382,788 | ) | ||||||||||
Included in the consolidated balance sheets | ||||||||||||||||||
Exchange-traded | $ | $ | $ 2,241 | $ 5,955 | ||||||||||||||
OTC-cleared | 327 | 134 | 249 | 147 | ||||||||||||||
Bilateral OTC | 60,127 | 48,515 | 42,762 | 37,700 | ||||||||||||||
Total | $ 64,520 | $ 56,698 | $ 45,252 | $ 43,802 | ||||||||||||||
Not offset in the consolidated balance sheets | ||||||||||||||||||
Cash collateral | $ (1,140 | ) | $ (1,700 | ) | $ (604 | ) | $ (1,603 | ) | ||||||||||
Securities collateral | (17,096 | ) | (11,515 | ) | (14,196 | ) | (9,252 | ) | ||||||||||
Total | $ 46,284 | $ | $ 30,452 | $ 32,947 |
Notional Amounts as of | ||||||||
$ in millions | September 2020 | December 2019 | | |||||
Not accounted for as hedges | ||||||||
Exchange-traded | $ 3,897,833 | $ 4,757,300 | ||||||
OTC-cleared | 16,266,950 | 13,440,376 | ||||||
Bilateral OTC | 13,299,418 | 11,668,171 | ||||||
Total interest rates | 33,464,201 | 29,865,847 | ||||||
OTC-cleared | 547,677 | 396,342 | ||||||
Bilateral OTC | 618,220 | 707,935 | ||||||
Total credit | 1,165,897 | 1,104,277 | ||||||
Exchange-traded | 2,647 | 4,566 | ||||||
OTC-cleared | 177,785 | 134,060 | ||||||
Bilateral OTC | 6,250,229 | 5,926,602 | ||||||
Total currencies | 6,430,661 | 6,065,228 | ||||||
Exchange-traded | 223,284 | 230,018 | ||||||
OTC-cleared | 2,354 | 2,639 | ||||||
Bilateral OTC | 208,868 | 243,228 | ||||||
Total commodities | 434,506 | 475,885 | ||||||
Exchange-traded | 1,102,199 | 910,099 | ||||||
Bilateral OTC | 1,238,886 | 1,182,335 | ||||||
Total equities | 2,341,085 | 2,092,434 | ||||||
Subtotal | 43,836,350 | 39,603,671 | ||||||
Accounted for as hedges | ||||||||
OTC-cleared | 181,135 | 123,531 | ||||||
Bilateral OTC | 6,559 | 9,714 | ||||||
Total interest rates | 187,694 | 133,245 | ||||||
OTC-cleared | 3,274 | 4,152 | ||||||
Bilateral OTC | 9,274 | 9,247 | ||||||
Total currencies | 12,548 | 13,399 | ||||||
Subtotal | 200,242 | 146,644 | ||||||
Total notional amounts | $44,036,592 | $39,750,315 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Investment Funds. The firm has formed investment funds with third-party investors. These funds are typically organized as limited partnerships or limited liability companies for which the firm acts as general partner or manager. Generally, the firm does not hold a majority of the economic interests in these funds. These funds are usually voting interest entities and generally are not consolidated because third-party investors typically have rights to terminate the funds or to remove the firm as general partner or manager. Investments in these funds are generally measured at net asset value (NAV) and are included in investments. See Notes 8, 18 and 22 for further information about investments in funds. Use of Estimates Preparation of these consolidated financial statements requires management to make certain estimates and assumptions, the most important of which relate to fair value measurements, the allowance for credit losses on loans and lending commitments accounted for at amortized cost, discretionary compensation accruals, accounting for goodwill and identifiable intangible assets, provisions for losses that may arise from litigation and regulatory proceedings (including governmental investigations), and provisions for losses that may arise from tax audits. These estimates and assumptions are based on the best available information but actual results could be materially different. Revenue Recognition Financial Assets and Liabilities at Fair Value. Trading assets and liabilities and certain investments are recorded at fair value either under the fair value option or in accordance with other U.S. GAAP. In addition, the firm has elected to account for certain of its loans and other financial assets and liabilities at fair value by electing the fair value option. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. Fair value gains or losses are generally included in market making or other principal transactions. See Note 4 for further information about fair value measurements. Revenue from Contracts with Clients. The firm recognizes revenue earned from contracts with clients for services, such as investment banking, investment management, and execution and clearing (contracts with clients), when the performance obligations related to the underlying transaction are completed. Revenues from contracts with clients represent approximately 35% of total non-interest revenues (including approximately 90% of investment banking revenues, approximately 95% of investment management revenues and all commissions and fees) for the three months ended March 2021, and approximately 55% of totalnon-interest revenues (including approximately 85% of investment banking revenues, approximately 95% of investment management revenues and all commissions and fees) for the three months ended March 2020. See Note 25 for information about net revenues by business segment.Investment Banking Advisory. Fees from financial advisory assignments are recognized in revenues when the services related to the underlying transaction are completed under the terms of the assignment. Non-refundable deposits and milestone payments in connection with financial advisory assignments are recognized in revenues upon completion of the underlying transaction or when the assignment is otherwise concluded.Expenses associated with financial advisory assignments are recognized when incurred and are included in transaction based expenses. Client reimbursements for such expenses are included in investment banking revenues. Underwriting. Fees from underwriting assignments are recognized in revenues upon completion of the underlying transaction based on the terms of the assignment. Expenses associated with underwriting assignments are generally deferred until the related revenue is recognized or the assignment is otherwise concluded. Such expenses are included in transaction based expenses for completed assignments.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Investment Management The firm earns management fees and incentive fees for investment management services, which are included in investment management revenues. The firm makes payments to brokers and advisors related to the placement of the firm’s investment funds (distribution fees), which are included in transaction based expenses. Management Fees. Management fees for mutual funds are calculated as a percentage of daily net asset value and are received monthly. Management fees for hedge funds and separately managed accounts are calculated as a percentage of month-end net asset value and are generally received quarterly. Management fees for private equity funds are calculated as a percentage of monthly invested capital or committed capital and are received quarterly, semi-annually or annually, depending on the fund. Management fees are recognized over time in the period the services are provided.Distribution fees paid by the firm are calculated based on either a percentage of the management fee, the investment fund’s net asset value or the committed capital. Such fees are included in transaction based expenses. Incentive Fees. Incentive fees are calculated as a percentage of a fund’s or separately managed account’s return, or excess return above a specified benchmark or other performance target. Incentive fees are generally based on investment performance over a twelve-month period or over the life of a fund. Fees that are based on performance over a twelve-month period are subject to adjustment prior to the end of the measurement period. For fees that are based on investment performance over the life of the fund, future investment underperformance may require fees previously distributed to the firm to be returned to the fund. Incentive fees earned from a fund or separately managed account are recognized when it is probable that a significant reversal of such fees will not occur, which is generally when such fees are no longer subject to fluctuations in the market value of investments held by the fund or separately managed account. Therefore, incentive fees recognized during the period may relate to performance obligations satisfied in previous periods. Commissions and Fees The firm earns commissions and fees from executing and clearing client transactions on stock, options and futures markets, as well as over-the-counter Remaining Performance Obligations Remaining performance obligations are services that the firm has committed to perform in the future in connection with its contracts with clients. The firm’s remaining performance obligations are generally related to its financial advisory assignments and certain investment management activities. Revenues associated with remaining performance obligations relating to financial advisory assignments cannot be determined until the outcome of the transaction. For the firm’s investment management activities, where fees are calculated based on the net asset value of the fund or separately managed account, future revenues associated with such remaining performance obligations cannot be determined as such fees are subject to fluctuations in the market value of investments held by the fund or separately managed account. The firm is able to determine the future revenues associated with management fees calculated based on committed capital. As of March 2021, substantially all future net revenues associated with such remaining performance obligations will be recognized through 2028. Annual revenues associated with such performance obligations average less than $250 million through 2028. Transfers of Financial Assets Transfers of financial assets are accounted for as sales when the firm has relinquished control over the assets transferred. For transfers of financial assets accounted for as sales, any gains or losses are recognized in net revenues. Assets or liabilities that arise from the firm’s continuing involvement with transferred financial assets are initially recognized at fair value. For transfers of financial assets that are not accounted for as sales, the assets are generally included in trading assets and the transfer is accounted for as a collateralized financing, with the related interest expense recognized over the life of the transaction. See Note 11 for further information about transfers of financial assets accounted for as collateralized financings and Note 16 for further information about transfers of financial assets accounted for as sales.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Cash and Cash Equivalents The firm defines cash equivalents as highly liquid overnight deposits held in the ordinary course of business. Cash and cash equivalents included cash and due from banks of $11.27 billion as of March 2021 and $11.95 billion as of December 2020. Cash and cash equivalents also included interest-bearing deposits with banks of $179.89 billion as of March 2021 and $143.89 billion as of December 2020. The firm segregates cash for regulatory and other purposes related to client activity. Cash and cash equivalents segregated for regulatory and other purposes were $25.56 billion as of March 2021 and $24.52 billion as of December 2020. In addition, the firm segregates securities for regulatory and other purposes related to client activity. See Note 11 for further information about segregated securities. Customer and Other Receivables Customer and other receivables included receivables from customers and counterparties of $102.46 billion as of March 2021 and $82.39 billion as of December 2020, and receivables from brokers, dealers and clearing organizations of $62.20 billion as of March 2021 and $38.94 billion as of December 2020. Such receivables primarily consist of customer margin loans, receivables resulting from unsettled transactions and collateral posted in connection with certain derivative transactions. Substantially all of these receivables are accounted for at amortized cost net of any allowance for credit losses, which generally approximates fair value. As these receivables are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these receivables been included in the firm’s fair value hierarchy, substantially all would have been classified in level 2 as of both March 2021 and December 2020. See Note 10 for further information about customer and other receivables accounted for at fair value under the fair value option. Interest on customer and other receivables is recognized over the life of the transaction and included in interest income. Customer and other receivables includes receivables from contracts with clients and contract assets. Contract assets represent the firm’s right to receive consideration for services provided in connection with its contracts with clients for which collection is conditional and not merely subject to the passage of time. The firm’s receivables from contracts with clients were $2.87 billion as of March 2021 and $2.60 billion as of December 2020. As of both March 2021 and December 2020 contract assets were not material. Customer and Other Payables Customer and other payables included payables to customers and counterparties of $201.05 billion as of March 2021 and $183.57 billion as of December 2020, and payables to brokers, dealers and clearing organizations of $23.22 billion as of March 2021 and $7.09 billion as of December 2020. Such payables primarily consist of customer credit balances related to the firm’s prime brokerage activities. Customer and other payables are accounted for at cost plus accrued interest, which generally approximates fair value. As these payables are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these payables been included in the firm’s fair value hierarchy, substantially all would have been classified in level 2 as of both March 2021 and December 2020. Interest on customer and other payables is recognized over the life of the transaction and included in interest expense. Offsetting Assets and Liabilities To reduce credit exposures on derivatives and securities financing transactions, the firm may enter into master netting agreements or similar arrangements (collectively, netting agreements) with counterparties that permit it to offset receivables and payables with such counterparties. A netting agreement is a contract with a counterparty that permits net settlement of multiple transactions with that counterparty, including upon the exercise of termination rights by a non-defaulting party. Upon exercise of such termination rights, all transactions governed by the netting agreement are terminated and a net settlement amount is calculated. In addition, the firm receives and posts cash and securities collateral with respect to its derivatives and securities financing transactions, subject to the terms of the related credit support agreements or similar arrangements (collectively, credit support agreements). An enforceable credit support agreement grants thenon-defaulting party exercising termination rights the right to liquidate the collateral and apply the proceeds to any amounts owed. In order to assess enforceability of the firm’s right of setoff under netting and credit support agreements, the firm evaluates various factors, including applicable bankruptcy laws, local statutes and regulatory provisions in the jurisdiction of the parties to the agreement.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Derivatives are reported on a net-by-counterparty net-by-counterparty In the consolidated balance sheets, derivatives are reported net of cash collateral received and posted under enforceable credit support agreements, when transacted under an enforceable netting agreement. In the consolidated balance sheets, resale and repurchase agreements, and securities borrowed and loaned, are not reported net of the related cash and securities received or posted as collateral. See Note 11 for further information about collateral received and pledged, including rights to deliver or repledge collateral. See Notes 7 and 11 for further information about offsetting assets and liabilities. Share-Based Compensation The cost of employee services received in exchange for a share-based award is generally measured based on the grant-date fair value of the award. Share-based awards that do not require future service (i.e., vested awards, including awards granted to retirement-eligible employees) are expensed immediately. Share-based awards that require future service are amortized over the relevant service period. Forfeitures are recorded when they occur. Cash dividend equivalents paid on restricted stock units (RSUs) are generally charged to retained earnings. If RSUs that require future service are forfeited, the related dividend equivalents originally charged to retained earnings are reclassified to compensation expense in the period in which forfeiture occurs. The firm generally issues new shares of common stock upon delivery of share-based awards. In certain cases, primarily related to conflicted employment (as outlined in the applicable award agreements), the firm may cash settle share-based compensation awards accounted for as equity instruments. For these awards, whose terms allow for cash settlement, additional paid-in capital is adjusted to the extent of the difference between the value of the award at the time of cash settlement and the grant-date value of the award. The tax effect related to the settlement of share-based awards is recorded in income tax benefit or expense.Foreign Currency Translation Assets and liabilities denominated in non-U.S. currencies are translated at rates of exchange prevailing on the date of the consolidated balance sheets and revenues and expenses are translated at average rates of exchange for the period. Foreign currency remeasurement gains or losses on transactions in nonfunctional currencies are recognized in earnings. Gains or losses on translation of the financial statements of anon-U.S. operation, when the functional currency is other than the U.S. dollar, are included, net of hedges and taxes, in the consolidated statements of comprehensive income.Recent Accounting Developments Measurement of Credit Losses on Financial Instruments (ASC 326). In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments.” This ASU amends several aspects of the measurement of credit losses on certain financial instruments, including replacing the existing incurred credit loss model and other models with the Current Expected Credit Losses (CECL) model and amending certain aspects of accounting for purchased financial assets with deterioration in credit quality since origination.The firm adopted this ASU in January 2020 under a modified retrospective approach. As a result of adopting this ASU, the firm’s allowance for credit losses on financial assets and commitments that are measured at amortized cost reflects management’s estimate of credit losses over the remaining expected life of such assets. Expected credit losses for newly recognized financial assets and commitments, as well as changes to expected credit losses during the period, are recognized in earnings. These expected credit losses are measured based on historical experience, current conditions and forecasts that affect the collectability of the reported amount. The cumulative effect of measuring the allowance under CECL as a result of adopting this ASU as of January 1, 2020 was an increase in the allowance for credit losses of $848 million. The increase in the allowance is driven by the fact that the allowance under CECL covers expected credit losses over the full expected life of the loan portfolios and also takes into account forecasts of expected future economic conditions. In addition, in accordance with the ASU, the firm elected the fair value option for loans that were previously accounted for as Purchased Credit Impaired (PCI), which resulted in a decrease to the allowance for PCI loans of $169 million. The cumulative effect of adopting this ASU was a decrease to retained earnings of $638 million (net of tax).
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASC 848). In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform — Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides optional relief from applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform. In addition, in January 2021 the FASB issued ASUNo. 2021-01 “Reference Rate Reform — Scope,” which clarified the scope of ASC 848 relating to contract modifications. The firm adopted these ASUs upon issuance and elected to apply the relief available to certain modified derivatives. The adoption of these ASUs did not have a material impact on the firm’s consolidated financial statements.Note 4. Fair Value Measurements The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. The firm measures certain financial assets and liabilities as a portfolio (i.e., based on its net exposure to market and/or credit risks). The best evidence of fair value is a quoted price in an active market. If quoted prices in active markets are not available, fair value is determined by reference to prices for similar instruments, quoted prices or recent transactions in less active markets, or internally developed models that primarily use market-based or independently sourced inputs, including, but not limited to, interest rates, volatilities, equity or debt prices, foreign exchange rates, commodity prices, credit spreads and funding spreads (i.e., the spread or difference between the interest rate at which a borrower could finance a given financial instrument relative to a benchmark interest rate). U.S. GAAP has a three-level hierarchy for disclosure of fair value measurements. This hierarchy prioritizes inputs to the valuation techniques used to measure fair value, giving the highest priority to level 1 inputs and the lowest priority to level 3 inputs. A financial instrument’s level in this hierarchy is based on the lowest level of input that is significant to its fair value measurement. In evaluating the significance of a valuation input, the firm considers, among other factors, a portfolio’s net risk exposure to that input. The fair value hierarchy is as follows: Level 1. Inputs are unadjusted quoted prices in active markets to which the firm had access at the measurement date for identical, unrestricted assets or liabilities. Level 2. Inputs to valuation techniques are observable, either directly or indirectly. Level 3. One or more inputs to valuation techniques are significant and unobservable. The fair values for substantially all of the firm’s financial assets and liabilities are based on observable prices and inputs and are classified in levels 1 and 2 of the fair value hierarchy. Certain level 2 and level 3 financial assets and liabilities may require valuation adjustments that a market participant would require to arrive at fair value for factors, such as counterparty and the firm’s credit quality, funding risk, transfer restrictions, liquidity and bid/offer spreads. Valuation adjustments are generally based on market evidence.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The valuation techniques and nature of significant inputs used to determine the fair value of the firm’s financial instruments are described below. See Notes 5 through 10 for further information about significant unobservable inputs used to value level 3 financial instruments. Valuation Techniques and Significant Inputs for Trading Cash Instruments, Investments and Loans Level 1. Level 1 instruments include U.S. government obligations, most non-U.S. government obligations, certain agency obligations, certain corporate debt instruments, certain money market instruments and actively traded listed equities. These instruments are valued using quoted prices for identical unrestricted instruments in active markets. The firm defines active markets for equity instruments based on the average daily trading volume both in absolute terms and relative to the market capitalization for the instrument. The firm defines active markets for debt instruments based on both the average daily trading volume and the number of days with trading activity.Level 2. Level 2 instruments include certain non-U.S. government obligations, most agency obligations, most mortgage-backed loans and securities, most corporate debt instruments, most state and municipal obligations, most money market instruments, most other debt obligations, restricted or less liquid listed equities, certain private equities, commodities and certain lending commitments.Valuations of level 2 instruments can be verified to quoted prices, recent trading activity for identical or similar instruments, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g., indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources. Valuation adjustments are typically made to level 2 instruments (i) if the instrument is subject to transfer restrictions and/or (ii) for other premiums and liquidity discounts that a market participant would require to arrive at fair value. Valuation adjustments are generally based on market evidence. Level 3. Level 3 instruments have one or more significant valuation inputs that are not observable. Absent evidence to the contrary, level 3 instruments are initially valued at transaction price, which is considered to be the best initial estimate of fair value. Subsequently, the firm uses other methodologies to determine fair value, which vary based on the type of instrument. Valuation inputs and assumptions are changed when corroborated by substantive observable evidence, including values realized on sales. Valuation techniques of level 3 instruments vary by instrument, but are generally based on discounted cash flow techniques. The valuation techniques and the nature of significant inputs used to determine the fair values of each type of level 3 instrument are described below: Loans and Securities Backed by Commercial Real Estate Loans and securities backed by commercial real estate are directly or indirectly collateralized by a single property or a portfolio of properties, and may include tranches of varying levels of subordination. Significant inputs are generally determined based on relative value analyses and include: Market yields implied by transactions of similar or related assets and/or current levels and changes in market indices, such as the CMBX (an index that tracks the performance of commercial mortgage bonds); Transaction prices in both the underlying collateral and instruments with the same or similar underlying collateral; A measure of expected future cash flows in a default scenario (recovery rates) implied by the value of the underlying collateral, which is mainly driven by current performance of the underlying collateral and capitalization rates. Recovery rates are expressed as a percentage of notional or face value of the instrument and reflect the benefit of credit enhancements on certain instruments; and Timing of expected future cash flows (duration) which, in certain cases, may incorporate the impact of any loan forbearances and other unobservable inputs (e.g., prepayment speeds). Loans and Securities Backed by Residential Real Estate Loans and securities backed by residential real estate are directly or indirectly collateralized by portfolios of residential real estate and may include tranches of varying levels of subordination. Significant inputs are generally determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles. Significant inputs include: Market yields implied by transactions of similar or related assets; Transaction prices in both the underlying collateral and instruments with the same or similar underlying collateral; Cumulative loss expectations, driven by default rates, home price projections, residential property liquidation timelines, related costs and subsequent recoveries; and Duration, driven by underlying loan prepayment speeds and residential property liquidation timelines.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Corporate Debt Instruments Corporate debt instruments includes corporate loans, debt securities and convertible debentures. Significant inputs for corporate debt instruments are generally determined based on relative value analyses, which incorporate comparisons both to prices of credit default swaps that reference the same or similar underlying instrument or entity and to other debt instruments for the same or similar issuer for which observable prices or broker quotations are available. Significant inputs include: Market yields implied by transactions of similar or related assets and/or current levels and trends of market indices, such as the CDX (an index that tracks the performance of corporate credit); Current performance and recovery assumptions and, where the firm uses credit default swaps to value the related instrument, the cost of borrowing the underlying reference obligation; Duration; and Market and transaction multiples for corporate debt instruments with convertibility or participation options. Equity Securities Equity securities consists of private equities. Recent third-party completed or pending transactions (e.g., merger proposals, debt restructurings, tender offers) are considered the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate: Industry multiples (primarily EBITDA and revenue multiples) and public comparables; Transactions in similar instruments; Discounted cash flow techniques; and Third-party appraisals. The firm also considers changes in the outlook for the relevant industry and financial performance of the issuer as compared to projected performance. Significant inputs include: Market and transaction multiples; Discount rates and capitalization rates; and For equity securities with debt-like features, market yields implied by transactions of similar or related assets, current performance and recovery assumptions, and duration. Other Trading Cash Instruments, Investments and Loans The significant inputs to the valuation of other instruments, such as non-U.S. government obligations and U.S. andnon-U.S. agency obligations, state and municipal obligations, and other loans and debt obligations are generally determined based on relative value analyses, which incorporate comparisons both to prices of credit default swaps that reference the same or similar underlying instrument or entity and to other debt instruments for the same issuer for which observable prices or broker quotations are available. Significant inputs include:Market yields implied by transactions of similar or related assets and/or current levels and trends of market indices; Current performance and recovery assumptions and, where the firm uses credit default swaps to value the related instrument, the cost of borrowing the underlying reference obligation; and Duration. Valuation Techniques and Significant Inputs for Derivatives The firm’s level 2 and level 3 derivatives are valued using derivative pricing models (e.g., discounted cash flow models, correlation models and models that incorporate option pricing methodologies, such as Monte Carlo simulations). Price transparency of derivatives can generally be characterized by product type, as described below. Interest Rate. 10-year swap rate vs.2-year swap rate) are more complex, but the key inputs are generally observable.Credit.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Currency. Commodity. Equity. Liquidity is essential to observability of all product types. If transaction volumes decline, previously transparent prices and other inputs may become unobservable. Conversely, even highly structured products may at times have trading volumes large enough to provide observability of prices and other inputs. Level 1. Level 1 derivatives include short-term contracts for future delivery of securities when the underlying security is a level 1 instrument, and exchange-traded derivatives if they are actively traded and are valued at their quoted market price. Level 2. Level 2 derivatives include OTC derivatives for which all significant valuation inputs are corroborated by market evidence and exchange-traded derivatives that are not actively traded and/or that are valued using models that calibrate to market-clearing levels of OTC derivatives. The selection of a particular model to value a derivative depends on the contractual terms of and specific risks inherent in the instrument, as well as the availability of pricing information in the market. For derivatives that trade in liquid markets, model selection does not involve significant management judgment because outputs of models can be calibrated to market-clearing levels. Valuation models require a variety of inputs, such as contractual terms, market prices, yield curves, discount rates (including those derived from interest rates on collateral received and posted as specified in credit support agreements for collateralized derivatives), credit curves, measures of volatility, prepayment rates, loss severity rates and correlations of such inputs. Significant inputs to the valuations of level 2 derivatives can be verified to market transactions, broker or dealer quotations or other alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g., indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources. Level 3. Level 3 derivatives are valued using models which utilize observable level 1 and/or level 2 inputs, as well as unobservable level 3 inputs. The significant unobservable inputs used to value the firm’s level 3 derivatives are described below. For level 3 interest rate and currency derivatives, significant unobservable inputs include correlations of certain currencies and interest rates (e.g., the correlation between Euro inflation and Euro interest rates) and specific interest rate and currency volatilities. For level 3 credit derivatives, significant unobservable inputs include illiquid credit spreads and upfront credit points, which are unique to specific reference obligations and reference entities, and recovery rates. For level 3 commodity derivatives, significant unobservable inputs include volatilities for options with strike prices that differ significantly from current market prices and prices or spreads for certain products for which the product quality or physical location of the commodity is not aligned with benchmark indices. For level 3 equity derivatives, significant unobservable inputs generally include equity volatility inputs for options that are long-dated and/or have strike prices that differ significantly from current market prices. In addition, the valuation of certain structured trades requires the use of level 3 correlation inputs, such as the correlation of the price performance of two or more individual stocks or the correlation of the price performance for a basket of stocks to another asset class, such as commodities.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Subsequent to the initial valuation of a level 3 derivative, the firm updates the level 1 and level 2 inputs to reflect observable market changes and any resulting gains and losses are classified in level 3. Level 3 inputs are changed when corroborated by evidence, such as similar market transactions, third-party pricing services and/or broker or dealer quotations or other empirical market data. In circumstances where the firm cannot verify the model value by reference to market transactions, it is possible that a different valuation model could produce a materially different estimate of fair value. See Note 7 for further information about significant unobservable inputs used in the valuation of level 3 derivatives. Valuation Adjustments. Valuation adjustments are integral to determining the fair value of derivative portfolios and are used to adjust the mid-market valuations produced by derivative pricing models to the exit price valuation. These adjustments incorporate bid/offer spreads, the cost of liquidity, credit valuation adjustments and funding valuation adjustments, which account for the credit and funding risk inherent in the uncollateralized portion of derivative portfolios. The firm also makes funding valuation adjustments to collateralized derivatives where the terms of the agreement do not permit the firm to deliver or repledge collateral received. Market-based inputs are generally used when calibrating valuation adjustments to market-clearing levels.In addition, for derivatives that include significant unobservable inputs, the firm makes model or exit price adjustments to account for the valuation uncertainty present in the transaction. Valuation Techniques and Significant Inputs for Other Financial Instruments at Fair Value In addition to trading cash instruments, derivatives, and certain investments and loans, the firm accounts for certain of its other financial assets and liabilities at fair value under the fair value option. Such instruments include repurchase agreements and substantially all resale agreements; securities borrowed and loaned in Fixed Income, Currency and Commodities (FICC) financing; certain customer and other receivables, including certain margin loans; certain time deposits, including structured certificates of deposit, which are hybrid financial instruments; substantially all other secured financings, including transfers of assets accounted for as financings; certain unsecured short- and long-term borrowings, substantially all of which are hybrid financial instruments; and other liabilities. These instruments are generally valued based on discounted cash flow techniques, which incorporate inputs with reasonable levels of price transparency, and are generally classified in level 2 because the inputs are observable. Valuation adjustments may be made for liquidity and for counterparty and the firm’s credit quality. The significant inputs used to value the firm’s other financial instruments are described below. Resale and Repurchase Agreements and Securities Borrowed and Loaned. The significant inputs to the valuation of resale and repurchase agreements and securities borrowed and loaned are funding spreads, the amount and timing of expected future cash flows and interest rates. Customer and Other Receivables. The significant inputs to the valuation of receivables are interest rates, the amount and timing of expected future cash flows and funding spreads. Deposits. The significant inputs to the valuation of time deposits are interest rates and the amount and timing of future cash flows. The inputs used to value the embedded derivative component of hybrid financial instruments are consistent with the inputs used to value the firm’s other derivative instruments described above. See Note 7 for further information about derivatives and Note 13 for further information about deposits. Other Secured Financings. The significant inputs to the valuation of other secured financings are the amount and timing of expected future cash flows, interest rates, funding spreads and the fair value of the collateral delivered by the firm (determined using the amount and timing of expected future cash flows, market prices, market yields and recovery assumptions). See Note 11 for further information about other secured financings. Unsecured Short- and Long-Term Borrowings. The significant inputs to the valuation of unsecured short- and long-term borrowings are the amount and timing of expected future cash flows, interest rates, the credit spreads of the firm and commodity prices for prepaid commodity transactions. The inputs used to value the embedded derivative component of hybrid financial instruments are consistent with the inputs used to value the firm’s other derivative instruments described above. See Note 7 for further information about derivatives and Note 14 for further information about borrowings. Other Liabilities. The significant inputs to the valuation of other liabilities are the amount and timing of expected future cash flows and equity volatility and correlation inputs. The inputs used to value the embedded derivative component of hybrid financial instruments are consistent with the inputs used to value the firm’s other derivative instruments described above. See Note 7 for further information about derivatives.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Financial Assets and Liabilities at Fair Value The table below presents financial assets and liabilities accounted for at fair value.
In the table above: Counterparty netting among positions classified in the same level is included in that level. Counterparty and cash collateral netting represents the impact on derivatives of netting across levels. The table below presents a summary of level 3 financial assets.
Level 3 financial assets as of March 2021 increased compared with December 2020, primarily reflecting an increase in level 3 investments. See Notes 5 through 10 for further information about level 3 financial assets (including information about unrealized gains and losses related to level 3 financial assets and transfers in and out of level 3). Note 5. Trading Assets and Liabilities Trading assets and liabilities include trading cash instruments and derivatives held in connection with the firm’s market-making or risk management activities. These assets and liabilities are accounted for at fair value either under the fair value option or in accordance with other U.S. GAAP, and the related fair value gains and losses are generally recognized in the consolidated statements of earnings. The table below presents a summary of trading assets and liabilities.
See Note 6 for further information about trading cash instruments and Note 7 for further information about derivatives. Gains and Losses from Market Making The table below presents market making revenues by major product type.
In the table above: Gains/(losses) include both realized and unrealized gains and losses. Gains/(losses) exclude related interest income and interest expense. See Note 23 for further information about interest income and interest expense. Gains and losses included in market making are primarily related to the firm’s trading assets and liabilities, including both derivative and non-derivative financial instruments.Gains/(losses) are not representative of the manner in which the firm manages its business activities because many of the firm’s market-making and client facilitation strategies utilize financial instruments across various product types. Accordingly, gains or losses in one product type frequently offset gains or losses in other product types. For example, most of the firm’s longer-term derivatives across product types are sensitive to changes in interest rates and may be economically hedged with interest rate swaps. Similarly, a significant portion of the firm’s trading cash instruments and derivatives across product types has exposure to foreign currencies and may be economically hedged with foreign currency contracts.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Note 6. Trading Cash Instruments Trading cash instruments consists of instruments held in connection with the firm’s market-making or risk management activities. These instruments are accounted for at fair value and the related fair value gains and losses are recognized in the consolidated statements of earnings. Fair Value of Trading Cash Instruments by Level The table below presents trading cash instruments by level within the fair value hierarchy.
In the table above: Trading cash instrument assets are shown as positive amounts and trading cash instrument liabilities are shown as negative amounts. Corporate debt instruments includes corporate loans, debt securities, convertible debentures, prepaid commodity transactions and transfers of assets accounted for as secured loans rather than purchases. Equity securities includes public equities and exchange-traded funds. Other debt obligations includes other asset-backed securities and money market instruments. See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of trading cash instruments. Significant Unobservable Inputs The table below presents the amount of level 3 assets, and ranges and weighted averages of significant unobservable inputs used to value level 3 trading cash instruments.
Level 3 government and agency obligations, other debt obligations and equity securities were not material as of both March 2021 and December 2020, and therefore are not included in the table above.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) In the table above: Ranges represent the significant unobservable inputs that were used in the valuation of each type of trading cash instrument. Weighted averages are calculated by weighting each input by the relative fair value of the trading cash instruments. The ranges and weighted averages of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one trading cash instrument. For example, the highest recovery rate for corporate debt instruments is appropriate for valuing a specific corporate debt instrument, but may not be appropriate for valuing any other corporate debt instrument. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 trading cash instruments. Increases in yield, duration or cumulative loss rate used in the valuation of level 3 trading cash instruments would have resulted in a lower fair value measurement, while increases in recovery rate would have resulted in a higher fair value measurement as of both March 2021 and December 2020. Due to the distinctive nature of each level 3 trading cash instrument, the interrelationship of inputs is not necessarily uniform within each product type. Trading cash instruments are valued using discounted cash flows. Level 3 Rollforward The table below presents a summary of the changes in fair value for level 3 trading cash instruments.
In the table above: Changes in fair value are presented for all trading cash instruments that are classified in level 3 as of the end of the period. Net unrealized gains/(losses) relates to trading cash instruments that were still held at period-end. Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a trading cash instrument was transferred to level 3 during a reporting period, its entire gain or loss for the period is classified in level 3. For level 3 trading cash instrument assets, increases are shown as positive amounts, while decreases are shown as negative amounts. For level 3 trading cash instrument liabilities, increases are shown as negative amounts, while decreases are shown as positive amounts. Level 3 trading cash instruments are frequently economically hedged with level 1 and level 2 trading cash instruments and/or level 1, level 2 or level 3 derivatives. Accordingly, gains or losses that are classified in level 3 can be partially offset by gains or losses attributable to level 1 or level 2 trading cash instruments and/or level 1, level 2 or level 3 derivatives. As a result, gains or 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 GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The table below presents information, by product type, for assets included in the summary table above.
In the table above, other includes U.S. and non-U.S. government and agency obligations, other debt obligations and equity securities.Level 3 Rollforward Commentary Three Months Ended March 2021. The net realized and unrealized gains on level 3 trading cash instrument assets of $66 million (reflecting $33 million of net realized gains and $33 million of net unrealized gains) for the three months ended March 2021 included gains of $28 million reported in market making and $38 million reported in interest income. The drivers of the net unrealized gains on level 3 trading cash instrument assets for the three months ended March 2021 were not material. Transfers into level 3 trading cash instrument assets during the three months ended March 2021 primarily reflected transfers of certain loans and securities backed by residential real estate and corporate debt instruments from level 2 (in each case, principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments). Transfers out of level 3 trading cash instrument assets during the three months ended March 2021 primarily reflected transfers of certain corporate debt instruments and loans and securities backed by commercial real estate to level 2 (in each case, principally due to increased price transparency as a result of market evidence, including market transactions in these instruments). Three Months Ended March 2020. The net realized and unrealized losses on level 3 trading cash instrument assets of $125 million (reflecting $34 million of net realized gains and $159 million of net unrealized losses) for the three months ended March 2020 included gains/(losses) of $(4) million reported in investment banking, $(158) million reported in market making and $37 million reported in interest income. The net unrealized losses on level 3 trading cash instrument assets for the three months ended March 2020 primarily reflected losses on certain corporate debt instruments, principally driven by weak corporate performance. Transfers into level 3 trading cash instrument assets during the three months ended March 2020 primarily reflected transfers of certain corporate debt instruments from level 2 (principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments). The drivers of transfers out of level 3 trading cash instrument assets during the three months ended March 2020 were not material. Note 7. Derivatives and Hedging Activities Derivative Activities Derivatives are instruments that derive their value from underlying asset prices, indices, reference rates and other inputs, or a combination of these factors. Derivatives may be traded on an exchange (exchange-traded) or they may be privately negotiated contracts, which are usually referred to as OTC derivatives. Certain of the firm’s OTC derivatives are cleared and settled through central clearing counterparties (OTC-cleared), while others are bilateral contracts between two counterparties (bilateral OTC).
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Market Making. As a market maker, the firm enters into derivative transactions to provide liquidity to clients and to facilitate the transfer and hedging of their risks. In this role, the firm typically acts as principal and is required to commit capital to provide execution, and maintains market-making positions in response to, or in anticipation of, client demand. Risk Management. The firm also enters into derivatives to actively manage risk exposures that arise from its market-making and investing and financing activities. The firm’s holdings and exposures are hedged, in many cases, on either a portfolio or risk-specific basis, as opposed to an instrument-by-instrument available-for-sale non-U.S. operations.The firm enters into various types of derivatives, including: Futures and Forwards. Swaps. Options. Derivatives are reported on a net-by-counterparty The tables below present the gross fair value and the notional amounts of derivative contracts by major product type, the amounts of counterparty and cash collateral netting in the consolidated balance sheets, as well as cash and securities collateral posted and received under enforceable credit support agreements that do not meet the criteria for netting under U.S. GAAP.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited)
In the tables above: Gross fair values exclude the effects of both counterparty netting and collateral, and therefore are not representative of the firm’s exposure. Where the firm has received or posted collateral under credit support agreements, but has not yet determined such agreements are enforceable, the related collateral has not been netted. Notional amounts, which represent the sum of gross long and short derivative contracts, provide an indication of the volume of the firm’s derivative activity and do not represent anticipated losses. Total gross fair value of derivatives included derivative assets of $22.13 billion as of March 2021 and $20.60 billion as of December 2020, and derivative liabilities of $19.56 billion as of March 2021 and $22.98 billion as of December 2020, which are not subject to an enforceable netting agreement or are subject to a netting agreement that the firm has not yet determined to be enforceable. Fair Value of Derivatives by Level The table below presents derivatives on a gross basis by level and product type, as well as the impact of netting.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) In the table above: Gross fair values exclude the effects of both counterparty netting and collateral netting, and therefore are not representative of the firm’s exposure. Counterparty netting is reflected in each level to the extent that receivable and payable balances are netted within the same level and is included in counterparty netting in levels. Where the counterparty netting is across levels, the netting is included in cross-level counterparty netting. Derivative assets are shown as positive amounts and derivative liabilities are shown as negative amounts. See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of derivatives. Significant Unobservable Inputs The table below presents the amount of level 3 derivative assets (liabilities), and ranges, averages and medians of significant unobservable inputs used to value level 3 derivatives.
In the table above: Derivative assets are shown as positive amounts and derivative liabilities are shown as negative amounts. Ranges represent the significant unobservable inputs that were used in the valuation of each type of derivative. Averages represent the arithmetic average of the inputs and are not weighted by the relative fair value or notional amount of the respective financial instruments. An average greater than the median indicates that the majority of inputs are below the average. For example, the difference between the average and the median for credit spreads indicates that the majority of the inputs fall in the lower end of the range.The ranges, averages and medians of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one derivative. For example, the highest correlation for interest rate derivatives is appropriate for valuing a specific interest rate derivative but may not be appropriate for valuing any other interest rate derivative. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 derivatives. Interest rates, currencies and equities derivatives are valued using option pricing models, credit derivatives are valued using option pricing, correlation and discounted cash flow models, and commodities derivatives are valued using option pricing and discounted cash flow models. The fair value of any one instrument may be determined using multiple valuation techniques. For example, option pricing models and discounted cash flows models are typically used together to determine fair value. Therefore, the level 3 balance encompasses both of these techniques. Correlation within currencies and equities includes cross-product type correlation. Natural gas spread represents the spread per million British thermal units of natural gas. Oil spread represents the spread per barrel of oil and refined products. Electricity price represents theprice per megawatt hour of electricity.Range of Significant Unobservable Inputs The following provides information about the ranges of significant unobservable inputs used to value the firm’s level 3 derivative instruments: Correlation.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Volatility. Credit spreads, upfront credit points and recovery rates. Commodity prices and spreads. Sensitivity of Fair Value Measurement to Changes in Significant Unobservable Inputs The following is a description of the directional sensitivity of the firm’s level 3 fair value measurements to changes in significant unobservable inputs, in isolation, as of each period-end: Correlation. Volatility. Credit spreads, upfront credit points and recovery rates. Commodity prices and spreads. Due to the distinctive nature of each of the firm’s level 3 derivatives, the interrelationship of inputs is not necessarily uniform within each product type. Level 3 Rollforward The table below presents a summary of the changes in fair value for level 3 derivatives.
In the table above: Changes in fair value are presented for all derivative assets and liabilities that are classified in level 3 as of the end of the period. Net unrealized gains/(losses) relates to instruments that were still held at period-end. Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a derivative was transferred into level 3 during a reporting period, its entire gain or loss for the period is classified in level 3. Positive amounts for transfers into level 3 and negative amounts for transfers out of level 3 represent net transfers of derivative assets. Negative amounts for transfers into level 3 and positive amounts for transfers out of level 3 represent net transfers of derivative liabilities. 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 in level 3. Gains or losses that have been classified 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 trading 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 GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The table below presents information, by product type, for derivatives included in the summary table above.
Level 3 Rollforward Commentary Three Months Ended The net realized and unrealized losses on level 3 derivatives of The net unrealized gains on level 3 derivatives for the three months ended March 2021 were primarily attributable to gains on certain interest rate derivatives (primarily reflecting the impact of an increase in interest rates) and gains on certain credit derivatives (primarily reflecting the impact of a widening of certain credit spreads, changes in foreign exchange rates and an increase in interest rates) partially offset by losses on certain equity derivatives (primarily reflecting the impact of an increase in equity prices). The drivers of transfers into level 3 derivatives during the three months ended March 2021 were not material. Transfers out of level 3 derivatives during the three months ended March 2021 primarily reflected transfers of certain equity derivative liabilities to level 2 (principally due to increased transparency of certain volatility inputs used to value these derivatives). Three Months Ended March 2020. The net realized and unrealized gains on level 3 derivatives of $2.44 billion (reflecting $137 million of net realized gains and $2.31 billion of net unrealized gains) for the three months ended March 2020 included gains of $2.42 billion reported in market making and $23 million reported in other principal transactions. The net unrealized gains on level 3 derivatives for the three months ended March 2020 were primarily attributable to gains on certain equity derivatives (primarily reflecting the impact of a decrease in equity prices), gains on certain credit derivatives (primarily reflecting the impact of a decrease in interest rates and widening of certain credit spreads), gains on certain commodity derivatives (primarily reflecting the impact of a decrease in commodity prices), gains on certain currency derivatives (primarily reflecting the impact of changes in foreign exchange rates) and gains on certain interest rate derivatives (primarily reflecting a decrease in interest rates). Transfers into level 3 derivatives during the three months ended March 2020 primarily reflected transfers of certain equity derivative liabilities from level 2 (principally due to increased significance of certain unobservable inputs used to value these derivatives). Transfers out of level 3 derivatives during the three months ended March 2020 primarily reflected transfers of certain equity derivative liabilities to level 2 (principally due to increased transparency of certain unobservable volatility inputs used to value these derivatives).
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) OTC Derivatives The table below presents OTC derivative assets and liabilities by tenor and major product type.
In the table above: Tenor is based on remaining contractual maturity. Counterparty netting within the same product type and tenor category is included within such product type and tenor category. Counterparty netting across product types within the same tenor category is included in counterparty netting in tenors. Where the counterparty netting is across tenor categories, the netting is included in cross-tenor counterparty netting. Credit Derivatives The firm enters into a broad array of credit derivatives to facilitate client transactions and to manage the credit risk associated with market-making and investing and financing activities. Credit derivatives are actively managed based on the firm’s net risk position. Credit derivatives are generally individually negotiated contracts and can have various settlement and payment conventions. Credit events include failure to pay, bankruptcy, acceleration of indebtedness, restructuring, repudiation and dissolution of the reference entity. The firm enters into the following types of credit derivatives: Credit Default Swaps. Credit Options. THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited)
Total Return Swaps. The firm economically hedges its exposure to written credit derivatives primarily by entering into offsetting purchased credit derivatives with identical underliers. Substantially all of the firm’s purchased credit derivative transactions are with financial institutions and are subject to stringent collateral thresholds. In addition, upon the occurrence of a specified trigger event, the firm may take possession of the reference obligations underlying a particular written credit derivative, and consequently may, upon liquidation of the reference obligations, recover amounts on the underlying reference obligations in the event of default. As of The table below presents information about credit derivatives.
In the table above:
Tenor is based on remaining contractual maturity. The credit spread on the underlier, together with the tenor of the contract, are indicators of payment/performance risk. The firm is less likely to pay or otherwise be required to perform where the credit spread and the tenor are lower. Offsetting purchased credit derivatives represent the notional amount of purchased credit derivatives that economically hedge written credit derivatives with identical underliers. Other purchased credit derivatives represent the notional amount of all other purchased credit derivatives not included in offsetting. THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Impact of Credit and Funding Spreads on Derivatives The firm realizes gains or losses on its derivative contracts. These gains or losses include credit valuation adjustments (CVA) relating to uncollateralized derivative assets and liabilities, which represents the gains or losses (including hedges) attributable to the impact of changes in credit exposure, counterparty credit spreads, liability funding spreads (which includes the firm’s own credit), probability of default and assumed recovery. These gains or losses also include funding valuation adjustments (FVA) relating to uncollateralized derivative assets, which represents the gains or losses (including hedges) attributable to the impact of changes in expected funding exposures and funding spreads. The table below presents information about CVA and FVA.
Bifurcated Embedded Derivatives The table below presents the fair value and the notional amount of derivatives that have been bifurcated from their related borrowings.
In the table above, derivatives that have been bifurcated from their related borrowings are recorded at fair value and primarily consist of interest rate, equity and commodity products. These derivatives are included in unsecured short- and long-term borrowings, as well as other secured financings, with the related borrowings. Derivatives with Credit-Related Contingent Features Certain of the firm’s derivatives have been transacted under bilateral agreements with counterparties who may require the firm to post collateral or terminate the transactions based on changes in the firm’s credit ratings. The firm assesses the impact of these bilateral agreements by determining the collateral or termination payments that would occur assuming a downgrade by all rating agencies. A downgrade by any one rating agency, depending on the agency’s relative ratings of the firm at the time of the downgrade, may have an impact which is comparable to the impact of a downgrade by all rating agencies. The table below presents information about net derivative liabilities under bilateral agreements (excluding collateral posted), the fair value of collateral posted and additional collateral or termination payments that could have been called by counterparties in the event of a one- ortwo-notch downgrade in the firm’s credit ratings.
Hedge Accounting The firm applies hedge accounting for (i) certain interest rate swaps used to manage the interest rate exposure of certain fixed-rate unsecured long- and short-term borrowings and certain fixed-rate certificates of deposit, (ii) foreign exchange forward contracts used to manage the foreign exchange risk of certain available-for-sale non-U.S. operations.To qualify for hedge accounting, the hedging instrument must be highly effective at reducing the risk from the exposure being hedged. Additionally, the firm must formally document the hedging relationship at inception and assess the hedging relationship at least on a quarterly basis to ensure the hedging instrument continues to be highly effective over the life of the hedging relationship. Fair Value Hedges The firm designates certain interest rate swaps as fair value hedges of certain fixed-rate unsecured long- and short-term debt and fixed-rate certificates of deposit. These interest rate swaps hedge changes in fair value attributable to the designated benchmark interest rate (e.g., London Interbank Offered Rate (LIBOR), Secured Overnight Financing Rate or Overnight Index Swap Rate), effectively converting a substantial portion of fixed-rate obligations into floating-rate obligations. The firm applies a statistical method that utilizes regression analysis when assessing the effectiveness of these hedging relationships in achieving offsetting changes in the fair values of the hedging instrument and the risk being hedged (i.e., interest rate risk). An interest rate swap is considered highly effective in offsetting changes in fair value attributable to changes in the hedged risk when the regression analysis results in a coefficient of determination of 80% or greater and a slope between 80% and 125%. THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) For qualifying fair value hedges, gains or losses on derivatives are included in interest expense. The change in fair value of the hedged item attributable to the risk being hedged is reported as an adjustment to its carrying value (hedging adjustment) and is also included in interest expense. When a derivative is no longer designated as a hedge, any remaining difference between the carrying value and par value of the hedged item is amortized to interest expense over the remaining life of the hedged item using the effective interest method. See Note 23 for further information about interest income and interest expense. The table below presents the gains/(losses) from interest rate derivatives accounted for as hedges and the related hedged borrowings and deposits, and total interest expense.
The table below presents the carrying value of deposits and unsecured borrowings that are designated in a hedging relationship and the related cumulative hedging adjustment (increase/(decrease)) from current and prior hedging relationships included in such carrying values.
In the table above, cumulative hedging adjustment included de-designated and substantially all were related to unsecured long-term borrowings.In addition, cumulative hedging adjustments for items no longer designated in a hedging relationship were available-for-sale. available-for-sale Net Investment Hedges The firm seeks to reduce the impact of fluctuations in foreign exchange rates on its net investments in certain non-U.S. operations through the use of foreign currency forward contracts and foreign currency-denominated debt. For foreign currency forward contracts designated as hedges, the effectiveness of the hedge is assessed based on the overall changes in the fair value of the forward contracts (i.e., based on changes in forward rates). For foreign currency-denominated debt designated as a hedge, the effectiveness of the hedge is assessed based on changes in spot rates. For qualifying net investment hedges, all gains or losses on the hedging instruments are included in currency translation.The table below presents the gains/(losses) from net investment hedging.
Gains or losses on individual net investments in non-U.S. operations are reclassified to earnings from accumulated other comprehensive income/(loss) when such net investments are sold or substantially liquidated. The gross and net gains and losses on hedges and the related net investments innon-U.S. operations reclassified to earnings from accumulated other comprehensive income/(loss) The firm had designated non-U.S. subsidiaries.THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Note 8. Investments Investments includes debt instruments and equity securities that are accounted for at fair value and are generally held by the firm in connection with its long-term investing activities. In addition, investments includes debt securities classified as available-for-sale held-to-maturity The table below presents information about investments.
Equity Securities and Debt Instruments, at Fair Value Equity securities and debt instruments, at fair value are accounted for at fair value either under the fair value option or in accordance with other U.S. GAAP, and the related fair value gains and losses are recognized in earnings. Equity Securities, at Fair Value. Equity securities, at fair value consists of the firm’s public and private equity-related investments in corporate and real estate entities. The table below presents information about equity securities, at fair value.
In the table above: Equity securities, at fair value included investments accounted for at fair value under the fair value option where the firm would otherwise apply the equity method of accounting of Equity securities, at fair value included Debt Instruments, at Fair Value. Debt instruments, at fair value primarily includes mezzanine, senior and distressed debt. The table below presents information about debt instruments, at fair value.
In the table above: Money market instruments primarily includes time deposits and investments in money market Other included THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Investments in Funds at Net Asset Value Per Share. Equity securities and debt instruments, at fair value include investments in funds that are measured at NAV of the investment fund. The firm uses NAV to measure the fair value of fund investments when (i) the fund investment does not have a readily determinable fair value and (ii) the NAV of the investment fund is calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of the investments at fair value. Substantially all of the firm’s investments in funds at NAV consist of investments in firm-sponsored private equity, credit, real estate and hedge funds where the firm co-invests with third-party investors.Private equity funds primarily invest in a broad range of industries worldwide, including leveraged buyouts, recapitalizations, growth investments and distressed investments. Credit funds generally invest in loans and other fixed income instruments and are focused on providing private high-yield capital for leveraged and management buyout transactions, recapitalizations, financings, refinancings, acquisitions and restructurings for private equity firms, private family companies and corporate issuers. Real estate funds invest globally, primarily in real estate companies, loan portfolios, debt recapitalizations and property. Private equity, credit and real estate funds are closed-end funds in which the firm’s investments are generally not eligible for redemption. Distributions will be received from these funds as the underlying assets are liquidated or distributed, the timing of which is uncertain.The firm also invests in hedge funds, primarily multi-disciplinary hedge funds that employ a fundamental bottom-up investment approach across various asset classes and strategies. The firm’s investments in hedge funds primarily include interests where the underlying assets are illiquid in nature, and proceeds from redemptions will not be received until the underlying assets are liquidated or distributed, the timing of which is uncertain.Private equity, hedge and real estate funds described above are primarily “covered funds” as defined in the Volcker Rule of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Board of Governors of the Federal Reserve System (FRB) extended the conformance period to July 2022 for the firm’s investments in, and relationships with, certain legacy “illiquid funds” (as defined in the Volcker Rule) that were in place prior to December 2013. This extension is applicable to substantially all of the firm’s remaining investments in, and relationships with, such covered funds. Substantially all of the credit funds described above are not covered funds. The table below presents the fair value of investments in funds at NAV and the related unfunded commitments.
Available-for-Sale Available-for-sale available-for-sale The table below presents information about available-for-sale
In the table above: Available-for-sale The firm sold available-for-sale THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The gross unrealized gains included in accumulated other comprehensive income/(loss) were Fair Value of Investments by Level The table below presents investments accounted for at fair value by level within the fair value hierarchy.
See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of investments. Significant Unobservable Inputs The table below presents the amount of level 3 investments, and ranges and weighted averages of significant unobservable inputs used to value such investments.
In the table above: Ranges represent the significant unobservable inputs that were used in the valuation of each type of investment. Weighted averages are calculated by weighting each input by the relative fair value of the investment. The ranges and weighted averages of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one investment. For example, the highest multiple for private equity securities is appropriate for valuing a specific private equity security but may not be appropriate for valuing any other private equity security. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 investments. Increases in yield, discount rate, capitalization rate or duration used in the valuation of level 3 investments would have resulted in a lower fair value measurement, while increases in recovery rate or multiples would have resulted in a higher fair value measurement as of both THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Corporate debt securities, securities backed by real estate and other debt obligations are valued using discounted cash flows, and equity securities are valued using market comparables and discounted cash flows. The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparables and discounted cash flows may be used together to determine fair value. Therefore, the level 3 balance encompasses both of these Level 3 Rollforward The table below presents a summary of the changes in fair value for level 3 investments.
In the table above: Changes in fair value are presented for all investments that are classified in level 3 as of the end of the period. Net unrealized gains/(losses) relates to investments that were still held at period-end.
The table below presents information, by product type, for investments included in the summary table above.
Level 3 Rollforward Commentary Three Months Ended The net realized and unrealized gains on level 3 investments of The net unrealized gains on level 3 investments for the three months ended
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Transfers into level 3 investments during the three months ended March 2021 primarily reflected transfers of certain corporate debt securities and private equity securities from level 2 (in each case, principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments). Transfers out of level 3 investments during the three months ended March 2021 primarily reflected transfers of certain private equity securities to level 2 (principally due to increased price transparency as a result of market evidence, including market transactions in these instruments) and transfers of certain corporate debt securities to level 2 (principally due to certain unobservable yield and duration inputs no longer being significant to the valuation of these instruments, and increased price transparency as a result of market evidence, including market transactions in these instruments). Three Months Ended March 2020. The net realized and unrealized losses on level 3 investments of $1.21 billion (reflecting $75 million of net realized gains and $1.28 billion of net unrealized losses) for the three months ended March 2020 included gains/(losses) of $(1.29) billion reported in other principal transactions and $77 million reported in interest income. The net unrealized losses on level 3 investments for the three months ended March 2020 primarily reflected losses on certain private equity securities and corporate debt securities (in each case, principally driven by weak corporate performance). Transfers into level 3 investments during the three months ended March 2020 primarily reflected transfers of certain corporate debt securities and private equity securities from level 2 (in each case, principally due to certain unobservable yield and duration inputs becoming significant to the valuation of these instruments and as a result of a lack of market evidence, including fewer transactions in these instruments). Transfers out of level 3 investments during the three months ended March 2020 primarily reflected transfers of certain private equity securities to level 2 (principally due to increased price transparency as a result of market evidence, including market transactions in these instruments). Held-to-Maturity Held-to-maturity The table below presents information about held-to-maturity
In the table above: Substantially all of the securities backed by real estate consist of securities backed by residential real estate. As these securities are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these securities been included in the firm’s fair value hierarchy, U.S. government obligations would have been classified in level 1 and The gross unrealized gains were
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Note 9. Loans Loans include (i) loans held for investment that are accounted for at amortized cost net of allowance for loan losses or at fair value under the fair value option and (ii) loans held for sale that are accounted for at the lower of cost or fair value. Interest on loans is recognized over the life of the loan and is recorded on an accrual basis. The table below presents information about loans.
The following is a description of the loan types in the table above: Corporate. Wealth Management. Commercial Real Estate. Residential Real Estate. Installment. Credit Cards. Other. Credit Quality Risk Assessment. The firm’s risk assessment process includes evaluating the credit quality of its loans. For corporate loans and a majority of wealth management, real estate and other loans, the firm performs credit reviews which include initial and ongoing analyses of its borrowers, resulting in an internal credit rating. A credit review is an independent analysis of the capacity and willingness of a borrower to meet its financial obligations and is performed on an annual basis or more frequently if circumstances change that indicate that a review may be necessary. The determination of internal credit ratings also incorporates assumptions with respect to the nature of and outlook for the borrower’s industry and the economic environment.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The table below presents gross loans by an internally determined public rating agency equivalent or other credit metrics and the concentration of secured and unsecured loans.
In the table Wealth management loans included in the other metrics/unrated category primarily consists of loans For installment and credit card loans included in the other metrics/unrated category, an important credit-quality indicator is the FICO credit score. FICO credit scores are periodically refreshed by the firm to assess the updated creditworthiness of the borrower. See “Vintage” below for information about installment and credit card loans by FICO credit scores. The firm also assigns a regulatory risk rating to its loans based on the definitions provided by the U.S. federal bank regulatory agencies. Total loans included pass/non-criticized.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Vintage. The
In the THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The table below presents gross installment loans by refreshed FICO credit scores and origination year and gross credit card loans by refreshed FICO credit scores.
In the table above, credit card loans consist of revolving lines of credit. Credit Concentrations. The table below presents the concentration of gross loans by region.
In the table EMEA represents Europe, Middle East and Africa.
The 19 % for technology, media & telecommunications (17% as of December 2020),16 % for diversified industrials (17% as of December 2020), 14% for funds (13% as of December 2020), 11% for natural resources & utilities (12% as of December 2020), and
Nonaccrual and Past Due Loans. Loans accounted for at amortized cost (other than credit card loans) are placed on nonaccrual status when it is probable that the firm will not collect all principal and interest due under the contractual terms, regardless of the delinquency status or if a loan is past due for 90 days or more, unless the loan is both well collateralized and in the process of collection. At that time, all accrued but uncollected interest is reversed against interest income and interest subsequently collected is recognized on a cash basis to the extent the loan balance is deemed collectible. Otherwise, all cash received is used to reduce the outstanding loan balance. A loan is considered past due when a principal or interest payment has not been made according to its contractual terms. Credit card loans are not placed on nonaccrual status and accrue interest until the loan is paid in full or is charged-off. In certain circumstances, the firm may modify the original terms of a loan agreement by granting a concession to a borrower experiencing financial difficulty, typically in the form of a modification of loan covenants, but may also include forbearance of interest or principal, payment extensions or interest rate reductions. These modifications, to the extent significant, are considered troubled debt restructurings (TDRs). Loan modifications that extend payment terms for a period of less than 90 days are generally considered insignificant and therefore not reported as TDRs. THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The table below presents information about past due loans.
The table below presents information about nonaccrual loans.
In the table above: Nonaccrual loans included 321 million as of 533 million as of December Loans that were 90 days or more past due and still accruing were not material as of both Nonaccrual loans included 315 million as of Allowance for Credit Losses The firm’s allowance for credit losses consists of the allowance for losses on loans and lending commitments accounted for at amortized cost. Loans and lending commitments accounted for at fair value or accounted for at the lower of cost or fair value are not subject to an allowance for credit losses. To determine the allowance for credit losses, the firm classifies its loans and lending commitments accounted for at amortized cost into wholesale and consumer portfolios. non-linear modeled approach. The forecasted economic scenarios consider a number of risk factors relevant to the wholesale and consumer portfolios described below. The firm applies judgment in weighing individual scenarios each quarter based on a variety of factors, including the firm’s internally derived economic outlook, market consensus, recent macroeconomic conditions and industry trends.The allowance for credit losses also includes qualitative components which allow management to reflect the uncertain nature of economic forecasting, capture uncertainty regarding model inputs, and account for model imprecision and concentration risk. THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Management’s estimate of credit losses entails judgment about loan collectability at the reporting dates, and there are uncertainties inherent in those judgments. The allowance for credit losses is subject to a governance process that involves review and approval by senior management within the firm’s independent risk oversight and control functions. Personnel within the firm’s independent risk oversight and control functions are responsible for forecasting the economic variables that underlie the economic scenarios that are used in the modeling of expected credit losses. While management uses the best information available to determine this estimate, future adjustments to the allowance may be necessary based on, among other things, changes in the economic environment or variances between actual results and the original assumptions used. The table below presents gross loans and lending commitments accounted for at amortized cost by portfolio.
In the table Wholesale loans included $3.11 billion as of March 2021 and $3.51 billion as of Credit card lending commitments included $24.54 billion as of March 2021 and $21.64 billion as of December 2020 related to credit card lines issued by the firm to consumers. These credit card lines are cancellable by the firm. Credit card lending commitments also included approximately $2.0 billion as of March 2021 related to a commitment to acquire the General Motors co-branded credit card portfolio. See Note 18 for further information about lending commitments. The following is a description of the methodology used to calculate the allowance for credit losses: Wholesale. The allowance for credit losses for wholesale loans and lending commitments that exhibit similar risk characteristics is measured using a modeled approach. These models determine the probability of default and loss given default based on various risk factors, including internal credit ratings, industry default and loss data, expected life, macroeconomic indicators, the borrower’s capacity to meet its financial obligations, the borrower’s country of risk and industry, loan seniority and collateral type. For lending commitments, the methodology also considers probability of drawdowns or funding. In addition, for loans backed by real estate, risk factors include the loan-to-value The allowance for loan losses for wholesale loans that do not share similar risk characteristics, such as nonaccrual loans or loans in a troubled debt restructuring, is calculated using the present value of expected future cash flows discounted at the loan’s original effective rate, the observable market price of the loan or the fair value of the collateral. Wholesale loans are charged-off against the allowance for loan losses when deemed to be uncollectible.Consumer. The allowance for credit losses for consumer loans that exhibit similar risk characteristics is calculated using a modeled approach which classifies consumer loans into pools based on borrower-related and exposure-related characteristics that differentiate a pool’s risk characteristics from other pools. The factors considered in determining a pool are generally consistent with the risk characteristics used for internal credit risk measurement and management and include key metrics, such as FICO credit scores, delinquency status, loan vintage and macroeconomic indicators. The most significant inputs to the forecast model for consumer loans include unemployment rates and delinquency rates. The expected life of revolving credit card loans is determined by modeling expected future draws and the timing and amount of repayments allocated to the funded balance. The firm
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The allowance for credit losses for consumer loans that do not share similar risk characteristics, such as loans in a troubled debt restructuring, is calculated using the present value of expected future cash flows discounted at the loan’s original effective rate. Installment loans are charged-off when they are 120 days past due. Credit card loans arecharged-off when they are 180 days past due.Allowance for Credit Losses Rollforward The table below presents information about the allowance for credit losses.
In the table above: Other represents the reduction to the allowance related to loans and lending commitments transferred to held for sale. The allowance ratio is calculated by dividing the allowance for loan losses by gross loans accounted for at amortized cost. The net charge-off ratio is calculated by dividing annualized net charge-offsThe beginning balance for the allowance for loan losses and allowance for losses on lending commitments for the three months ended March 2020 reflects the cumulative effect of measuring the allowance under the CECL standard as of January 1, 2020. The cumulative effect was an increase in the allowance for credit losses of $679 million, which consisted of (i) an increase in the allowance for loan losses of $727 million (an increase in the allowance for wholesale loans of $452 million, an increase in the allowance for consumer loans of $444 million and a decrease in the allowance for PCI loans of $169 million) and (ii) a decrease in the allowance for lending commitments of $48 million. As of December 2020, the allowance ratio was 2.7% for wholesale, 15.9% for consumer and 3.7% for total loans. The net charge-off ratio for the year ended December 2020 was 0.6% for wholesale, 4.2% for consumer and 0.9% for total loans.Allowance for Credit Losses Rollforward Commentary The allowance for credit losses The provision for credit losses for wholesale and consumer loans and lending commitments reflected When modeling expected credit losses, the firm employs a weighted, multivariate forecast, which includes baseline, adverse and favorable economic scenarios. As of (COVID-19) pandemic-related economic support programs provided by national governments.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The table below presents the forecasted range (across the baseline, adverse and favorable scenarios) of the U.S. unemployment and U.S. GDP growth rates used in the forecast model as of
In the table above: U.S. unemployment rate represents the rate forecasted as of the respective quarter-end. Growth/(decline) in U.S. GDP represents the change in quarterly U.S. GDP relative to the U.S. GDP for the fourth quarter of 2019 (pre-pandemic levels). Recovery of quarterly U.S. GDP to its pre-pandemic levels in the three scenarios ranges from the quarters ending While the U.S. unemployment and U.S. GDP growth rates are significant inputs to the forecast model, the model contemplates a variety of other inputs across a range of scenarios to provide a forecast of future economic conditions. Given the complex nature of the forecasting process, no single economic variable can be viewed in isolation and independently of other inputs. Net charge-offs for the The allowance for credit losses increased by The provision for credit losses for wholesale loans was seasoning of credit card loans.COVID-19 pandemic on the broader economic outlook. The provision for credit losses Net charge-offs for wholesale loans were primarily related to corporate loans Fair Value of Loans by Level The table below presents loans held for investment accounted for at fair value under the fair value option by level within the fair value hierarchy.
The See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of loans.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Significant Unobservable Inputs The table below presents the amount of level 3 loans, and ranges and weighted averages of significant unobservable inputs used to value such loans.
In the table above: Ranges represent the significant unobservable inputs that were used in the valuation of each type of loan. Weighted averages are calculated by weighting each input by the relative fair value of the loan. The ranges and weighted averages of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one loan. For example, the highest yield for residential real estate loans is appropriate for valuing a specific residential real estate loan but may not be appropriate for valuing any other residential real estate loan. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 loans. Increases in yield or duration used in the valuation of level 3 loans would have resulted in a lower fair value measurement, while increases in recovery rate would have resulted in a higher fair value measurement as of both Loans are valued using discounted cash flows. Level 3 Rollforward The table below presents a summary of the changes in fair value for level 3 loans.
In the table above: Changes in fair value are presented for loans that are classified in level 3 as of the end of the period. Net unrealized gains/(losses) relates to loans that were still held at period-end. Purchases includes originations and secondary purchases. Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a loan was transferred to level 3 during a reporting period, its entire gain or loss for the period is classified in level 3.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The table below presents information, by loan type, for loans included in the summary table above.
Level 3 Rollforward Commentary Three Months Ended March 2021. The net realized and unrealized gains on level 3 loans of $15 million (reflecting $26 million of net realized gains and $11 million of net unrealized losses) for the three months ended March 2021 included gains of $4 million reported in other principal transactions and $11 million reported in interest income. The drivers of the net unrealized losses on level 3 loans for the three months ended March 2021 were not material. Transfers into level 3 loans during the three months ended Transfers out of level 3 loans during the three months ended The net realized and unrealized The drivers of the net unrealized Transfers into level 3 loans during the The drivers of transfers out of level 3 loans during the Estimated Fair Value The table below presents the estimated fair value of loans that are not accounted for at fair value and in what level of the fair value hierarchy they would have been classified if they had been included in the firm’s fair value hierarchy.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Note 10. Fair Value Option Other Financial Assets and Liabilities at Fair Value In addition to trading assets and liabilities, and certain investments and loans, the firm accounts for certain of its other financial assets and liabilities at fair value, substantially all under the fair value option. The primary reasons for electing the fair value option are to: Reflect economic events in earnings on a timely basis; Mitigate volatility in earnings from using different measurement attributes (e.g., transfers of financial assets accounted for as financings are recorded at fair value, whereas the related secured financing would be recorded on an accrual basis absent electing the fair value option); and Address simplification and cost-benefit considerations (e.g., accounting for hybrid financial instruments at fair value in their entirety versus bifurcation of embedded derivatives and hedge accounting for debt hosts). Hybrid financial instruments are instruments that contain bifurcatable embedded derivatives and do not require settlement by physical delivery of nonfinancial assets (e.g., physical commodities). If the firm elects to bifurcate the embedded derivative from the associated debt, the derivative is accounted for at fair value and the host contract is accounted for at amortized cost, adjusted for the effective portion of any fair value hedges. If the firm does not elect to bifurcate, the entire hybrid financial instrument is accounted for at fair value under the fair value option. Other financial assets and liabilities accounted for at fair value under the fair value option include: Repurchase agreements and resale agreements; Substantially all other secured financings, including transfers of assets accounted for as financings; Certain unsecured short- and long-term borrowings, substantially all of which are hybrid financial instruments; Certain customer and other receivables, including certain margin loans; and Certain time deposits (deposits with no stated maturity are not eligible for a fair value option election), including structured certificates of deposit, which are hybrid financial instruments. Fair Value of Other Financial Assets and Liabilities by Level The table below presents, by level within the fair value hierarchy, other financial assets and liabilities at fair value, substantially all of which are accounted for at fair value under the fair value option.
In the table above, other financial assets are shown as positive amounts and other financial liabilities are shown as negative amounts. See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of other financial assets and liabilities. Significant Unobservable Inputs See below for information about the significant unobservable inputs used to value level 3 other financial assets and liabilities at fair value as of both THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Other Secured Financings. The ranges and weighted averages of significant unobservable inputs used to value level 3 other secured financings are presented below. These ranges and weighted averages exclude unobservable inputs that are only relevant to a single instrument, and therefore are not meaningful. As of
Duration: 1.4 to 7.8 years (weighted average: 4.0 years) As of December 2020:
Duration: Generally, increases in yield or duration, in isolation, would have resulted in a lower fair value measurement as of period-end. Due to the distinctive nature of each of level 3 other secured financings, the interrelationship of inputs is not necessarily uniform across such financings. See Note 11 for further information about other secured financings.Deposits, Unsecured Borrowings and Other Liabilities. Substantially all of the firm’s deposits, unsecured short- and long-term borrowings, and other liabilities that are classified in level 3 are hybrid financial instruments. As the significant unobservable inputs used to value hybrid financial instruments primarily relate to the embedded derivative component of these deposits, unsecured borrowings and other liabilities, these unobservable inputs are incorporated in the firm’s derivative disclosures in Note 7. See Note 13 for further information about deposits, Note 14 for further information about unsecured borrowings and Note 15 for further information about other liabilities. Repurchase Agreements. As of both Level 3 Rollforward The table below presents a summary of the changes in fair value for level 3 other financial liabilities accounted for at fair value.
In the table above: Changes in fair value are presented for all other financial liabilities that are classified in level 3 as of the end of the period. Net unrealized gains/(losses) relates to other financial liabilities that were still held at period-end. Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a financial liability was transferred to level 3 during a reporting period, its entire gain or loss for the period is classified in level 3. For level 3 other financial liabilities, increases are shown as negative amounts, while decreases are shown as positive amounts. Level 3 other financial liabilities are frequently economically hedged with trading assets and liabilities. Accordingly, gains or losses that are classified in level 3 can be partially offset by gains or losses attributable to level 1, 2 or 3 trading assets and liabilities. As a result, gains or 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 GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The table below presents information, by the consolidated balance sheet line items, for liabilities included in the summary table above.
Level 3 Rollforward Commentary Three Months Ended The net realized and unrealized The to changes inTransfers into level 3 other financial liabilities during the three months ended Transfers out of level 3 other financial liabilities during the three months ended March 2021 primarily reflected transfers of certain hybrid financial instruments included in unsecured short- and long-term borrowings to level 2 (principally due to increased price transparency of certain volatility and correlation inputs used to value these instruments) and transfers of certain other secured financings to level 2 (principally due to increased price transparency of certain yield and duration inputs used to value these instruments). Three Months Ended March 2020. The net realized and unrealized gains on level 3 other financial liabilities of $3.03 billion (reflecting $130 million of net realized losses and $3.16 billion of net unrealized gains) for the three months ended March 2020 included gains of $1.99 billion reported in market making and $64 million reported in other principal transactions in the consolidated statements of earnings, and $974 million reported in debt valuation adjustment in the consolidated statements of comprehensive income. The unrealized gains on level 3 other financial liabilities for the three months ended March 2020 primarily reflected gains on certain hybrid financial instruments included in unsecured long- and short-term borrowings (principally due to a decrease in global equity prices). Transfers into level 3 other financial liabilities during the three months ended March 2020 primarily reflected transfers of certain other secured financings and hybrid financial instruments included in unsecured short- and long-term borrowings from level 2 (in each case, principally due to reduced price transparency of certain volatility and correlation inputs used to value these instruments).THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Transfers out of level 3 other financial liabilities during the three months ended instruments).Gains and Losses on Other Financial Assets and Liabilities Accounted for at Fair Value Under the Fair Value Option The table below presents the gains and losses recognized in earnings as a result of the election to apply the fair value option to certain financial assets and liabilities.
In the table above: Gains/(losses) were substantially all included in market making. Gains/(losses) exclude contractual interest, which is included in interest income and interest expense, for all instruments other than hybrid financial instruments. See Note 23 for further information about interest income and interest expense. Gains/(losses) included in unsecured short- and long-term borrowings were substantially all related to the embedded derivative component of hybrid financial instruments for Other primarily consists of gains/(losses) on customer and other receivables, deposits, other secured financings and other liabilities. Other financial assets and liabilities at fair value are frequently economically hedged with trading assets and liabilities. Accordingly, gains or losses on such other financial assets and liabilities can be partially offset by gains or losses on trading assets and liabilities. As a result, gains or losses on other financial assets and liabilities do not necessarily represent the overall impact on the firm’s results of operations, liquidity or capital resources. See Note 8 for information about gains/(losses) on equity securities and Note 9 for information about gains/(losses) on loans which are accounted for at fair value under the fair value option. Gains/(losses) on trading assets and liabilities accounted for at fair value under the fair value option are included in market making. See Note 5 for further information about gains/(losses) from market making. Long-Term Debt Instruments The difference between the aggregate contractual principal amount and the related fair value of long-term other secured financings for which the fair value option was elected was not material as of both The non-principal-protected long-term borrowings.Debt Valuation Adjustment The firm calculates the fair value of financial liabilities for which the fair value option is elected by discounting future cash flows at a rate which incorporates the firm’s credit spreads. The table below presents information about the net debt valuation adjustment (DVA) gains/(losses) on financial liabilities for which the fair value option was elected.
In the table above: DVA (net of tax) is included in debt valuation adjustment in the consolidated statements of comprehensive income. The gains/(losses) reclassified to earnings from accumulated other comprehensive income/(loss) upon extinguishment of such financial liabilities were not material for
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Loans and Lending Commitments The table below presents the difference between the aggregate fair value and the aggregate contractual principal amount for loans (included in trading assets and loans
In the table above, the aggregate contractual principal amount of loans on nonaccrual status and/or more than 90 days past due (which excludes loans carried at zero fair value and considered uncollectible) exceeds the related fair value primarily because the firm regularly purchases loans, such as distressed loans, at values significantly below the contractual principal amounts. The fair value of unfunded lending commitments for which the fair value option was elected was a liability of Impact of Credit Spreads on Loans and Lending Commitments The estimated net gain/(loss) attributable to changes in instrument-specific credit spreads on loans and lending commitments for which the fair value option was elected was Note 11. Collateralized Agreements and Financings Collateralized agreements are resale agreements and securities borrowed. Collateralized financings are repurchase agreements, securities loaned and other secured financings. The firm enters into these transactions in order to, among other things, facilitate client activities, invest excess cash, acquire securities to cover short positions and finance certain firm activities. Collateralized agreements and financings are presented on a net-by-counterparty
Resale and Repurchase Agreements A resale agreement is a transaction in which the firm purchases financial instruments from a seller, typically in exchange for cash, and simultaneously enters into an agreement to resell the same or substantially the same financial instruments to the seller at a stated price plus accrued interest at a future date. A repurchase agreement is a transaction in which the firm sells financial instruments to a buyer, typically in exchange for cash, and simultaneously enters into an agreement to repurchase the same or substantially the same financial instruments from the buyer at a stated price plus accrued interest at a future date. Even though repurchase and resale agreements (including “repos- and reverses-to-maturity”) The firm receives financial instruments purchased under resale agreements and makes delivery of financial instruments sold under repurchase agreements. To mitigate credit exposure, the firm monitors the market value of these financial instruments on a daily basis, and delivers or obtains additional collateral due to changes in the market value of the financial instruments, as appropriate. For resale agreements, the firm typically requires collateral with a fair value approximately equal to the carrying value of the relevant assets in the consolidated balance sheets.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Securities Borrowed and Loaned Transactions In a securities borrowed transaction, the firm borrows securities from a counterparty in exchange for cash or securities. When the firm returns the securities, the counterparty returns the cash or securities. Interest is generally paid periodically over the life of the transaction. In a securities loaned transaction, the firm lends securities to a counterparty in exchange for cash or securities. When the counterparty returns the securities, the firm returns the cash or securities posted as collateral. Interest is generally paid periodically over the life of the transaction. The firm receives securities borrowed and makes delivery of securities loaned. To mitigate credit exposure, the firm monitors the market value of these securities on a daily basis, and delivers or obtains additional collateral due to changes in the market value of the securities, as appropriate. For securities borrowed transactions, the firm typically requires collateral with a fair value approximately equal to the carrying value of the securities borrowed transaction. Securities borrowed and loaned within FICC financing are recorded at fair value under the fair value option. See Note 10 for further information about securities borrowed and loaned accounted for at fair value. Offsetting Arrangements The table below presents resale and repurchase agreements and securities borrowed and loaned transactions included in the consolidated balance sheets, as well as the amounts not offset in the consolidated balance sheets.
In the table above: Substantially all of the gross carrying values of these arrangements are subject to enforceable netting agreements. Where the firm has received or posted collateral under credit support agreements, but has not yet determined such agreements are enforceable, the related collateral has not been netted. Amounts not offset includes counterparty netting that does not meet the criteria for netting under U.S. GAAP and the fair value of collateral received or posted subject to enforceable credit support agreements. Resale agreements and repurchase agreements are carried at fair value under the fair value option. See Note 4 for further information about the valuation techniques and significant inputs used to determine fair value. Securities borrowed included in the consolidated balance sheets of $31.55 billion as of March 2021 and $28.90 billion as of December 2020, and securities loaned of $3.68 billion as of March 2021 and $1.05 billion as of December 2020 were at fair value under the fair value option. See Note 10 for further information about securities borrowed and securities loaned accounted for at fair value.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Gross Carrying Value of Repurchase Agreements and Securities Loaned The table below presents the gross carrying value of repurchase agreements and securities loaned by class of collateral pledged.
The table below presents the gross carrying value of repurchase agreements and securities loaned by maturity.
In the table above: Repurchase agreements and securities loaned that are repayable prior to maturity at the option of the firm are reflected at their contractual maturity dates. Repurchase agreements and securities loaned that are redeemable prior to maturity at the option of the holder are reflected at the earliest dates such options become exercisable. Other Secured Financings In addition to repurchase agreements and securities loaned transactions, the firm funds certain assets through the use of other secured financings and pledges financial instruments and other assets as collateral in these transactions. These other secured financings include: Liabilities of consolidated VIEs; Transfers of assets accounted for as financings rather than sales (e.g., pledged commodities, bank loans and mortgage whole loans); and Other structured financing arrangements. Other secured financings included nonrecourse arrangements. Nonrecourse other secured financings were $11.55 billion as of $12.31 billion as of December The firm has elected to apply the fair value option to substantially all other secured financings because the use of fair value eliminates non-economic volatility in earnings that would arise from using different measurement attributes. See Note 10 for further information about other secured financings that are accounted for at fair value.Other secured financings that are not recorded at fair value are recorded based on the amount of cash received plus accrued interest, which generally approximates fair value. As these financings are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these financings been included in the firm’s fair value hierarchy, they would have been primarily classified in level 3 as of
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The table below presents information about other secured financings.
In the table above: Short-term other secured financings includes financings maturing within one year of the financial statement date and financings that are redeemable within one year of the financial statement date at the option of the holder. U.S. dollar-denominated short-term other secured financings at amortized cost had a weighted average interest rate of U.S. dollar-denominated long-term other secured financings at amortized cost had a weighted average interest rate of Non-U.S. dollar-denominated long-term other secured financings at amortized cost had a weighted average interest rate of 0.34% as of March 2021 and 0.40% as of December 2020. These rates include the effect of hedging activities.Total other secured financings included 2020.Other secured financings collateralized by financial instruments included The table below presents other secured financings by maturity.
In the table above: Long-term other secured financings that are repayable prior to maturity at the option of the firm are reflected at their contractual maturity dates. Long-term other secured financings that are redeemable prior to maturity at the option of the holder are reflected at the earliest dates such options become exercisable.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Collateral Received and Pledged The firm receives cash and securities (e.g., U.S. government and agency obligations, other sovereign and corporate obligations, as well as equity securities) as collateral, primarily in connection with resale agreements, securities borrowed, derivative transactions and customer margin loans. The firm obtains cash and securities as collateral on an upfront or contingent basis for derivative instruments and collateralized agreements to reduce its credit exposure to individual counterparties. In many cases, the firm is permitted to deliver or repledge financial instruments received as collateral when entering into repurchase agreements and securities loaned transactions, primarily in connection with secured client financing activities. The firm is also permitted to deliver or repledge these financial instruments in connection with other secured financings, collateralized derivative transactions and firm or customer settlement requirements. The firm also pledges certain trading assets in connection with repurchase agreements, securities loaned transactions and other secured financings, and other assets (substantially all real estate and cash) in connection with other secured financings to counterparties who may or may not have the right to deliver or repledge them. The table below presents financial instruments at fair value received as collateral that were available to be delivered or repledged and were delivered or repledged.
The table below presents information about assets pledged.
The firm also segregates securities for regulatory and other purposes related to client activity. Such securities are segregated from trading assets and investments, as well as from securities received as collateral under resale agreements and securities borrowed transactions. Securities segregated by the firm were Note 12. Other Assets The table below presents other assets by type.
Property, Leasehold Improvements and Equipment Property, leasehold improvements and equipment is net of accumulated depreciation and amortization of The firm tests property, leasehold improvements and equipment for impairment There were no material impairments during both the three months ended
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Goodwill Goodwill is the cost of acquired companies in excess of the fair value of net assets, including identifiable intangible assets, at the acquisition date. The table below presents the carrying value of goodwill by reporting unit.
Goodwill is assessed for impairment annually in the fourth quarter or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment. The quantitative goodwill test compares the estimated fair value of each reporting unit with its estimated net book value (including goodwill and identifiable intangible assets). If the reporting unit’s estimated fair value exceeds its estimated net book value, goodwill is not impaired. An impairment is recognized if the estimated fair value of a reporting unit is less than its estimated net book value. To estimate the fair value of each reporting unit, other than Consumer banking, a relative value technique is used because the firm believes market participants would use this technique to value these reporting units. The relative value technique applies observable price-to-earnings price-to-book In the fourth quarter of As a result of There were no events or changes in circumstances during the
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to (Unaudited) Identifiable Intangible The table below presents identifiable intangible assets by reporting unit and type.
During the three months ended March 2021, the amount of intangible assets acquired by the firm was not material. The firm acquired Substantially all of the firm’s identifiable intangible assets have finite useful lives and are amortized over their estimated useful lives generally using the straight-line method. The tables below present information about the amortization of identifiable intangible assets.
The firm tests intangible assets for impairment Operating Lease Right-of-Use The firm enters into operating leases for real estate, office equipment and other assets, substantially all of which are used in connection with its operations. For leases longer than one year, the firm recognizes a right-of-use An operating lease right-of-use based on the operating lease liability, adjusted for initial direct costs, lease incentives and amounts paid at or prior to lease commencement. This amount is then amortized over the lease term. The firm recognized right-of-use non-cash transactions for leases entered into or assumed. See Note 15 for information about operating lease liabilities.For leases where the firm will derive no economic benefit from leased space that it has vacated or where the firm has shortened the term of a lease when space is no longer needed, the firm will record an impairment or accelerated amortization of right-of-use
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Miscellaneous Receivables and Other Miscellaneous receivables and other included: Investments in qualified affordable housing projects of Assets classified as held for sale of Note 13. Deposits The table below presents the types and sources of deposits.
In the table above: Substantially all deposits are interest-bearing. Savings and demand accounts consist of money market deposit accounts, negotiable order of withdrawal accounts and demand deposit accounts that have no stated maturity or expiration date. Time deposits included Time deposits had a weighted average maturity of approximately 1.1 years as of March 2021 and 1.3 years as of Deposit sweep programs Transaction banking deposits consists of deposits that the firm raised through its cash management services business for corporate and other institutional clients. Other deposits represent deposits from institutional clients. Deposits insured by the FDIC were Deposits insured by 2020.non-U.S. insurance programs were The table below presents the location of deposits.
In the table above, U.S. deposits were held at Goldman Sachs Bank USA (GS Bank USA) and substantially all non-U.S. deposits were held at Goldman Sachs International Bank (GSIB).The table below presents maturities of time deposits held in U.S. and non-U.S. offices.
As of non-U.S. offices included The firm’s savings and demand deposits are recorded based on the amount of cash received plus accrued interest, which approximates fair value. In addition, the firm designates certain derivatives as fair value hedges to convert a portion of its time deposits not accounted for at fair value from fixed-rate obligations into floating-rate obligations. The carrying value of time deposits not accounted for at fair value approximated fair value as of both
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Note 14. Unsecured Borrowings The table below presents information about unsecured borrowings.
Unsecured Short-Term Borrowings Unsecured short-term borrowings includes the portion of unsecured long-term borrowings maturing within one year of the financial statement date and unsecured long-term borrowings that are redeemable within one year of the financial statement date at the option of the holder. The firm accounts for certain hybrid financial instruments at fair value under the fair value option. See Note 10 for further information about unsecured short-term borrowings that are accounted for at fair value. In addition, the firm designates certain derivatives as fair value hedges to convert a portion of its unsecured short-term borrowings not accounted for at fair value from fixed-rate obligations into floating-rate obligations. The carrying value of unsecured short-term borrowings that are not recorded at fair value generally approximates fair value due to the short-term nature of the obligations. As these unsecured short-term borrowings are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these borrowings been included in the firm’s fair value hierarchy, substantially all would have been classified in level 2 as of both The table below presents information about unsecured short-term borrowings.
In the table above, the weighted average interest rates for these borrowings include the effect of hedging activities and exclude unsecured short-term borrowings accounted for at fair value under the fair value option. See Note 7 for further information about hedging activities. Unsecured Long-Term The table below presents information about unsecured long-term borrowings.
In the table above:
Floating-rate obligations includes equity-linked, credit-linked and indexed instruments. Floating interest rates are generally based on LIBOR or Euro Interbank Offered Rate. U.S. dollar-denominated debt had interest rates ranging from Non-U.S. dollar-denominated debt had interest rates ranging from 0.13% to 13.00% (with a weighted average rate of The table below presents unsecured long-term borrowings by maturity.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) In the table above: Unsecured long-term borrowings maturing within one year of the financial statement date and unsecured long-term borrowings that are redeemable within one year of the financial statement date at the option of the holder are excluded as they are included in unsecured short-term borrowings. Unsecured long-term borrowings that are repayable prior to maturity at the option of the firm are reflected at their contractual maturity dates. Unsecured long-term borrowings that are redeemable prior to maturity at the option of the holder are reflected at the earliest dates such options become exercisable. Unsecured long-term borrowings included The firm designates certain derivatives as fair value hedges to convert a portion of fixed-rate unsecured long-term borrowings not accounted for at fair value into floating-rate obligations. See Note 7 for further information about hedging activities. The table below presents unsecured long-term borrowings, after giving effect to such hedging activities.
In the table above, the aggregate amounts of unsecured long-term borrowings had weighted average interest rates of The carrying value of unsecured long-term borrowings for which the firm did not elect the fair value option Subordinated Borrowings Unsecured long-term borrowings includes subordinated debt and junior subordinated debt. Subordinated debt that matures within one year is included in unsecured short-term borrowings. Junior subordinated debt is junior in right of payment to other subordinated borrowings, which are junior to senior borrowings. The table below presents information about subordinated borrowings.
In the table above, the rate is the weighted average interest rate for these borrowings (excluding borrowings accounted for at fair value under the fair value option), including the effect of fair value hedges used to convert fixed-rate obligations into floating-rate obligations. See Note 7 for further information about hedging activities.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Junior Subordinated Debt In 2004, Group Inc. issued $2.84 billion of junior subordinated debt to Goldman Sachs Capital I (Trust), a Delaware statutory trust. The Trust issued $2.75 billion of guaranteed preferred beneficial interests (Trust Preferred securities) to third parties and $85 million of common beneficial interests to Group Inc. As of The firm pays interest semi-annually on the junior subordinated debt at an annual rate of 6.345% and the debt matures on February 15, 2034. The coupon rate and the payment dates applicable to the beneficial interests are the same as the interest rate and payment dates for the junior subordinated debt. The firm has the right, from time to time, to defer payment of interest on the junior subordinated debt, and therefore cause payment on the Trust’s preferred beneficial interests to be deferred, in each case up to ten consecutive semi-annual periods. During any such deferral period, the firm will not be permitted to, among other things, pay dividends on or make certain repurchases of its common stock. The Trust is not permitted to pay any distributions on the common beneficial interests held by Group Inc. unless all dividends payable on the preferred beneficial interests have been paid in full. The firm has covenanted in favor of the holders of Group Inc.’s 6.345% junior subordinated debt due February 15, 2034, that, subject to certain exceptions, the firm will not redeem or purchase the capital securities issued by Goldman Sachs Capital II and Goldman Sachs Capital III (APEX Trusts) or shares of Group Inc.’s Perpetual Non-Cumulative Preferred Stock, Series E (Series E Preferred Stock), PerpetualNon-Cumulative Preferred Stock, Series F (Series F Preferred Stock) or PerpetualNon-Cumulative Preferred Stock, Series O, if the redemption or purchase results in less than $253 million aggregate liquidation preference of that series outstanding, prior to specified dates in 2022 for a price that exceeds a maximum amount determined by reference to the net cash proceeds that the firm has received from the sale of qualifying securities.The APEX Trusts hold Group Inc.’s Series E Preferred Stock and Series F Preferred Stock. These trusts are Delaware statutory trusts sponsored by the firm and wholly-owned finance subsidiaries of the firm for regulatory and legal purposes but are not consolidated for accounting purposes. Note 15. Other Liabilities The table below presents other liabilities by type.
In the table above, accrued expenses and other includes contract liabilities, which represent consideration received by the firm in connection with its contracts with clients, prior to providing the service. As of both Operating Lease Liabilities For leases longer than one year, the firm recognizes a right-of-use right-of-use The table below presents information about operating lease liabilities.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) In the table above, the weighted average discount rate represents the firm’s incremental borrowing rate as of January 2019 for operating leases existing on the date of adoption of ASU No. 2016-02, “Leases (Topic 842),” and at the lease inception date for leases entered into subsequent to the adoption of this ASU.Operating lease costs were Lease payments relating to operating lease arrangements that were signed, but had not yet commenced were $428 million as of Note 16. Securitization Activities The firm securitizes residential and commercial mortgages, corporate bonds, loans and other types of financial assets by selling these assets to securitization vehicles (e.g., trusts, corporate entities and limited liability companies) or through a resecuritization. The firm acts as underwriter of the beneficial interests that are sold to investors. The firm’s residential mortgage securitizations are primarily in connection with government agency securitizations. The firm accounts for a securitization as a sale when it has relinquished control over the transferred financial assets. Prior to securitization, the firm generally accounts for assets pending transfer at fair value and therefore does not typically recognize significant gains or losses upon the transfer of assets. Net revenues from underwriting activities are recognized in connection with the sales of the underlying beneficial interests to investors. The firm generally receives cash in exchange for the transferred assets but may also have continuing involvement with the transferred financial assets, including ownership of beneficial interests in securitized financial assets, primarily in the form of debt instruments. The firm may also purchase senior or subordinated securities issued by securitization vehicles (which are typically VIEs) in connection with secondary market-making activities. The primary risks included in beneficial interests and other interests from the firm’s continuing involvement with securitization vehicles are the performance of the underlying collateral, the position of the firm’s investment in the capital structure of the securitization vehicle and the market yield for the security. Interests accounted for at fair value are primarily classified in level 2 of the fair value hierarchy. Interests not accounted for at fair value are carried at amounts that approximate fair value. See Notes 4 through 10 for further information about fair value measurements. The table below presents the amount of financial assets securitized and the cash flows received on retained interests in securitization entities in which the firm had continuing involvement as of the end of the period.
In the table above, financial assets securitized included assets of non-cash exchange for loans and investments.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The table below presents information about nonconsolidated securitization entities to which the firm sold assets and had continuing involvement as of the end of the period.
In the table above: CMOs represents collateralized mortgage obligations. The outstanding principal amount is presented for the purpose of providing information about the size of the securitization entities and is not representative of the firm’s risk of loss. The firm’s risk of loss from retained or purchased interests is limited to the carrying value of these interests. Purchased interests represent senior and subordinated interests, purchased in connection with secondary market-making activities, in securitization entities in which the firm also holds retained interests. Substantially all of the total outstanding principal amount and total retained interests relate to securitizations during The fair value of retained interests was In addition to the interests in the table above, the firm had other continuing involvement in the form of derivative transactions and commitments with certain nonconsolidated VIEs. The carrying value of these derivatives and commitments was a net asset of The table below presents information about the weighted average key economic assumptions used in measuring the fair value of mortgage-backed retained interests.
In the table above: Amounts do not reflect the benefit of other financial instruments that are held to mitigate risks inherent in these retained interests. Changes in fair value based on an adverse variation in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value is not usually linear. The impact of a change in a particular assumption is calculated independently of changes in any other assumption. In practice, simultaneous changes in assumptions might magnify or counteract the sensitivities disclosed above. The constant prepayment rate is included only for positions for which it is a key assumption in the determination of fair value. The discount rate for retained interests that relate to U.S. government agency-issued CMOs does not include any credit loss. Expected credit loss assumptions are reflected in the discount rate for the remainder of retained interests. The firm has other retained interests not reflected in the table above with a fair value of
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Note 17. Variable Interest Entities A variable interest in a VIE is an investment (e.g., debt or equity) or other interest (e.g., derivatives or loans and lending commitments) that will absorb portions of the VIE’s expected losses and/or receive portions of the VIE’s expected residual returns. The firm’s variable interests in VIEs include senior and subordinated debt; loans and lending commitments; limited and general partnership interests; preferred and common equity; derivatives that may include foreign currency, equity and/or credit risk; guarantees; and certain of the fees the firm receives from investment funds. Certain interest rate, foreign currency and credit derivatives the firm enters into with VIEs are not variable interests because they create, rather than absorb, risk. VIEs generally finance the purchase of assets by issuing debt and equity securities that are either collateralized by or indexed to the assets held by the VIE. The debt and equity securities issued by a VIE may include tranches of varying levels of subordination. The firm’s involvement with VIEs includes securitization of financial assets, as described in Note 16, and investments in and loans to other types of VIEs, as described below. See Note 3 for the firm’s consolidation policies, including the definition of a VIE. VIE Consolidation Analysis The enterprise with a controlling financial interest in a VIE is known as the primary beneficiary and consolidates the VIE. The firm determines whether it is the primary beneficiary of a VIE by performing an analysis that principally considers: Which variable interest holder has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; Which variable interest holder has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE; The VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders; The VIE’s capital structure; The terms between the VIE and its variable interest holders and other parties involved with the VIE; and Related-party relationships. The firm reassesses its evaluation of whether an entity is a VIE when certain reconsideration events occur. The firm reassesses its determination of whether it is the primary beneficiary of a VIE on an ongoing basis based on current facts and circumstances. VIE Activities The firm is principally involved with VIEs through the following business activities: Mortgage-Backed VIEs. The firm sells residential and commercial mortgage loans and securities to mortgage-backed VIEs and may retain beneficial interests in the assets sold to these VIEs. The firm purchases and sells beneficial interests issued by mortgage-backed VIEs in connection with market-making activities. In addition, the firm may enter into derivatives with certain of these VIEs, primarily interest rate swaps, which are typically not variable interests. The firm generally enters into derivatives with other counterparties to mitigate its risk. Real Estate, Credit- and Power-Related and Other Investing VIEs. The firm purchases equity and debt securities issued by and makes loans to VIEs that hold real estate, performing and nonperforming debt, distressed loans, power-related assets and equity securities. The firm generally does not sell assets to, or enter into derivatives with, these VIEs. Corporate Debt and Other Asset-Backed VIEs. The firm structures VIEs that issue notes to clients, purchases and sells beneficial interests issued by corporate debt and other asset-backed VIEs in connection with market-making activities, and makes loans to VIEs that warehouse corporate debt. Certain of these VIEs synthetically create the exposure for the beneficial interests they issue by entering into credit derivatives with the firm, rather than purchasing the underlying assets. In addition, the firm may enter into derivatives, such as total return swaps, with certain corporate debt and other asset-backed VIEs, under which the firm pays the VIE a return due to the beneficial interest holders and receives the return on the collateral owned by the VIE. The collateral owned by these VIEs is primarily other asset-backed loans and securities. The firm may be removed as the total return swap counterparty and may enter into derivatives with other counterparties to mitigate its risk related to these swaps. The firm may sell assets to the corporate debt and other asset-backed VIEs it structures.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Principal-Protected Note VIEs. The firm structures VIEs that issue principal-protected notes to clients. These VIEs own portfolios of assets, principally with exposure to hedge funds. Substantially all of the principal protection on the notes issued by these VIEs is provided by the asset portfolio rebalancing that is required under the terms of the notes. The firm enters into total return swaps with these VIEs under which the firm pays the VIE the return due to the principal-protected note holders and receives the return on the assets owned by the VIE. The firm may enter into derivatives with other counterparties to mitigate its risk. The firm also obtains funding through these VIEs. Investments in Funds. The firm makes equity investments in certain investment fund VIEs it manages and is entitled to receive fees from these VIEs. The firm has generally not sold assets to, or entered into derivatives with, these VIEs. Nonconsolidated VIEs The table below presents a summary of the nonconsolidated VIEs in which the firm holds variable interests.
In the table above: The nature of the firm’s variable interests is described in the rows under maximum exposure to loss. The firm’s exposure to the obligations of VIEs is generally limited to its interests in these entities. In certain instances, the firm provides guarantees, including derivative guarantees, to VIEs or holders of variable interests in VIEs. The maximum exposure to loss excludes the benefit of offsetting financial instruments that are held to mitigate the risks associated with these variable interests. The maximum exposure to loss from retained interests, purchased interests, and debt and equity is the carrying value of these interests. The maximum exposure to loss from commitments and guarantees, and derivatives is the notional amount, which does not represent anticipated losses and has not been reduced by unrealized losses. As a result, the maximum exposure to loss exceeds liabilities recorded for commitments and guarantees, and derivatives. The table below presents information, by principal business activity, for nonconsolidated VIEs included in the summary table above.
As of both March 2021 and December 2020, the carrying values of the firm’s variable interests in nonconsolidated VIEs are included in the consolidated balance sheets as follows:
Mortgage-backed: Assets were primarily included in trading assets and loans. Real estate, credit- and power-related and other investing: Assets were primarily included in investments and loans and liabilities were included in trading liabilities and other liabilities. Corporate debt and other asset-backed: Assets were included in loans and trading assets, and liabilities were included in trading liabilities. Investments in funds: Assets were included in investments.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Consolidated VIEs The table below presents a summary of the carrying value and balance sheet classification of assets and liabilities in consolidated VIEs.
In the table above: Assets and liabilities are presented net of intercompany eliminations and exclude the benefit of offsetting financial instruments that are held to mitigate the risks associated with the firm’s variable interests. VIEs in which the firm holds a majority voting interest are excluded if (i) the VIE meets the definition of a business and (ii) the VIE’s assets can be used for purposes other than the settlement of its obligations. Substantially all assets can only be used to settle obligations of the VIE. The table below presents information, by principal business activity, for consolidated VIEs included in the summary table above.
In the table above: The majority of the assets in principal-protected notes VIEs are intercompany and are eliminated in consolidation. Creditors and beneficial interest holders of real estate, credit-related and other investing VIEs do not have recourse to the general credit of the firm.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Note 18. Commitments, Contingencies and Guarantees Commitments The table below presents commitments by type.
The table below presents commitments by expiration.
Lending Commitments The firm’s commercial and warehouse financing lending commitments are agreements to lend with fixed termination dates and depend on the satisfaction of all contractual conditions to borrowing. These commitments are presented net of amounts syndicated to third parties. The total commitment amount does not necessarily reflect actual future cash flows because the firm may syndicate The table below presents information about lending commitments.
In the table above: Held for investment lending commitments are accounted for at amortized cost. The carrying value of lending commitments was a liability of Held for sale lending commitments are accounted for at the lower of cost or fair value. The carrying value of lending commitments held for sale was a liability of Gains or losses related to lending commitments at fair value, if any, are generally recorded net of any fees in other principal transactions.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Commercial Lending. The firm’s commercial lending commitments were primarily extended to investment-grade corporate borrowers. Such commitments primarily included To mitigate the credit risk associated with the firm’s commercial lending activities, the firm obtains credit protection on certain loans and lending commitments through credit default swaps, both single-name and index-based contracts, and through the issuance of credit-linked notes. In addition, Sumitomo Mitsui Financial Group, Inc. Warehouse Financing. The firm provides financing to clients who warehouse financial assets. These arrangements are secured by the warehoused assets, primarily consisting of residential real estate, consumer and corporate loans. Credit Cards. The firm’s credit card lending commitments approximately $2.0 billion relating to the firm’s commitment to acquire a credit card portfolio in connection with its agreement, in January 2021, to form aco-branded credit card relationship with General Motors. This amount represents the portfolio’s outstanding credit card loan balance as of March 2021; however, the final amount will depend on the outstanding balance of credit card loans at the time that the acquisition closes, which is expected to be in the third quarter of 2021.Risk Participations The firm also risk participates certain of its commercial lending commitments to other financial institutions. In the event of a risk participant’s default, the firm will be responsible to fund the borrower. Collateralized Agreement Commitments/ Collateralized Financing Commitments Collateralized agreement commitments includes forward starting resale and securities borrowing agreements, and collateralized financing commitments includes forward starting repurchase and secured lending agreements that settle at a future date, generally within three business days. Collateralized agreement commitments also includes transactions where the firm has entered into commitments to provide contingent financing to its clients and counterparties through resale agreements. The firm’s funding of these commitments depends on the satisfaction of all contractual conditions to the resale agreement and these commitments can expire unused. Letters of Credit The firm has commitments under letters of credit issued by various banks which the firm provides to counterparties in lieu of securities or cash to satisfy various collateral and margin deposit requirements. Investment Commitments Investment commitments includes commitments to invest in private equity, real estate and other assets directly and through funds that the firm raises and manages. Investment commitments included Contingencies Legal Proceedings. See Note 27 for information about legal proceedings, including certain mortgage-related matters.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Other Contingencies. In connection with the settlement agreement with the Residential Mortgage-Backed Securities Working Group of the U.S. Financial Fraud Enforcement Task Force, the firm agreed to provide $1.80 billion in consumer relief by January 2021. Guarantees The table below presents derivatives that meet the definition of a guarantee, securities lending
In the table above: The maximum payout is based on the notional amount of the contract and does not represent anticipated losses. Amounts exclude certain commitments to issue standby letters of credit that are included in lending commitments. See the tables in “Commitments” above for a summary of the firm’s commitments. The carrying value for derivatives included derivative assets of Derivative Guarantees. The firm enters into various derivatives that meet the definition of a guarantee under U.S. GAAP, including written equity and commodity put options, written currency contracts and interest rate caps, floors and swaptions. These derivatives are risk managed together with derivatives that do not meet the definition of a guarantee, and therefore the amounts in the table above do not reflect the firm’s overall risk related to derivative activities. Disclosures about derivatives are not required if they may be cash settled and the firm has no basis to conclude it is probable that the counterparties held the underlying instruments at inception of the contract. The firm has concluded that these conditions have been met for certain large, internationally active commercial and investment bank counterparties, central clearing counterparties, hedge funds and certain other counterparties. Accordingly, the firm has not included such contracts in the table above. See Note 7 for information about credit derivatives that meet the definition of a guarantee, which are not included in the table above. Derivatives are accounted for at fair value and therefore the carrying value is considered the best indication of payment/performance risk for individual contracts. However, the carrying values in the table above exclude the effect of counterparty and cash collateral netting. Securities Lending As an agency lender, the firm indemnifies most of its securities lending customers against losses incurred in the event that borrowers do not return securities and the collateral held is insufficient to cover the market value of the securities borrowed. The maximum payout of such indemnifications was $18.93 billion as of March 2021 and $19.86 billion as of December 2020. Collateral held by the lenders in connection with securities lending indemnifications was
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) As a sponsoring member of the Government Securities Division of the Fixed Income Clearing Corporation, the firm guarantees the performance of its sponsored member clients to the Fixed Income Clearing Corporation in connection with certain resale and repurchase agreements. To minimize potential losses on such guarantees, the firm obtains a security interest in the collateral that the sponsored client placed with the Fixed Income Clearing Corporation. Therefore, the risk of loss on such guarantees is minimal. There were 0 amounts outstanding under the guarantee as of March 2021. As of December 2020, the maximum payout on this guarantee was $1.49 billion and the related collateral held was $1.50 billion. Other Financial Guarantees. In the ordinary course of business, the firm provides other financial guarantees of the obligations of third parties (e.g., standby letters of credit and other guarantees to enable clients to complete transactions and fund-related guarantees). These guarantees represent obligations to make payments to beneficiaries if the guaranteed party fails to fulfill its obligation under a contractual arrangement with that beneficiary. Other financial guarantees also include a guarantee that the firm has provided to the Government of Malaysia that it will receive at least $1.4 billion in assets and proceeds from assets seized by governmental authorities around the world related to 1Malaysia Development Berhad, a sovereign wealth fund in Malaysia (1MDB). The firm evaluates progress toward satisfying this obligation based on information that it receives on a semi-annual basis, expected in February and August. As of March 2021, approximately $220 million in assets or proceeds from assets has been returned to the Government of Malaysia in connection with this guarantee, which must be satisfied by August 18, 2025. Any amounts paid by the firm under this guarantee would be subject to reimbursement in the event the assets or proceeds received by the Government of Malaysia through August 18, 2028 exceeds $1.4 billion. See Note 27 for further information about matters related to 1MDB.Guarantees of Securities Issued by Trusts. The firm has established trusts, including Goldman Sachs Capital I, the APEX Trusts and other entities, for the limited purpose of issuing securities to third parties, lending the proceeds to the firm and entering into contractual arrangements with the firm and third parties related to this purpose. The firm does not consolidate these entities. See Note 14 for further information about the transactions involving Goldman Sachs Capital I and the APEX Trusts. The firm effectively provides for the full and unconditional guarantee of the securities issued by these entities. Timely payment by the firm of amounts due to these entities under the guarantee, borrowing, preferred stock and related contractual arrangements will be sufficient to cover payments due on the securities issued by these entities. No subsidiary of Group Inc. guarantees the securities of Goldman Sachs Capital I or the APEX Trusts. 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 firm to make payments related to these entities other than those required under the terms of the guarantee, borrowing, preferred stock and related contractual arrangements and in connection with certain expenses incurred by these entities. Indemnities and Guarantees of Service Providers. In the ordinary course of business, the firm indemnifies and guarantees certain service providers, such as clearing and custody agents, trustees and administrators, against specified potential losses in connection with their acting as an agent of, or providing services to, the firm or its affiliates. The firm may also be liable to some clients or other parties for losses arising from its custodial role or caused by acts or omissions of third-party service providers, including sub-custodians and third-party brokers. In certain cases, the firm has the right to seek indemnification from these third-party service providers for certain relevant losses incurred by the firm. In addition, the firm is a member of payment, clearing and settlement networks, as well as securities exchanges around the world that may require the firm to meet the obligations of such networks and exchanges in the event of member defaults and other loss scenarios.In connection with the firm’s prime brokerage and clearing businesses, the firm agrees to clear and settle on behalf of its clients the transactions entered into by them with other brokerage firms. The firm’s obligations in respect of such transactions are secured by the assets in the client’s account, as well as any proceeds received from the transactions cleared and settled by the firm on behalf of the client. In connection with joint venture investments, the firm may issue loan guarantees under which it may be liable in the event of fraud, misappropriation, environmental liabilities and certain other matters involving the borrower. The firm is unable to develop an estimate of the maximum payout under these guarantees and indemnifications. However, management believes that it is unlikely the firm will have to make any material payments under these arrangements, and no material liabilities related to these guarantees and indemnifications have been recognized in the consolidated balance sheets as of both
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Other Representations, Warranties and Indemnifications. The firm provides representations and warranties to counterparties in connection with a variety of commercial transactions and occasionally indemnifies them against potential losses caused by the breach of those representations and warranties. The firm may also provide indemnifications protecting against changes in or adverse application of certain U.S. tax laws in connection with ordinary-course transactions, such as securities issuances, borrowings or derivatives. In addition, the firm may provide indemnifications to some counterparties to protect them in the event additional taxes are owed or payments are withheld, due either to a change in or an adverse application of certain non-U.S. tax laws.These indemnifications generally are standard contractual terms and are entered into in the ordinary course of business. Generally, there are no stated or notional amounts included in these indemnifications, and the contingencies triggering the obligation to indemnify are not expected to occur. The firm is unable to develop an estimate of the maximum payout under these guarantees and indemnifications. However, management believes that it is unlikely the firm will have to make any material payments under these arrangements, and no material liabilities related to these arrangements have been recognized in the consolidated balance sheets as of both Guarantees of Subsidiaries. Group Inc. is the entity that fully and unconditionally guarantees the securities issued by GS Finance Corp., a wholly-owned finance subsidiary of the firm. Group Inc. has guaranteed the payment obligations of Goldman Sachs & Co. LLC (GS&Co.) Group Inc. guarantees many of the obligations of its other consolidated subsidiaries on a transaction-by-transaction Note 19. Shareholders’ Equity Common Equity As of both The firm’s share repurchase program is intended to help maintain the appropriate level of common equity. The share repurchase program is effected primarily through regular open-market purchases (which may include repurchase plans designed to comply with Rule 10b5-1 and accelerated share repurchases), the amounts and timing of which are determined primarily by the firm’s current and projected capital position, and capital deployment opportunities, but which may also be influenced by general market conditions and the prevailing price and trading volumes of the firm’s common stock. The firm suspended stock repurchases during the first quarter of 2020 and, The table below presents information about common stock repurchases.
Pursuant to the terms of certain share-based compensation plans, employees may remit shares to the firm or the firm may cancel share-based awards to satisfy statutory employee tax withholding requirements. Under these plans, during the The table below presents common stock dividends declared.
On
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited)
Preferred Equity The tables below present information about the perpetual preferred stock issued and outstanding as of March 2021.
In the tables above: All shares have a par value of $0.01 per share and, where applicable, each share is represented by the specified number of depositary shares. The earliest redemption date represents the date on which each share of non-cumulative Preferred Stock is redeemable at the firm’s option.Prior to redeeming preferred stock, the firm must receive approval from the FRB. The redemption price per share for Series A through F and Series Q through S Preferred Stock is the liquidation preference plus declared and unpaid dividends. The redemption price per share for Series J through P Preferred Stock is the liquidation preference plus accrued and unpaid dividends. Each share of Series E and Series F Preferred Stock is redeemable at the firm’s option, subject to certain covenant restrictions governing the firm’s ability to redeem the preferred stock without issuing common stock or other instruments with equity-like characteristics. See Note 14 for information about the replacement capital covenants applicable to the Series E and Series F Preferred Stock. All series of preferred stock are pari passu and have a preference over the firm’s common stock on liquidation. The firm’s ability to declare or pay dividends on, or purchase, redeem or otherwise acquire, its common stock is subject to certain restrictions in the event that the firm fails to pay or set aside full dividends on the preferred stock for the latest completed dividend period. In April 2021, the firm issued 27,000 shares of Series T 3.80% Fixed-Rate Reset Non-Cumulative Preferred Stock (Series T Preferred Stock). Each share of Series T Preferred Stock issued and outstanding has a liquidation preference of $25,000 , is represented by 25 depositary shares and is redeemable at the firm’s option beginning May 10, 2026 at a redemption price equal to $25,000 plus declared and unpaid dividends. Dividends on Series T Preferred Stock, if declared, are payablesemi-annually at (i) 3.80% per annum from the issuance date to, but excluding May 10, 2026 and, thereafter, (ii) 2.969% per annum plus the five-year treasury rate. In addition, the firm issued a notice that it will redeem its outstanding shares of Series N 6.30% Non-Cumulative Preferred Stock (Series N Preferred Stock) with a redemption value of $675 million ($25,000 per share), plus accrued and unpaid dividends on May 19, 2021. The difference between the redemption value and net carrying value at the time of the issuance of this notice was $20 million, which was recorded as an addition to preferred stock dividends in the second quarter of 2021.In the first quarter of 2021, the firm redeemed all outstanding shares of its Series M 5.375% Fixed-to-Floating Non-Cumulative Preferred Stock (Series M Preferred Stock) with a redemption value of $2 billion. The difference between the redemption value and net carrying value at the time of this redemption was $21 million, which was recorded as an addition to preferred stock dividends in the first quarter of 2021.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) In 2020, the firm redeemed the remaining 14,000 outstanding shares of its Series L 5.70% Non-Cumulative Preferred Stock (Series L Preferred Stock) with a redemption value of $350 million ($25,000 per share), plus accrued and unpaid dividends. The difference between the redemption value and net carrying value at the time of this redemption was $1 million, which was recorded as an addition to preferred stock dividends in 2020.The table below presents the dividend rates of perpetual preferred stock as of
In the table above, dividends on each series of preferred stock are payable in arrears for the periods specified. The table below presents preferred stock dividends declared.
On Accumulated Other Comprehensive Income/(Loss) The table below presents changes in
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Note 20. Regulation and Capital Adequacy The FRB is the primary regulator of Group Inc., a BHC under the U.S. Bank Holding Company Act of 1956 and a financial holding company under amendments to this Act. The firm is subject to consolidated regulatory capital requirements which are calculated in accordance with the regulations of the FRB (Capital Framework). The capital requirements are expressed as risk-based capital and leverage ratios that compare measures of regulatory capital to risk-weighted assets (RWAs), average assets and off-balance sheet exposures. Failure to comply with these capital requirements could result in restrictions being imposed by the firm’s regulators and could limit the firm’s ability to repurchase shares, pay dividends and make certain discretionary compensation payments. The firm’s capital levels are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors. Furthermore, certain of the firm’s subsidiaries are subject to separate regulations and capital requirements.Capital Framework The regulations under the Capital Framework are largely based on the Basel Committee on Banking Supervision’s (Basel Committee) capital framework for strengthening international capital standards (Basel III) and also implement certain provisions of the Dodd-Frank Act. Under the Capital Framework, the firm is an “Advanced approach” banking organization and has been designated as a global systemically important bank (G-SIB). The The firm calculates its CET1 capital, Tier 1 capital and Total capital ratios in accordance with its respective capital Under the Capital Framework, the firm is also subject to leverage requirements which consist of a minimum Tier 1 leverage ratio and a minimum supplementary leverage ratio (SLR), as well as the SLR buffer. Consolidated Regulatory Capital Requirements Risk-Based Capital The table below presents the risk-based capital
In the table above: G-SIB surcharge of 2.5% (Method 2) and the countercyclical capital buffer, which the FRB has set to 0 percent. In addition, the capital conservation buffer requirements include thestress capital buffer (SCB) of 6.6% under the Standardized Capital Rules and a buffer of 2.5% under the Advanced Capital Rules.The G-SIB surcharge is updated annually based on financial data from the prior year and is generally applicable for the following year. TheG-SIB surcharge is calculated using two methodologies, the higher of which is reflected in the firm’s risk-based capital requirements. The first calculation (Method 1) is based on the Basel Committee’s methodology which, among other factors, relies upon measures of the size, activity and complexity of eachG-SIB. The second calculation (Method 2) uses similar inputs but includes a measure of reliance on short-term wholesale funding.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The table below presents information about risk-based capital ratios.
In the table phase-in the effects through January 2025. In addition, during 2020 and 2021, the firm has elected to increase regulatory capital by 25% of the increase in the allowance for credit losses since January 1, 2020, as permitted by the rules issued by the FRB. The impact of this increase will also be phased in over the three-year transition period. Reflecting the full impact of CECL as of Leverage Ratios. The table below presents the leverage requirements.
In the table above, the SLR requirement of 5% includes a minimum of 3% and a 2% buffer applicable to G-SIBs. The table below presents information about leverage ratios.
In the table above: Average total assets represents the average daily assets for the quarter Impact of SLR temporary amendment represents the exclusion of average holdings of U.S. Treasury securities and average deposits at the Federal Reserve as permitted by the FRB. 0.8 percentage points for the three months ended 1.0 percentage points for the three months ended December 2020. Average off-balance sheet exposures represents the monthly average and consists of derivatives, securities financing transactions, commitments and guarantees.Tier 1 leverage ratio is calculated as Tier 1 capital divided by average adjusted total assets. SLR is calculated as Tier 1 capital divided by total leverage exposure.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Risk-Based Capital. The table below presents information about risk-based capital.
In the table above: Impact of CECL transition represents the impact of adoption as of January 1, 2020 and the impact of increasing regulatory capital by 25% of the increase in allowance for credit losses since January 1, 2020. The allowance for credit losses within Standardized and Advanced Tier 2 capital also reflects the impact of these adjustments. Deduction for goodwill was net of deferred tax liabilities of $680 million as of December Deduction for identifiable intangible assets was net of deferred tax liabilities of Deduction for investments in covered funds represents the firm’s aggregate investments in applicable covered funds, excluding investments that are subject to an extended conformance period. See Note 8 for further information about the Volcker Rule. Other adjustments within CET1 capital and Tier 1 capital primarily include credit valuation adjustments on derivative liabilities, the overfunded portion of the firm’s defined benefit pension plan obligation net of associated deferred tax liabilities, disallowed deferred tax assets, debt valuation adjustments and other required credit risk-based deductions. Other adjustments within Advanced Tier 2 capital include eligible credit reserves. Qualifying subordinated debt is subordinated debt issued by Group Inc. with an original maturity of five years or greater. The outstanding amount of subordinated debt qualifying for Tier 2 capital is reduced upon reaching a remaining maturity of five years. See Note 14 for further information about the firm’s subordinated debt. Junior subordinated debt is debt issued to a Trust. As of
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The table below presents changes in CET1 capital, Tier 1 capital and Tier 2 capital.
RWAs. RWAs are calculated in accordance with both the Standardized and Advanced Capital Rules. Credit Risk Credit RWAs are calculated based on measures of exposure, which are then risk weighted under the Standardized and Advanced Capital Rules: The Standardized Capital Rules apply prescribed risk-weights, which depend largely on the type of counterparty. The exposure measure for derivatives and securities financing transactions are based on specific formulas which take certain factors into consideration. Under the Advanced Capital Rules, the firm computes risk-weights for wholesale and retail credit exposures in accordance with the Advanced Internal Ratings-Based approach. The exposure measures for derivatives and securities financing transactions are computed utilizing internal models. For both Standardized and Advanced credit RWAs, the risk-weights for securitizations and equities are based on specific required formulaic approaches. Market Risk RWAs for market risk in accordance with the Standardized and Advanced Capital Rules are generally consistent. Market RWAs are calculated based on measures of exposure which include the following: Value-at-Risk
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) For both risk management purposes and regulatory capital calculations, the firm uses a single VaR model which captures risks, including those related to interest rates, equity prices, currency rates and commodity prices. However, VaR used for risk management purposes differs from VaR used for regulatory capital requirements (regulatory VaR) due to differences in time horizons, confidence levels and the scope of positions on which VaR is calculated. For risk management purposes, a 95% 10-day VaR is used to determine Market RWAs and a 99%one-day VaR is used to determine regulatory VaR exceptions. In addition, the daily net revenues used to determine risk management VaR exceptions (i.e., comparing the daily net revenues to the VaR measure calculated as of the end of the prior business day) include intraday activity, whereas the Capital Framework requires that intraday activity be excluded from daily net revenues when calculating regulatory VaR exceptions. Intraday activity includes bid/offer net revenues, which are more likely than not to be positive by their nature. As a result, there may be differences in the number of VaR exceptions and the amount of daily net revenues calculated for regulatory VaR compared to the amounts calculated for risk management VaR.The firm’s positional losses observed on a single day did not exceed its 99% one-day regulatory VaR during the three months ended March 2021 and exceeded its 99%one-day regulatory VaR on six occasions during Stressed VaR is the potential loss in value of trading assets and liabilities, as well as certain investments, loans, and other financial assets and liabilities accounted for at fair value, during a period of significant market stress; Incremental risk is the potential loss in value of non-securitized positions due to the default or credit migration of issuers of financial instruments over aone-year time horizon;Comprehensive risk is the potential loss in value, due to price risk and defaults, within the firm’s credit correlation positions; and Specific risk is the risk of loss on a position that could result from factors other than broad market movements, including event risk, default risk and idiosyncratic risk. The standardized measurement method is used to determine specific risk RWAs, by applying supervisory defined risk-weighting factors after applicable netting is performed. Operational Risk Operational RWAs are only required to be included under the Advanced Capital Rules. The firm utilizes an internal risk-based model to quantify Operational RWAs. The table below presents information about RWAs.
In the table above: Securities financing transactions represents resale and repurchase agreements and securities borrowed and loaned transactions. Other includes receivables, certain debt securities, cash and cash equivalents, and other assets.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The table below presents changes in RWAs.
RWAs Rollforward Commentary End March 2021.ed Standardized Credit RWAs as of March 2021 increased by $25.49 billion compared with December 2020, primarily reflecting an increase in commitments, guarantees and loans (principally due to increased lending activity) and an increase in derivatives (principally due to increased exposures). Standardized Market RWAs as of March 2021 increased by $14.92 billion compared with December 2020, primarily reflecting an increase in stressed VaR (principally due to increased exposure to interest rates) and an increase in specific risk (principally due to increased exposures to securitized products). Advanced Credit RWAs as of March 2021 increased by $7.77 billion compared with December 2020, primarily reflecting an increase in other credit RWAs (principally due to increased corporate debt exposures), an increase in securities financing transactions (principally due to increased funding exposures) and an increase in commitments, guarantees and loans (principally due to increased lending activity). These increases were partially offset by a decrease in derivatives (principally due to the impact of lower levels of counterparty credit risk). Advanced Market RWAs as of March 2021 increased by $14.92 billion compared with December 2020, primarily reflecting an increase in stressed VaR (principally due to increased exposure to interest rates) and an increase in specific risk (principally due to increased exposures to securitized products). Year Ended Standardized Credit RWAs as of billion compared with December 2019, primarily reflecting a decrease in $4.14 billion compared with December 2019, primarily reflecting Advanced Credit RWAs as of billion compared with December 2019, primarily reflecting an increase in derivatives $4.34 billion compared with December 2019, primarily reflecting $9.13 billion compared with December 2019. The vast majority of this increase was associated with litigation and regulatory proceedings.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Bank Subsidiaries Regulatory Capital Ratios. GS Bank USA, the firm’s primary U.S. bank subsidiary, is an FDIC-insured, New York State-chartered bank and a member of the Federal Reserve System, is supervised and regulated by the FRB, the FDIC, the New York State Department of Financial Services (NYDFS) and the Consumer Financial Protection Bureau, and is subject to regulatory capital requirements that are calculated GS Bank USA is required to calculate the CET1 capital, Tier 1 capital and Total capital ratios in accordance with both the Standardized and Advanced Capital Rules. The lower of each risk-based capital ratio under the Standardized and Advanced Capital Rules is the ratio against which GS Bank USA’s compliance with its risk-based capital requirements is assessed. In addition, under the regulatory framework for prompt corrective action applicable to GS Bank USA, in order to meet the quantitative requirements for a “well-capitalized” depository institution, GS Bank USA must also meet the “well-capitalized” requirements in the table below. GS Bank USA’s capital levels and prompt corrective action classification are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors. Failure to comply with the capital requirements, including a breach of the buffers described below, could result in restrictions being imposed by the regulators. The table below presents GS Bank USA’s risk-based capital, leverage and “well-capitalized” requirements.
In the table above: The CET1 capital ratio requirement includes a minimum of 4.5%, the Tier 1 capital ratio requirement includes a minimum of 6.0% and the Total capital ratio requirement includes a minimum of 8.0%. The “well-capitalized” requirements are the binding requirements for leverage ratios. The table below presents information about GS Bank USA’s risk-based capital ratios.
In the table above: The lower of the Standardized or Advanced ratio is the ratio against which GS Bank USA’s compliance with the capital requirements is assessed under the risk-based Capital Rules, and therefore, the Standardized ratios applied to GS Bank USA as of both As permitted by the FRB, GS Bank USA has elected to temporarily delay the estimated effects of adopting CECL on regulatory capital until January 2022 and to subsequently phase-in the effects through January 2025. In addition, during 2020 and 2021, GS Bank USA has elected to increase regulatory capital by 25% of the increase in the allowance for credit losses since January 1, 2020, as permitted by the rules issued by the FRB. The impact of this increase will also be phased in over the three-year transition period. Reflecting the full impact of CECL as of
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The Standardized and Advanced risk-based capital ratios decreased from December 2020 to March 2021, reflecting an increase in both Credit and Market RWAs, partially offset by an increase in capital, principally due to net earnings. The table below presents information about GS Bank USA’s leverage ratios.
In the table above: Average adjusted total assets represents the average daily assets for the quarter adjusted for deductions from Tier 1 capital, and the impact of CECL transition. Total leverage exposure, approximately 2.4 percentage points for both the three months ended Tier 1 leverage ratio is calculated as Tier 1 capital divided by average adjusted total assets. SLR is calculated as Tier 1 capital divided by total leverage exposure. The firm’s principal non-U.S. bank Other. The deposits of GS Bank USA are insured by the FDIC to the extent provided by law. The FRB requires that GS Bank USA maintain cash reserves with the Federal Reserve. As of both March 2021 and December 2020, the reserve requirement ratio was zero percent. The amount deposited by GS Bank USA at the Federal Reserve was 2020.Restrictions on Payments Group Inc. may be limited in its ability to access capital held at certain subsidiaries as a result of regulatory, tax or other constraints. These limitations include provisions of applicable law and regulations and other regulatory restrictions that limit the ability of those subsidiaries to declare and pay dividends without prior regulatory approval. are limited to the lesser of the amounts calculated under a recent earnings test and an undivided profits test. The FRB, the FDIC and the NYDFS have authority to prohibit or to limit the payment of dividends by the banking organizations they supervise (including GS Bank USA) if, in the regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the banking organization.In addition, subsidiaries not subject to separate regulatory capital requirements may hold capital to satisfy local tax and legal 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. Group Inc.’s equity investment in subsidiaries was Group Inc.’s capital invested in certain non-U.S. subsidiaries is exposed to foreign exchange risk, substantially all of which is managed through a combination of derivatives andnon-U.S. denominated debt. See Note 7 for information about the firm’s net investment hedges used to hedge this risk.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Note 21. Earnings Per Common Share Basic earnings per common share (EPS) is calculated by dividing net earnings to common by the weighted average number of common shares outstanding and RSUs for which the delivery of the underlying common stock is not subject to satisfaction of future service or performance conditions (collectively, basic shares). Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect of the common stock deliverable for RSUs for which the delivery of the underlying common stock is subject to satisfaction of future service or performance conditions. The table below presents information about basic and diluted EPS.
In the table above: Net earnings to common represents net earnings applicable to common shareholders, which is calculated as net earnings less preferred stock dividends. Unvested share-based awards that have non-forfeitable rights to dividends or dividend equivalents are treated as a separate class of securities under thetwo-class method. Distributed earnings allocated to these securities reduce net earnings to common to calculate EPS under this method. The impact of applying this methodology was a reduction in basic EPS of Diluted EPS does not include antidilutive RSUs of 0.1 million for both the Note 22. Transactions with Affiliated Funds The firm has formed nonconsolidated investment funds with third-party investors. As the firm generally acts as the investment manager for these funds, it is entitled to receive management fees and, in certain cases, advisory fees or incentive fees from these funds. Additionally, the firm invests alongside the third-party investors in certain funds. The tables below present information about affiliated funds.
The firm may periodically determine to waive certain management fees on selected money market funds. Management fees waived were The Volcker Rule restricts the firm from providing financial support to covered funds (as defined in the rule) after the expiration of the conformance period. As a general matter, in the ordinary course of business, the firm does not expect to provide additional voluntary financial support to any covered funds, but may choose to do so with respect to funds that are not subject to the Volcker Rule. However, any such support is not expected to be material to the results of operations of the firm. In March 2020, GS Bank USA and unaffiliated entities purchased certificates of deposit and commercial paper from two money market funds managed by the firm. These funds are not covered funds under the Volcker Rule. GS Bank USA’s purchase price of these securities was $1.84 billion, of which In addition, in the ordinary course of business, the firm may also engage in other activities with its affiliated funds, including, among others, securities lending, trade execution, market-making, custody, and acquisition and bridge financing. See Note 18 for information about the firm’s investment commitments related to these funds.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Note 23. Interest Income and Interest Expense Interest is recorded over the life of the instrument on an accrual basis based on contractual interest rates. The table below presents sources of interest income and interest expense.
In the table above: Collateralized agreements includes rebates paid and interest income on securities borrowed. Loans excludes interest on loans held for sale that are accounted for at the lower of cost or fair value. Such interest is included within other interest. Other interest income includes interest income on customer debit balances, other interest-earning assets and loans held for sale that are accounted for at the lower of cost or fair value. Collateralized financings consists of repurchase agreements and securities loaned. Short- and long-term borrowings include both secured and unsecured borrowings. Other interest expense includes rebates received on other interest-bearing liabilities and interest expense on customer credit balances. Note 24. Income Taxes Provision for Income Taxes Income taxes are provided for using the asset and liability method under which deferred tax assets and liabilities are recognized for temporary differences between the financial reporting and tax bases of assets and liabilities. The firm reports interest expense related to income tax matters in provision for taxes and income tax penalties in other expenses. Deferred Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities. These temporary differences result in taxable or deductible amounts in future years and are measured using the tax rates and laws that will be in effect when such differences are expected to reverse. Valuation allowances are established to reduce deferred tax assets to the amount that more likely than not will be realized and primarily relate to the ability to utilize losses in various tax jurisdictions. Tax assets are included in other assets and tax liabilities are included in other liabilities. Unrecognized Tax Benefits The firm recognizes tax positions in the consolidated financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the consolidated financial statements. Regulatory Tax Examinations The firm is subject to examination by the U.S. Internal Revenue Service (IRS) and other taxing authorities in jurisdictions where the firm has significant business operations, such as the United Kingdom, Japan, Hong Kong and various states, such as New York. The tax years under examination vary by jurisdiction. The firm does not expect completion of these audits to have a material impact on the firm’s financial condition, but it may be material to operating results for a particular period, depending, in part, on the operating results for that period.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The table below presents the earliest tax years that remain subject to examination by major jurisdiction.
The firm has been accepted into the Compliance Assurance Process program by the IRS for each of the tax years from 2013 through All years, including and subsequent to the years in the table above, remain open to examination by the taxing authorities. The firm believes that the liability for unrecognized tax benefits it has established is adequate in relation to the potential for additional assessments. Note 25. Business Segments The firm reports its activities in four business segments: Investment Banking, Global Markets, Asset Management and Consumer & Wealth Management. See Note 1 for information about the firm’s business segments. Compensation and benefits expenses in the firm’s segments reflect, among other factors, the overall performance of the firm, as well as the performance of individual businesses. Consequently, pre-tax margins in one segment of the firm’s business may be significantly affected by the performance of the firm’s other business segments.The firm allocates assets (including allocations of global core liquid assets and cash, secured client financing and other assets), revenues and expenses among the four business segments. Due to the integrated nature of these segments, estimates and judgments are made in allocating certain assets, revenues and expenses. The allocation process is based on the manner in which management currently views the performance of the segments. The allocation of common shareholders’ equity and preferred stock dividends to each segment is based on the estimated amount of equity required to support the activities of the segment under relevant regulatory capital requirements. Net earnings for each segment is calculated by applying the firmwide tax rate to each segment’s pre-tax earnings.Management believes that this allocation provides a reasonable representation of each segment’s contribution to consolidated net earnings to common, return on average common equity and total assets. Transactions between segments are based on specific criteria or approximate third-party rates.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Segment Results The table below presents a summary of the firm’s segment results.
In the table above: Revenues and expenses directly associated with each segment are included in determining pre-tax earnings.Net revenues in the firm’s segments include allocations of interest income and expense to specific positions in relation to the cash generated by, or funding requirements of, such positions. Net interest is included in segment net revenues as it is consistent with how management assesses segment performance. Overhead expenses not directly allocable to specific segments are allocated ratably based on direct segment expenses. The allocation of common equity among the firm’s segments for the first quarter of 2021 reflected updates to the firm’s attributed equity framework (effective January 1, 2021) to incorporate the impact of the SCB r ule and the firm’s SCB of 6.6%, which became effective on October 1, 2020 under the Standardized Approach. Theaverage common equity balances above incorporate such impact, as well as the changes in the size and composition of assets held in each of the firm’s segments that occurred during the first quarter of 2021.The table below presents depreciation and amortization expense by segment.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Segment Assets The table below presents assets by segment.
The table below presents gross loans by segment and loan
See Note 9 for further information about loans. Geographic Information Due to the highly integrated nature of international financial markets, the firm manages its businesses based on the profitability of the enterprise as a whole. The methodology for allocating profitability to geographic regions is dependent on estimates and management judgment because a significant portion of the firm’s activities require cross-border coordination in order to facilitate the needs of the firm’s clients. Geographic results are generally allocated as follows: Investment Banking: location of the client and investment banking team. Global Markets: FICC and Equities intermediation: location of the market-making desk; FICC and Equities financing (excluding prime brokerage financing): location of the desk; prime brokerage financing: location of the primary market for the underlying security. Asset Management (excluding Equity investments and Lending and debt investments): location of the sales team; Equity investments: location of the investment; Lending and debt investments: location of the client. Consumer & Wealth Management: Wealth n t: location of the sales team; Consumer banking: location of the client.The table below presents total net revenues and pre-tax earnings by geographic region.
In the table above: Results primarily attributable to the U.S.Asia includes Australia and New Zealand.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Note 26. Credit Concentrations The firm’s concentrations of credit risk arise from its market making, client facilitation, investing, underwriting, lending and collateralized transactions, and cash management activities, and may be impacted by changes in economic, industry or political factors. These activities expose the firm to many different industries and counterparties, and may also subject the firm to a concentration of credit risk to a particular central bank, counterparty, borrower or issuer, including sovereign issuers, or to a particular clearing house or exchange. The firm seeks to mitigate credit risk by actively monitoring exposures and obtaining collateral from counterparties as deemed appropriate. The firm measures and monitors its credit exposure based on amounts owed to the firm after taking into account risk mitigants that the firm considers when determining credit risk. Such risk mitigants include netting and collateral arrangements and economic hedges, such as credit derivatives, futures and forward contracts. Netting and collateral agreements permit the firm to offset receivables and payables with such counterparties and/or enable the firm to obtain collateral on an upfront or contingent basis. The table below presents the credit concentrations included in trading cash instruments and investments.
In addition, the firm had As of both Collateral obtained by the firm related to derivative assets is principally cash and is held by the firm or a third-party custodian. Collateral obtained by the firm related to resale agreements and securities borrowed transactions is primarily U.S. government and agency obligations and non-U.S. government and agency obligations. See Note 11 for further information about collateralized agreements and financings.The table below presents U.S. government and agency obligations and non-U.S. government and agency obligations that collateralize resale agreements and securities borrowed transactions.
In the table above: Non-U.S. government and agency obligations primarily consists of securities issued by the governments of the U.K. and Japan.Given that the firm’s primary credit exposure on such transactions is to the counterparty to the transaction, the firm would be exposed to the collateral issuer only in the event of counterparty default. Note 27. Legal Proceedings The firm is involved in a number of judicial, regulatory and arbitration proceedings (including those described below) concerning matters arising in connection with the conduct of the firm’s businesses. Many of these proceedings are in early stages, and many of these cases seek an indeterminate amount of damages. Under ASC 450, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight.” Thus, references to the upper end of the range of reasonably possible loss for cases in which the firm is able to estimate a range of reasonably possible loss mean the upper end of the range of loss for cases for which the firm believes the risk of loss is more than slight.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) With respect to matters described below for which management has been able to estimate a range of reasonably possible loss where (i) actual or potential plaintiffs have claimed an amount of money damages, (ii) the firm is being, or threatened to be, sued by purchasers in a securities offering and is not being indemnified by a party that the firm believes will pay the full amount of any judgment, or (iii) the purchasers are demanding that the firm repurchase securities, management has estimated the upper end of the range of reasonably possible loss as being equal to (a) in the case of (i), the amount of money damages claimed, (b) in the case of (ii), the difference between the initial sales price of the securities that the firm sold in such offering and the estimated lowest subsequent price of such securities prior to the action being commenced and (c) in the case of (iii), the price that purchasers paid for the securities less the estimated value, if any, as of Management is generally unable to estimate a range of reasonably possible loss for matters other than those included in the estimate above, including where (i) actual or potential plaintiffs have not claimed an amount of money damages, except in those instances where management can otherwise determine an appropriate amount, (ii) matters are in early stages, (iii) matters relate to regulatory investigations or reviews, except in those instances where management can otherwise determine an appropriate amount, (iv) there is uncertainty as to the likelihood of a class being certified or the ultimate size of the class, (v) there is uncertainty as to the outcome of pending appeals or motions, (vi) there are significant factual issues to be resolved, and/or (vii) there are novel legal issues presented. For example, the firm’s potential liabilities with respect to the investigations and reviews described below in “Regulatory Investigations and Reviews and Related Litigation” generally are not included in management’s estimate of reasonably possible loss. However, management does not believe, based on currently available information, that the outcomes of such other matters will have a material adverse effect on the firm’s financial condition, though the outcomes could be material to the firm’s operating results for any particular period, depending, in part, upon the operating results for such period. See Note 18 for further information about mortgage-related contingencies. 1MDB-Related Matters Between 2012 and 2013, subsidiaries of the firm acted as arrangers or purchasers of approximately $6.5 billion of debt securities of 1MDB. On November 1, 2018, the U.S. Department of Justice (DOJ) unsealed a criminal information and guilty plea by Tim Leissner, a former participating managing director of the firm, and an indictment against Ng Chong Hwa, a former managing director of the firm, and Low Taek Jho. Leissner pleaded guilty to atwo-count criminal information charging him with conspiring to launder money and conspiring to violate the U.S. Foreign Corrupt Practices Act’s (FCPA) anti-bribery and internal accounting controls provisions. Low and Ng were charged in a three-count indictment with conspiring to launder money and conspiring to violate the FCPA’s anti-bribery provisions. On August 28, 2018, Leissner’s guilty plea was accepted by the U.S. District Court for the Eastern District of New York and Leissner was adjudicated guilty on both counts. Ng was also charged in this indictment with conspiring to violate the FCPA’s internal accounting controls provisions. On May 6, 2019, Ng pleaded not guilty to the DOJ’s criminal charges.On August 18, 2020, the firm announced that it entered into a settlement agreement with the Government of Malaysia to resolve On October 22, 2020, the firm announced that it reached settlements of governmental and regulatory investigations relating to 1MDB with the DOJ, the SEC, the FRB, the NYDFS, the FCA, the PRA, the Singapore Attorney General’s Chambers, the Singapore Commercial Affairs Department, the Monetary Authority of Singapore and the Hong Kong Securities and Futures Commission. Group Inc. entered into a three-year deferred prosecution agreement with the DOJ, in which a charge against the firm, one count of conspiracy to violate the FCPA, was filed and will later be dismissed if the firm abides by the terms of the agreement. In addition, GS Malaysia pleaded guilty to one count of conspiracy to violate the FCPA. The firm has been working to secure necessary exemptions and authorizations from regulators so that
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) The firm has received multiple demands, beginning in November 2018, from alleged shareholders under Section 220 of the Delaware General Corporation Law for books and records relating to, among other things, the firm’s involvement with 1MDB and the firm’s compliance procedures. On December 13, 2019, an alleged shareholder filed a lawsuit in the Court of Chancery of the State of Delaware seeking books and records relating to, among other things, the firm’s involvement with 1MDB and the firm’s compliance procedures. The parties have agreed to stay proceedings pending resolution of the books and records demand. On February 19, 2019, a purported shareholder derivative action relating to 1MDB was filed in the U.S. District Court for the Southern District of New York against Group Inc. and the directors at the time and a former chairman and chief executive officer of the firm. The second amended complaint filed on Beginning in March 2019, the firm has also received demands from alleged shareholders to investigate and pursue claims against certain current and former directors and executive officers based on their oversight and public disclosures regarding 1MDB and related internal controls. On December 20, 2018, a putative securities class action lawsuit was filed in the U.S. District Court for the Southern District of New York against Group Inc. and certain former officers of the firm alleging violations of the anti-fraud provisions of the Exchange Act with respect to Group Inc.’s disclosures and public statements concerning 1MDB and seeking unspecified damages. The plaintiffs filed the second amended complaint on October 28, 2019, which the defendants moved to dismiss on January 9, 2020. Mortgage-Related Matters Beginning in April 2010, a number of purported securities law class actions were filed in the U.S. District Court for the Southern District of New York challenging the adequacy of Group Inc.’s public disclosure of, among other things, the firm’s activities in the collateralized debt obligation market, and the firm’s conflict of interest management. The consolidated amended complaint filed on July 25, 2011, which Complaints were filed in the U.S. District Court for the Southern District of New York on July 25, 2019 and May 29, 2020 against Goldman Sachs Mortgage Company and GS Mortgage Securities Corp. by U.S. Bank National Association, as trustee for two residential mortgage-backed securitization trusts that issued $1.7 billion of securities. The complaints generally allege that mortgage loans in the trusts failed to conform to applicable representations and warranties and seek specific performance or, alternatively, compensatory damages and other relief.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Currencies-Related Litigation GS&Co. and Group Inc. are among the defendants named in an action filed in the U.S. District Court for the Southern District of New York on November 7, 2018, and Group Inc., GSI, GSIB, GS&Co., Goldman Sachs Group UK Limited and GS Bank USA are among the defendants named in an action filed in the High Court of England and Wales on November 11, 2020, in each case by certain direct purchasers of foreign exchange instruments that opted out of a class settlement reached with, among others, GS&Co. and Group Inc. The third amended complaint in the U.S. district court action, filed on August 3, 2020, generally alleges that the defendants violated federal antitrust law and state common law in connection with an alleged conspiracy to manipulate the foreign currency exchange markets and seeks declaratory and injunctive relief, as well as unspecified amounts of compensatory, punitive, treble and other damages. The summary claim form filed in the U.K. action indicates the action is for breach of U.K. and E.U. competition rules from 2003 to 2013 and alleges manipulation of foreign exchange rates and bid/offer spreads, the exchange of commercially sensitive information among defendants and collusive trading. Banco Espirito Santo S.A. and Oak Finance Beginning in February 2015, GSI commenced actions against Novo Banco S.A. (Novo Banco) in the English Commercial Court and the Bank of Portugal (BoP) in Portuguese Administrative Court in response to BoP’s decision in December 2014 not to transfer to Novo Banco an $835 million facility agreement (the Facility), structured by GSI, between Oak Finance Luxembourg S.A. (Oak Finance), a special purpose vehicle formed in connection with the Facility, and Banco Espirito Santo S.A. (BES) prior to the failure of BES. In July 2018, the English Supreme Court found that the English courts did not have jurisdiction over GSI’s action. In July 2018, the Liquidation Committee for BES issued a decision seeking to claw back $54 million paid to GSI and $50 million paid to Oak Finance in connection with the Facility, alleging that GSI acted in bad faith in extending the Facility, including because GSI allegedly knew that BES was at risk of imminent failure. GSI has also issued a claim against the Portuguese State seeking compensation for losses related to the failure of BES, including a contingent claim for the $104 million sought by the Liquidation Committee. Financial Advisory Services Group Inc. and certain of its affiliates are from time to time parties to various civil litigation and arbitration proceedings and other disputes with clients and third parties relating to the firm’s financial advisory activities. These claims generally seek, among other things, compensatory damages and, in some cases, punitive damages, and in certain cases allege that the firm did not appropriately disclose or deal with conflicts of interest. Underwriting Litigation Firm affiliates are among the defendants in a number of proceedings in connection with securities offerings. In these proceedings, including those described below, the plaintiffs assert class action or individual claims under federal and state securities laws and in some cases other applicable laws, allege that the offering documents for the securities that they purchased contained material misstatements and omissions, and generally seek compensatory and rescissory damages in unspecified amounts. Certain of these proceedings involve additional allegations. Snap Inc. GS&Co. is among the underwriters named as defendants in putative securities class actions pending in California Superior Court, County of Los Angeles, and the U.S. District Court for the Central District of California beginning in May 2017, relating to Snap Inc.’s $3.91 billion March 2017 initial public offering. In addition to the underwriters, the defendants include Snap Inc. and certain of its officers and directors. GS&Co. underwrote 57,040,000 shares of common stock representing an aggregate offering price of approximately $970 million. The underwriter defendants, including GS&Co., were voluntarily dismissed from the district court action on September 18, 2018. In the district court action, defendants moved for summary judgment on December 19, 2019, following the court’s November 20, 2019 order approving plaintiffs’ motion for class certification. The state court actions have been stayed. On
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Sea Limited. GS Asia is among the underwriters named as defendants in a putative securities class action filed on November 1, 2018 in New York Supreme Court, County of New York, relating to Sea Limited’s $989 million October 2017 initial public offering of American depositary shares. In addition to the underwriters, the defendants include Sea Limited and certain of its officers and directors. GS Asia underwrote 28,026,721 American depositary shares representing an aggregate offering price of approximately $420 million. On January 25, 2019, the plaintiffs filed an amended complaint. Defendants moved to dismiss on March 26, 2019. On Altice USA, Inc. GS&Co. is among the underwriters named as defendants in putative securities class actions pending in New York Supreme Court, County of Queens, and the U.S. District Court for the Eastern District of New York beginning in June 2018, relating to Altice USA, Inc.’s (Altice) $2.15 billion June 2017 initial public offering. In addition to the underwriters, the defendants include Altice and certain of its officers and directors. GS&Co. underwrote 12,280,042 shares of common stock representing an aggregate offering price of approximately $368 million. On June 26, 2020, the court dismissed the amended complaint in the state court action, and on September 4, 2020, plaintiffs moved for leave to file a consolidated amended complaint. Plaintiffs in the district court action filed a second amended complaint on October 7, 2020. Alnylam Pharmaceuticals, Inc. GS&Co. is among the underwriters named as defendants in a putative securities class action filed on September 12, 2019 in New York Supreme Court, County of New York, relating to Alnylam Pharmaceuticals, Inc.’s (Alnylam) $805 million November 2017 public offering of common stock. In addition to the underwriters, the defendants include Alnylam and certain of its officers and directors. GS&Co. underwrote 2,576,000 shares of common stock representing an aggregate offering price of approximately $322 million. On On April 29, 2021, the Appellate Division of the Supreme Court of the State of New York for the First Department denied defendants’ appeal of the New York Supreme Court’s denial of the defendants’ motion to dismiss the amended complaint, except with respect to one of the plaintiffs’ claims against Alnylam’s officers and directors. Uber Technologies, Inc. GS&Co. is among the underwriters named as defendants in several putative securities class actions filed beginning in September 2019 in California Superior Court, County of San Francisco and the U.S. District Court for the Northern District of California, relating to Uber Technologies, Inc.’s (Uber) $8.1 billion May 2019 initial public offering. In addition to the underwriters, the defendants include Uber and certain of its officers and directors. GS&Co. underwrote 35,864,408 shares of common stock representing an aggregate offering price of approximately $1.6 billion. On Venator Materials PLC. GS&Co. is among the underwriters named as defendants in putative securities class actions in Texas District Court, Dallas County, New York Supreme Court, New York County, and the U.S. District Court for the Southern District of Texas, filed beginning in February 2019, relating to Venator Materials PLC’s (Venator) $522 million August 2017 initial public offering and $534 million December 2017 secondary equity offering. In addition to the underwriters, the defendants include Venator, certain of its officers and directors and certain of its shareholders. GS&Co. underwrote 6,351,347 shares of common stock in the August 2017 initial public offering representing an aggregate offering price of approximately $127 million and 5,625,768 shares of common stock in the December 2017 secondary equity offering representing an aggregate offering price of approximately $127 million. On January 21, 2020, the Texas Court of Appeals reversed the Texas District Court and dismissed the claims against the underwriter defendants, including GS&Co., in the Texas state court action for lack of personal jurisdiction. On February 18, 2020, defendants moved to dismiss the consolidated complaint in the federal action. On
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) XP Inc. GS&Co. is among the underwriters named as defendants in putative securities class actions pending in New York Supreme Court, County of New York, and the U.S. District Court for the Eastern District of York, filed beginning March 19, 2020, relating to XP Inc.’s (XP) $2.3 billion December 2019 initial public offering. In addition to the underwriters, the defendants include XP, certain of its officers and directors and certain of its shareholders. GS&Co. underwrote 19,326,218 shares of common stock in the December 2019 initial public offering representing an aggregate offering price of approximately $522 million. On August 5, 2020, defendants’ motion to stay the state court action in favor of the federal court action was GoHealth, Inc. GS&Co. is among the underwriters named as defendants in July 2020 initial public offering. In addition to the underwriters, the defendants include GoHealth, certain of its officers and directors and certain of its shareholders. GS&Co. underwrote 11,540,550 shares of common stock representing an aggregate offering price of approximately $242 million. On April 26, 2021, the defendants filed a motion to dismiss the consolidated complaint. Root, Inc. GS&Co. is among the underwriters named as defendants in a putative securities class action Investment Management Services Group Inc. and certain of its affiliates are parties to various civil litigation and arbitration proceedings and other disputes with clients relating to losses allegedly sustained as a result of the firm’s investment management services. These claims generally seek, among other things, restitution or other compensatory damages and, in some cases, punitive damages. Securities Lending Antitrust Litigation Group Inc. and GS&Co. are among the defendants named in a putative antitrust class action and three individual actions relating to securities lending practices filed in the U.S. District Court for the Southern District of New York beginning in August 2017. The complaints generally assert claims under federal and state antitrust law and state common law in connection with an alleged conspiracy among the defendants to preclude the development of electronic platforms for securities lending transactions. The individual complaints also assert claims for tortious interference with business relations and under state trade practices law and, in the second and third individual actions, unjust enrichment under state common law. The complaints seek declaratory and injunctive relief, as well as unspecified amounts of compensatory, treble, punitive and other damages. Group Inc. was voluntarily dismissed from the putative class action on January 26, 2018. Defendants’ motion to dismiss the class action complaint was denied on September 27, 2018. Defendants moved to dismiss the second individual action on December 21, 2018. In June 2019, the third individual action was consolidated with the second individual action. After that consolidation, the court ordered that the pending motion to dismiss in the second individual action apply to the newly consolidated matter. Defendants’ motion to dismiss the first individual action was granted on August 7, 2019. The plaintiffs in the putative class action moved for class certification on February 22, 2021. THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Interest Rate Swap Antitrust Litigation Group Inc., GS&Co., GSI, GS Bank USA and Goldman Sachs Financial Markets, L.P. are among the defendants named in a putative antitrust class action relating to the trading of interest rate swaps, filed in November 2015 and consolidated in the U.S. District Court for the Southern District of New York. The same Goldman Sachs entities also are among the defendants named in two antitrust actions relating to the trading of interest rate swaps, commenced in April 2016 and June 2018, respectively, in the U.S. District Court for the Southern District of New York by three operators of swap execution facilities and certain of their affiliates. These actions have been consolidated for pretrial proceedings. The complaints generally assert claims under federal antitrust law and state common law in connection with an alleged conspiracy among the defendants to preclude exchange trading of interest rate swaps. The complaints in the individual actions also assert claims under state antitrust law. The complaints seek declaratory and injunctive relief, as well as treble damages in an unspecified amount. Defendants moved to dismiss the class and the first individual action and the district court dismissed the state common law claims asserted by the plaintiffs in the first individual action and otherwise limited the state common law claim in the putative class action and the antitrust claims in both actions to the period from 2013 to 2016. On November 20, 2018, the court granted in part and denied in part the defendants’ motion to dismiss the second individual action, dismissing the state common law claims for unjust enrichment and tortious interference, but denying dismissal of the federal and state antitrust claims. On March 13, 2019, the court denied the plaintiffs’ motion in the putative class action to amend their complaint to add allegations related to 2008-2012 conduct, but granted the motion to add limited allegations from 2013-2016, which the plaintiffs added in a fourth consolidated amended complaint filed on March 22, 2019. The plaintiffs in the putative class action moved for class certification on March 7, 2019. Variable Rate Demand Obligations Antitrust Litigation GS&Co. is among the defendants named in a putative class action relating to variable rate demand obligations (VRDOs), filed beginning in February 2019 under separate complaints and consolidated in the U.S. District Court for the Southern District of New York. The consolidated amended complaint, filed on May 31, 2019, generally asserts claims under federal antitrust law and state common law in connection with an alleged conspiracy among the defendants to manipulate the market for VRDOs. The complaint seeks declaratory and injunctive relief, as well as unspecified amounts of compensatory, treble and other damages. Commodities-Related Litigation GSI is among the defendants named in putative class actions relating to trading in platinum and palladium, filed beginning on November 25, 2014 and most recently amended on May 15, 2017, in the U.S. District Court for the Southern District of New York. The amended complaint generally alleges that the defendants violated federal antitrust laws and the Commodity Exchange Act in connection with an alleged conspiracy to manipulate a benchmark for physical platinum and palladium prices and seek declaratory and injunctive relief, as well as treble damages in an unspecified amount. On March 29, 2020, the court granted the defendants’ motions to dismiss and for reconsideration, resulting in the dismissal of all claims. On April 27, 2020, plaintiffs appealed to the Second Circuit Court of Appeals. THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) GS&Co., GSI, J. Aron & Company and Metro International Trade Services (Metro), a previously consolidated subsidiary of Group Inc. that was sold in the fourth quarter of 2014, are among the defendants in a number of putative class and individual actions filed beginning on August 1, 2013 and consolidated in the U.S. District Court for the Southern District of New York. The complaints generally allege violations of federal antitrust laws and state laws in connection with the storage of aluminum and aluminum trading. The complaints seek declaratory, injunctive and other equitable relief, as well as unspecified monetary damages, including treble damages. In December 2016, the district court granted defendants’ motions to dismiss and on August 27, 2019, the Second Circuit vacated the district court’s dismissals and remanded the case to district court for further proceedings. On July 23, 2020, the district court denied the class Group Inc., GS&Co., GSI, J. Aron & Company and Metro are among the defendants in an action filed on February 27, 2020 in the High Court of Justice, Business and Property Courts of England and Wales. The particulars of claim seeks unspecified compensatory and exemplary damages based on alleged violations of U.K. and E.U. competition laws in connection with the storage and trading of aluminum. In connection with the sale of Metro, the firm agreed to provide indemnities to the buyer, including for any potential liabilities for legal or regulatory proceedings arising out of the conduct of Metro’s business while the firm owned it. U.S. Treasury Securities Litigation GS&Co. is among the primary dealers named as defendants in several putative class actions relating to the market for U.S. Treasury securities, filed beginning in July 2015 and consolidated in the U.S. District Court for the Southern District of New York. GS&Co. is also among the primary dealers named as defendants in a similar individual action filed in the U.S. District Court for the Southern District of New York on August 25, 2017. The consolidated class action complaint, filed on December 29, 2017, generally alleges that the defendants violated antitrust laws in connection with an alleged conspiracy to manipulate the when-issued market and auctions for U.S. Treasury securities and that certain defendants, including GS&Co., colluded to preclude trading of U.S. Treasury securities on electronic trading platforms in order to impede competition in the bidding process. The individual action alleges a similar conspiracy regarding manipulation of the when-issued market and auctions, as well as related futures and options in violation of the Commodity Exchange Act. The complaints seek declaratory and injunctive relief, treble damages in an unspecified amount and restitution. March 31, 2021.Corporate Bonds Antitrust Litigation Group Inc. and GS&Co. are among the dealers named as defendants in a putative class action relating to the secondary market for odd-lot corporate bonds, filed on April 21, 2020 in the U.S. District Court for the Southern District of New York. The amended consolidated complaint, filed on odd-lots of corporate bonds, and seeks declaratory and injunctive relief, as well as unspecified monetary damages, including treble and punitive damages and restitution. Defendants moved to dismiss on Employment-Related Matters On September 15, 2010, a putative class action was filed in the U.S. District Court for the Southern District of New York by three female former employees. The complaint, as subsequently amended, alleges that Group Inc. and GS&Co. have systematically discriminated against female employees in respect of compensation, promotion and performance evaluations. The complaint alleges a class consisting of all female employees employed at specified levels in specified areas by Group Inc. and GS&Co. since July 2002, and asserts claims under federal and New York City discrimination laws. The complaint seeks class action status, injunctive relief and unspecified amounts of compensatory, punitive and other damages.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) On March 30, 2018, the district court certified a damages class as to the plaintiffs’ disparate impact and treatment claims. On September 4, 2018, the Second Circuit Court of Appeals denied defendants’ petition for interlocutory review of the district court’s class certification decision and subsequently denied defendants’ petition for rehearing. On September 27, 2018, plaintiffs advised the district court that they would not seek to certify a class for injunctive and declaratory relief. On March 26, 2020, the Magistrate Judge in the district court granted in part a motion to compel arbitration as to class members who are parties to certain agreements with Group Inc. and/or GS&Co. in which they agreed to arbitrate employment-related disputes. On April 16, 2020, plaintiffs submitted objections to the Magistrate Judge’s order and defendants submitted conditional objections in the event that the district judge overturns any portion of the Magistrate Judge’s order. Regulatory Investigations and Reviews and Related Litigation Group Inc. and certain of its affiliates are subject to a number of other investigations and reviews by, and in some cases have received subpoenas and requests for documents and information from, various governmental and regulatory bodies and self-regulatory organizations and litigation and shareholder requests relating to various matters relating to the firm’s businesses and operations, including: The The firm’s investment management and financial advisory services; Conflicts of interest; Research practices, including research independence and interactions between research analysts and other firm personnel, including investment banking personnel, as well as third parties; Transactions involving government-related financings and other matters, municipal securities, including wall-cross procedures and conflict of interest disclosure with respect to state and municipal clients, the trading and structuring of municipal derivative instruments in connection with municipal offerings, political contribution rules, municipal advisory services and the possible impact of credit default swap transactions on municipal issuers; Consumer lending, as well as residential mortgage lending, servicing and The offering, auction, sales, trading and clearance of corporate and government securities, currencies, commodities and other financial products and related sales and other communications and activities, as well as the firm’s supervision and controls relating to such activities, including compliance with applicable short sale rules, algorithmic, high-frequency and quantitative trading, the firm’s U.S. alternative trading system (dark pool), futures trading, options trading, when-issued trading, transaction reporting, technology systems and controls, securities lending practices, prime brokerage activities, trading and clearance of credit derivative instruments and interest rate swaps, commodities activities and metals storage, private placement practices, allocations of and trading in securities, and trading activities and communications in connection with the establishment of benchmark rates, such as currency rates; Compliance with the FCPA; The firm’s hiring and compensation practices; The firm’s system of risk management and controls; and Insider trading, the potential misuse and dissemination of material nonpublic information regarding corporate and governmental developments and the effectiveness of the firm’s insider trading controls and information barriers. The firm is cooperating with all such governmental and regulatory investigations and reviews.
To the Board of Directors and the Shareholders of The Goldman Sachs Group, Inc.: Results of Review of Interim Financial Statements We have reviewed the accompanying consolidated balance sheet of The Goldman Sachs Group, Inc. and its subsidiaries (the Company) as of We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, Basis for Review Results These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. /s/ PricewaterhouseCoopers LLP New York, New York
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Statistical Disclosures
Distribution of Assets, Liabilities and Shareholders’ Equity The tables below present information about average balances, interest and average interest rates.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Statistical Disclosures
In the tables above: Assets, liabilities and interest are classified as U.S. and non-U.S. based on the location of the legal entity in which the assets and liabilities are held.Derivative instruments and commodities are included in other non-interest-earning assets and othernon-interest-bearing liabilities.Total other interest-earning assets primarily consists of receivables from customers and counterparties. Collateralized financings consists of securities sold under agreements to repurchase and securities loaned. Substantially all of the total other interest-bearing liabilities consists of payables to customers and counterparties. Interest rates for borrowings include the effects of interest rate swaps accounted for as hedges. Total loans exclude loans held for sale that are accounted for at the lower of cost or fair value. Such loans are included within other interest-earning assets. Total short- and long-term borrowings include both secured and unsecured borrowings. THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis
Introduction The Goldman Sachs Group, Inc. (Group Inc. or parent company), a Delaware corporation, together with its consolidated subsidiaries, is a leading global When we use the terms “we,” “us” and “our,” we mean Group Inc. and its consolidated subsidiaries. When we use the term “our subsidiaries,” we mean the consolidated subsidiaries of Group Inc. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, Form 10-K” are to our Annual Report onForm 10-K for the year ended December 31, Form 10-Q” are to our Quarterly Report onForm 10-Q for the quarterly period ended Form 10-Q. The consolidated financial statements are unaudited. All references to Executive Overview We generated net earnings of Net revenues were Provision for credit losses was (COVID-19) pandemic, partially offset by co-branded credit card Operating expenses were THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis We Business Environment COVID-19 pandemic, Despite broad improvements in the overall economy since Critical Accounting Policies Fair Value Fair Value Hierarchy. Trading assets and liabilities, certain investments and loans, and certain other financial assets and liabilities, are included in our consolidated balance sheets at fair value (i.e., marked-to-market), The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We measure certain financial assets and liabilities as a portfolio (i.e., based on its net exposure to market and/or credit risks). In determining fair value, the hierarchy under U.S. generally accepted accounting principles (U.S. GAAP) gives (i) the highest priority to unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities (level 1 inputs), (ii) the next priority to inputs other than level 1 inputs that are observable, either directly or indirectly (level 2 inputs), and (iii) the lowest priority to inputs that cannot be observed in market activity (level 3 inputs). In evaluating the significance of a valuation input, we consider, among other factors, a portfolio’s net risk exposure to that input. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. The fair values for substantially all of our financial assets and liabilities are based on observable prices and inputs and are classified in levels 1 and 2 of the fair value hierarchy. Certain level 2 and level 3 financial assets and liabilities may require appropriate valuation adjustments that a market participant would require to arrive at fair value for factors, such as counterparty and our credit quality, funding risk, transfer restrictions, liquidity and bid/offer spreads. Instruments classified in level 3 of the fair value hierarchy are those which require one or more significant inputs that are not observable. Level 3 financial assets represented Determining the appropriate valuation methodology and/or model for each type of level 3 financial instrument; Determining model inputs based on an evaluation of all relevant empirical market data, including prices evidenced by market transactions, interest rates, credit spreads, volatilities and correlations; and Determining appropriate valuation adjustments, including those related to illiquidity or counterparty credit quality. Regardless of the methodology, valuation inputs and assumptions are only changed when corroborated by substantive evidence.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Controls Over Valuation of Financial Instruments. Market makers and investment professionals in our revenue-producing units are responsible for pricing our financial instruments. Our control infrastructure is independent of the revenue-producing units and is fundamental to ensuring that all of our financial instruments are appropriately valued at market-clearing levels. In the event that there is a difference of opinion in situations where estimating the fair value of financial instruments requires judgment (e.g., calibration to market comparables or trade comparison, as described below), the final valuation decision is made by senior managers in independent risk oversight and control functions. This independent price verification is critical to ensuring that our financial instruments are properly valued. Price Verification. All financial instruments at fair value classified in levels 1, 2 and 3 of the fair value hierarchy are subject to our independent price verification process. The objective of price verification is to have an informed and independent opinion with regard to the valuation of financial instruments under review. Instruments that have one or more significant inputs which cannot be corroborated by external market data are classified in level 3 of the fair value hierarchy. Price verification strategies utilized by our independent risk oversight and control functions include: Trade Comparison. External Price Comparison. Calibration to Market Comparables. Relative Value Analyses. Collateral Analyses. Execution of Trades. Backtesting. See Note 4 to the consolidated financial statements for further information about fair value measurements. Review of Net Revenues. Independent risk oversight and control functions ensure adherence to our pricing policy through a combination of daily procedures, including the explanation and attribution of net revenues based on the underlying factors. Through this process, we independently validate net revenues, identify and resolve potential fair value or trade booking issues on a timely basis and seek to ensure that risks are being properly categorized and quantified. Review of Valuation Models. Our independent model risk management group (Model Risk), consisting of quantitative professionals who are separate from model developers, performs an independent model review and validation process of our valuation models. New or changed models are reviewed and approved prior to implementation. Models are reviewed annually to assess the impact of any changes in the product or market and any market developments in pricing theories. See “Risk Management — Model Risk Management” for further information about the review and validation of our valuation models. Allowance for Credit Losses We estimate and record an allowance for credit losses related to our loans held for investment loan-to-value
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Our estimate of credit losses entails judgment about collectability at the reporting dates, and there are uncertainties inherent in those judgments. The allowance for credit losses is subject to a governance process that involves review and approval by senior management within our independent risk oversight and control functions. Personnel within our independent risk oversight and control functions are responsible for forecasting the economic variables that underlie the economic scenarios that are used in the modeling of expected credit losses. While we use the best information available to determine this estimate, future adjustments to the allowance may be necessary based on, among other things, changes in the economic environment or variances between actual results and the original assumptions used. Loans are charged off against the allowance for loan losses when deemed to be uncollectible. We also record an allowance for credit losses on lending commitments which are held for investment Use of Estimates U.S. GAAP requires us to make certain estimates and assumptions. In addition to the estimates we make in connection with fair value measurements and the allowance for credit losses on loans and lending commitments held for investment and accounted for at amortized cost, the use of estimates and assumptions is also important in determining discretionary compensation accruals, the accounting for goodwill and identifiable intangible assets, provisions for losses that may arise from litigation and regulatory proceedings (including governmental investigations), and provisions for losses that may arise from tax audits. A substantial portion of our compensation and benefits represents discretionary compensation, which is finalized at year-end. We believe the most appropriate way to allocate estimatedyear-end discretionary compensation among interim periods is in proportion to the net revenues earned in such periods. In addition to the level of net revenues, our overall compensation expense in any given year is also influenced by, among other factors, overall financial performance, prevailing labor markets, business mix, the structure of our share-based compensation programs and the external environment.Goodwill is assessed for impairment annually in the fourth quarter or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment. Estimating the fair value of our reporting units requires judgment. Critical inputs to the fair value estimates include projected earnings and allocated equity. There is inherent uncertainty in the projected earnings. The estimated carrying value of each reporting unit reflects an allocation of total shareholders’ equity and represents the estimated amount of total shareholders’ equity required to support the activities of the reporting unit under currently applicable regulatory capital requirements. See Note 12 to the consolidated financial statements for further information about goodwill. If we experience a prolonged or severe period of weakness in the business environment, financial markets, our performance or our common stock price, or additional increases in capital requirements, our goodwill could be impaired in the future. Identifiable intangible assets are tested for impairment We also estimate and provide for potential losses that may arise out of litigation and regulatory proceedings to the extent that such losses are probable and can be reasonably estimated. In addition, we estimate the upper end of the range of reasonably possible aggregate loss in excess of the related reserves for litigation and regulatory proceedings where we believe the risk of loss is more than slight. See Notes 18 and 27 to the consolidated financial statements for information about certain judicial, litigation and regulatory proceedings. Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different. Our total estimated liability in respect of litigation and regulatory proceedings is determined on a case-by-case
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis In accounting for income taxes, we recognize tax positions in the financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. See Note 24 to the consolidated financial statements for further information about income taxes. Recent Accounting Developments See Note 3 to the consolidated financial statements for information about Recent Accounting Developments. Results of Operations The composition of our net revenues has varied over time as financial markets and the scope of our operations have changed. The composition of net revenues can also vary over the shorter term due to fluctuations in U.S. and global economic and market conditions. See “Risk Factors” in Part Form 10-K for further information about the impact of economic and market conditions on our results of operations.Financial Overview The table below presents an overview of our financial results and selected financial ratios.
In the table above: Net earnings to common represents net earnings applicable to common shareholders, which is calculated as net earnings less preferred stock dividends. ROE, return on average tangible common shareholders’ equity (ROTE), net earnings to average total assets and return on average Average equity to average assets is calculated by dividing average total shareholders’ equity by average total assets. Dividend payout ratio is calculated by dividing dividends declared per common share by diluted EPS. Annualized ROE is calculated by dividing annualized net earnings to common by average monthly common shareholders’ equity. Tangible common shareholders’ equity is calculated as total shareholders’ equity less preferred stock, goodwill and identifiable intangible assets. Annualized ROTE is calculated by dividing annualized net earnings to common by average monthly tangible common shareholders’ equity. We believe that tangible common shareholders’ equity is meaningful because it is a measure that we and investors use to assess capital adequacy and that ROTE is meaningful because it measures the performance of businesses consistently, whether they were acquired or developed internally. Tangible common shareholders’ equity and ROTE are non-GAAP measures and may not be comparable to similarnon-GAAP measures used by other companies. Annualized return on average
Net Revenues The table below presents our net revenues by line item.
In the table above: Investment banking consists of revenues (excluding net interest) from financial advisory and underwriting assignments. These activities are included in our Investment Banking segment.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Investment management consists of revenues (excluding net interest) from providing asset management services across all major asset classes to a diverse set of asset management clients (included in our Asset Management segment), as well as asset management services, wealth advisory services and certain transaction services for wealth management clients (included in our Consumer & Wealth Management segment). Commissions and fees consists of revenues from executing and clearing client transactions on major stock, options and futures exchanges worldwide, as well as over-the-counter Market making consists of revenues (excluding net interest) from client execution activities related to making markets in interest rate products, credit products, mortgages, currencies, commodities and equity products. These activities are included in our Global Markets segment. Other principal transactions consists of revenues (excluding net interest) from our equity investing activities, including revenues related to our consolidated investments (included in our Asset Management segment), and lending activities (included across our four segments). Operating Environment. If optimism about the economic outlook declines or the ongoing efforts to mitigate the impact of the COVID-19 pandemic Three Months Ended Net revenues in the consolidated statements of earnings were Non-Interest Revenues.Investment banking revenues in the consolidated statements of earnings were Investment management revenues in the consolidated statements of earnings were Commissions and fees in the consolidated statements of earnings were Market making revenues in the consolidated statements of earnings were Other principal transactions revenues in the consolidated statements of earnings were
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Net Interest Income. Net interest income in the consolidated statements of earnings was Provision for Credit Losses Provision for credit losses consists of provision for credit losses on loans and lending commitments held for investment and accounted for at amortized cost. See Note 9 to the consolidated financial statements for further information about the provision for credit losses. The table below presents our provision for credit losses.
Three Months Ended Provision for credit losses in the consolidated statements of earnings was COVID-19 co-branded credit card Operating Expenses Our operating expenses are primarily influenced by compensation, headcount and levels of business activity. Compensation and benefits includes salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as benefits. Discretionary compensation is significantly impacted by, among other factors, the level of net revenues, overall financial performance, prevailing labor markets, business mix, the structure of our share-based compensation programs and the external environment.The table below presents our operating expenses by line item and headcount.
In the table above, brokerage, clearing, exchange and distribution fees was renamed transaction based (beginning in the fourth quarter of 2020) and additionally includes expenses resulting from completed transactions, which are directly related to client revenues. Such expenses were previously reported in other expenses. Previously reported amounts have been conformed to the current presentation. Three Months Ended Operating expenses in the consolidated statements of earnings were The increase in operating expenses compared with the first Net provisions for litigation and regulatory proceedings for the first THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Provision for Taxes The effective income tax rate for the first non-deductible In March 2021, the Rescue Plan was signed into law. The COVID-19 pandemic. The Rescue Plan includes a repeal of a provision under which U.S. affiliated groups could elect a worldwide allocation of interest expense for foreign tax credit limitation purposes for one year beginning in January 2021. Additionally, beginning in 2027, the limitation on corporate tax deductions for compensation payable to the CEO, CFO and the top three highest paid employees’ will be expanded to include the next five highest paid employees. The legislation In April 2021, the New York State (NYS) FY 2022 budget was enacted. The legislation will temporarily increase the NYS corporate income tax In addition, in March 2021, the U.K. budget was released. The U.K. budget includes a six percent increase in the corporate income tax rate effective from April 2023. To ensure that Bill 2021-22. The bank surcharge is currently applicable to our U.K. subsidiaries, Goldman Sachs International (GSI) and Goldman Sachs International Bank (GSIB). Following Royal Assent to each of these measures, which may occur in different periods, the rates. Segment Assets and Operating Results Segment Assets. The table below presents assets by segment.
The allocation process for segment assets is based on the activities of these segments. The allocation of assets includes allocation of global core liquid assets (GCLA) (which consists of unencumbered, highly liquid securities and cash), which is generally included within cash and cash equivalents, collateralized agreements and trading assets on our balance sheet. Due to the integrated nature of these segments, estimates and judgments are made in allocating these assets. See “Risk Management — Liquidity Risk Management” for further information about our GCLA. Segment Operating Results. The table below presents our segment operating results.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Net revenues in our segments include allocations of interest income and expense to specific positions in relation to the cash generated by, or funding requirements of, such positions. See Note 25 to the consolidated financial statements for further information about our business segments. The allocation of common shareholders’ equity and preferred stock dividends to each segment is based on the estimated amount of equity required to support the activities of the segment under relevant regulatory capital requirements. Net earnings for each segment is calculated by applying the firmwide tax rate to each segment’s pre-tax earnings.The allocation of common equity among our segments for the first quarter of 2021 reflects updates to our attributed equity framework (effective January 1, 2021) to incorporate the impact of the stress capital buffer (SCB) rule and our SCB of 6.6%, which became effective on October 1, 2020 under the Standardized Approach. See “Equity Capital Management and Regulatory Capital — Equity Capital Management” for information about the impact of these updates on the allocation of attributed equity among our segments as of the beginning of the first quarter of 2021. The average common equity balances above incorporate such impact, as well as the changes in the size and composition of assets held in each of our segments that occurred during the first quarter of 2021. Compensation and benefits expenses within our segments reflect, among other factors, our overall performance, as well as the performance of individual businesses. Consequently, pre-tax margins in one segment of our business may be significantly affected by the performance of our other business segments. A description of segment operating results follows.Investment Banking Investment Banking generates revenues from the following: Financial advisory. Underwriting. Corporate lending. The table below presents our Investment Banking assets.
The table below presents our Investment Banking operating results.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis The table below presents our financial advisory and underwriting transaction volumes.
In the table above: Volumes are per Dealogic. Announced and completed mergers and acquisitions volumes are based on full credit to each of the advisors in a transaction. Equity and equity-related offerings and debt offerings are based on full credit for single book managers and equal credit for joint book managers. Transaction volumes may not be indicative of net revenues in a given period. In addition, transaction volumes for prior periods may vary from amounts previously reported due to the subsequent withdrawal or a change in the value of a transaction. Equity and equity-related offerings includes Rule 144A and public common stock offerings, convertible offerings and rights offerings. Debt offerings includes non-convertible preferred stock, mortgage-backed securities, asset-backed securities and taxable municipal debt. Includes publicly registered and Rule 144A issues and excludes leveraged loans.Operating Environment. During the first quarter of 2021, Investment Banking operated in an environment characterized by strong activity across underwriting and mergers and acquisitions, as the global economy continued to recover. In underwriting, industry-wide activity levels reflected continued strength in equity underwriting, driven by initial public offerings, including growth in special-purpose-acquisition company (SPAC) activity, and increased debt underwriting, including strong high-yield activity. In mergers and acquisitions, industry-wide announced and completed transactions remained at high levels, reflecting stabilizing market conditions and increased CEO confidence. In the future, if market and economic conditions deteriorate, and industry-wide completed mergers and acquisitions transactions decline, or if industry-wide equity and debt underwriting volumes decline, or credit spreads related to hedges on our relationship lending portfolio tighten further, net revenues in Investment Banking would likely be negatively impacted. In addition, a deterioration in the creditworthiness of borrowers would negatively impact the provision for credit losses. Three Months Ended March 2021 versus March 2020. Net revenues in Investment Banking were $3.77 billion for the first quarter of 2021, 73% higher than the first quarter of 2020, reflecting significantly higher net revenues in both Underwriting and Financial advisory, partially offset by significantly lower net revenues in Corporate lending. The increase in Underwriting net revenues was due to significantly higher net revenues in both Equity underwriting, primarily driven by strong initial public offerings activity, and Debt underwriting, primarily reflecting higher net revenues from leveraged finance and asset-backed activity. In Equity underwriting, approximately 15% of net revenues for the first quarter of 2021 were from SPAC activity. The increase in Financial advisory net revenues reflected a significant increase in completed mergers and acquisitions transactions. The decrease in Corporate lending net revenues reflected significantly lower net revenues from relationship lending activities as the prior year period included net gains from the impact of widening credit spreads on hedges. Provision for credit losses was a net benefit of $163 million for the first quarter of 2021, compared with net provisions of $622 million for the first quarter of 2020, due to reserve reductions reflecting continued improvement in the broader economic environment following challenging conditions that began in the first quarter of 2020. Operating expenses were $1.86 billion for the first quarter of 2021, 59% higher than the first quarter of 2020, primarily due to significantly higher compensation and benefits expenses (reflecting strong performance). Pre-tax earnings were $2.07 billion for the first quarter of 2021, compared with $393 million for the first quarter of 2020.As of March 2021, our investment banking transaction backlog increased compared with December 2020, reflecting higher estimated net revenues from potential advisory transactions and significantly higher estimated net revenues from potential debt underwriting transactions (particularly from leveraged finance and investment-grade transactions). Estimated net revenues from potential equity underwriting transactions were essentially unchanged, as deal replenishment offset the strong activity during the quarter.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Our backlog represents an estimate of our net revenues from future transactions where we believe that future revenue realization is more likely than not. We believe changes in our backlog may be a useful indicator of client activity levels which, over the long term, impact our net revenues. However, the time frame for completion and corresponding revenue recognition of transactions in our backlog varies based on the nature of the assignment, as certain transactions may remain in our backlog for longer periods of Global Markets Our Global Markets segment consists of: FICC. FICC generates revenues from intermediation and financing activities. FICC intermediation. Interest Rate Products. Government bonds (including inflation-linked securities) across maturities, other government-backed securities, and interest rate swaps, options and other derivatives. Credit Products. Investment-grade and high-yield corporate Mortgages. Commercial mortgage-related securities, loans and derivatives, residential mortgage-related securities, loans and derivatives (including U.S. government agency-issued collateralized mortgage obligations and other securities and loans), and other asset-backed securities, loans and derivatives. Currencies. Currency options, spot/forwards and other derivatives on G-10 currencies and emerging-market products.Commodities. Commodity derivatives and, to a lesser extent, physical commodities, involving crude oil and petroleum products, natural gas, base, precious and other metals, electricity, coal, agricultural and other commodity products. For further information about market-making activities, see “Market-Making Activities” below. FICC financing. Equities. Equities generates revenues from intermediation and financing activities. Equities intermediation. Equities financing. broker-to-broker THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Market-Making Activities As a market maker, we facilitate transactions in both liquid and less liquid markets, primarily for institutional clients, such as corporations, financial institutions, investment funds and governments, to assist clients in meeting their investment objectives and in managing their risks. In this role, we seek to earn the difference between the price at which a market participant is willing to sell an instrument to us and the price at which another market participant is willing to buy it from us, and vice versa (i.e., bid/offer spread). In addition, we maintain (i) market-making positions, typically for a short period of time, in response to, or in anticipation of, client demand, and (ii) positions to actively manage our risk exposures that arise from these market-making activities (collectively, inventory). Our inventory is recorded in trading assets (long positions) or trading liabilities (short positions) in our consolidated balance sheets. Our results are influenced by a combination of interconnected drivers, including (i) client activity levels and transactional bid/offer spreads (collectively, client activity), and (ii) changes in the fair value of our inventory and interest income and interest expense related to the holding, hedging and funding of our inventory (collectively, market-making inventory changes). Due to the integrated nature of our market-making activities, disaggregation of net revenues into client activity and market-making inventory changes is judgmental and has inherent complexities and limitations. The amount and composition of our net revenues vary over time as these drivers are impacted by multiple interrelated factors affecting economic and market conditions, including volatility and liquidity in the market, changes in interest rates, currency exchange rates, credit spreads, equity prices and commodity prices, investor confidence, and other macroeconomic concerns and uncertainties. In general, assuming all other market-making conditions remain constant, increases in client activity levels or bid/offer spreads tend to result in increases in net revenues, and decreases tend to have the opposite effect. However, changes in market-making conditions can materially impact client activity levels and bid/offer spreads, as well as the fair value of our inventory. For example, a decrease in liquidity in the market could have the impact of (i) increasing our bid/offer spread, (ii) decreasing investor confidence and thereby decreasing client activity levels, and (iii) widening of credit spreads on our inventory positions. The table below presents our Global Markets assets.
The table below presents our Global Markets operating results.
The table below presents our Global Markets net revenues by line item in the consolidated statements of earnings.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis In the table above: The difference between commissions and fees and those in the consolidated statements of earnings represents commissions and fees included in our Consumer & Wealth Management segment. See “Net Revenues” for further information about market making revenues, commissions and fees, other principal transactions revenues and net interest income. See Note 25 to the consolidated financial statements for net interest income by business segment. The primary driver of net revenues for FICC intermediation was client activity. Operating Environment. During the Three Months Ended Net revenues in Global Markets were Net revenues in FICC were The increase in FICC intermediation net revenues reflected the impact of improved market-making conditions on our Net revenues in mortgages and commodities reflected the impact of improved market-making conditions on our inventory. Net revenues in interest rate products Net revenues in currencies Net revenues in Equities were During the quarter, the events related to Archegos Capital, a client with highly concentrated and leveraged positions, did not result in a loss to us or otherwise have a material impact on the net revenues Provision for credit losses was Operating expenses were Pre-tax earnings were $3.42 billion for the first quarter of 2021, 52% higher THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Asset Management We manage client assets across a broad range of investment strategies and asset classes for a diverse set of institutional clients and a network of third-party distributors around the world, including equity, fixed income and alternative investments. We provide investment solutions including those managed on a fiduciary basis by our portfolio managers, as well as those managed by a variety of third-party managers. We offer our investment solutions in a variety of structures, including separately managed accounts, mutual funds, private partnerships and other comingled vehicles. These solutions begin with identifying clients’ objectives and continue through portfolio construction, ongoing asset allocation and risk management and investment realization. In addition to managing client assets, we invest in alternative investments across a range of asset classes that seek to deliver long-term accretive risk-adjusted returns. Our investing activities, which are typically longer term, include investments in corporate equity, credit, real estate and infrastructure assets. Asset Management generates revenues from the following: Management and other fees. of asset-based fees on client assets that we manage. For further information about AUS, see “Assets Under Supervision” below. The fees that we charge vary by asset class, distribution channel and the types of services provided, and are affected by investment performance, as well as asset inflows and redemptions. Incentive fees. Equity investments. Lending and debt investments. The table below presents our Asset Management asset s
The table below presents our Asset Management operating results.
The table below presents our Equity investments net revenues by equity type and asset class.
Operating Environment. In the first quarter of 2021, the operating environment for Asset Management improved, as generally higher global equity prices and tighter corporate credit spreads, aided by optimism about the economic recovery and continued support from central banks and governments globally, provided a more favorable backdrop for asset management activities and investments. If optimism about the economic outlook declines or the ongoing efforts to mitigate the impact of the COVID-19 pandemic are ineffective, it may lead to a decline in asset prices, widening of credit spreads, and investors transitioning to asset classes that typically generate lower fees or investors withdrawing their assets, and net revenues in Asset Management would likely be negatively impacted.THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis
Three Months Ended Net revenues in Asset Management were The increase in Management and other fees reflected the impact of higher average AUS, partially offset by Provision for credit losses was Operating expenses were Pre-tax earnings were pre-tax loss of During the quarter, we had gross sales or announced the sale of $1.5 billion of private equity investments. Since the beginning of 2020, Consumer & Wealth Management Consumer & Wealth Management helps clients achieve their individual financial goals by providing a broad range of wealth advisory and banking services, including financial planning, investment management, deposit taking, and lending. Services are offered through our global network of advisors and via our digital platforms. Wealth Management. Wealth management provides tailored wealth advisory services to clients across the wealth spectrum. We operate globally serving individuals, families, family offices, and We offer personalized financial planning inclusive of income and liability management, compensation and benefits analysis, trust and estate structuring, tax optimization, philanthropic giving, and asset protection. We also provide customized investment advisory solutions, and offer structuring and execution capabilities in security and derivative products across all major global markets. We leverage a broad, open-architecture investment platform and our global execution capabilities to help clients achieve their investment goals. In addition, we offer clients a full range of private banking services, including a variety of deposit alternatives and loans that our clients use to finance investments in both financial and nonfinancial assets, bridge cash flow timing gaps or provide liquidity and flexibility for other needs. Wealth management generates revenues from the following: Management and other fees. Incentive fees. Private banking and lending.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Consumer Banking. Our Consumer banking business issues unsecured loans, through our digital platform, Marcus by Goldman Sachs and credit cards, to finance the purchases of goods or services. We also accept deposits through Marcus, Marcus Invest Consumer banking revenues consist of net interest income earned on unsecured loans issued to consumers through Marcus and credit card lending activities, and net interest income allocated to consumer deposits. The table below presents our Consumer & Wealth Management assets.
The table below presents our Consumer & Wealth Management operating results.
Operating Environment. During the COVID-19 pandemic Three Months Ended Net revenues in Consumer & Wealth Management were Net revenues in Wealth management were Net revenues in Consumer banking were Provision for credit losses was co-branded credit card portfolio, partially offset by a benefit from reserve reductions reflecting continued improvement in the broader economic environment.Operating expenses were $1.50 billion for the first quarter of 2021, 20% higher than the first Pre-tax earnings were
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Assets Under Supervision AUS includes our institutional clients’ assets and assets sourced through third-party distributors (both included in our Asset Management segment), as well as high-net-worth The table below presents information about our firmwide period-end AUS by segment, asset class, distribution channel, region and vehicle.
In the table above: Liquidity products includes money market funds and private bank deposits. EMEA represents Europe, Middle East and Africa. Asset classes, such as alternative investment and equity assets, typically generate higher fees relative to fixed income and liquidity product assets. The average effective management fee (which excludes non-asset-based fees) we earned on our firmwide AUS was 29 basis points for We earn management fees on client assets that we manage and also receive incentive fees based on a percentage of a fund’s or a separately managed account’s return, or when the return exceeds a specified benchmark or other performance targets. These incentive fees are recognized when it is probable that a significant reversal of such fees will not occur. Our estimated unrecognized incentive fees were The table below presents changes in our AUS.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis The table below presents information about our average monthly firmwide AUS by segment and asset class.
In addition to our AUS, we have discretion over alternative investments where we currently do not earn management fees (non-fee-earning The table below presents information about our AUS for alternative assets, non-fee-earning
In the table above: Substantially all corporate equity is private equity. Total alternative assets included uncalled capital that is available for future investing of Non-fee-earning non-fee-earning In the beginning of 2020, we announced a strategic objective of growing our third-party alternatives business, and established targets of achieving net inflows of $100 billion and gross inflows of $150 billion for alternative assets over five years. During 2020 and through the first quarter of 2021, we raised approximately $53 billion in third-party commitments for alternative assets. As of March 2021, approximately $22 billion of these commitments were included in AUS, as they were generating fees. The remaining approximately $31 billion of such commitments were included in non-fee-earning The table below presents information about alternative investments in our Asset Management segment that we hold on our balance sheet.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Loans and Debt Securities. The table below presents the concentration of loans and debt securities within our alternative investments by accounting classification, region and industry.
Equity. The table below presents the concentration of equity securities within our alternative investments by vintage, region and industry.
In the table above: Equity securities included Real estate equity securities consisted of CIE Investments and Other. CIE investments and other included assets held by CIEs of The table below presents the concentration of CIE assets, net of financings, within our alternative investments by vintage, region and asset class.
Geographic Data See Note 25 to the consolidated financial statements for a summary of our total net revenues and pre-tax earnings by geographic region.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Balance Sheet and Funding Sources Balance Sheet Management One of our risk management disciplines is our ability to manage the size and composition of our balance sheet. While our asset base changes due to client activity, market fluctuations and business opportunities, the size and composition of our balance sheet also reflects factors, including (i) our overall risk tolerance, (ii) the amount of equity capital we hold and (iii) our funding profile, among other factors. See “Equity Capital Management and Regulatory Capital — Equity Capital Management” for information about our equity capital management process. Although our balance sheet fluctuates on a day-to-day quarter-end andyear-end dates are generally not materially different from those occurring within our reporting periods.In order to ensure appropriate risk management, we seek to maintain a sufficiently liquid balance sheet and have processes in place to dynamically manage our assets and liabilities, which include (i) balance sheet planning, (ii) balance sheet limits, (iii) monitoring of key metrics and (iv) scenario analyses. Balance Sheet Planning. We prepare a balance sheet plan that combines our projected total assets and composition of assets with our expected funding sources over a three-year time horizon. This plan is reviewed quarterly and may be adjusted in response to changing business needs or market conditions. The objectives of this planning process are: To develop our balance sheet projections, taking into account the general state of the financial markets and expected business activity levels, as well as regulatory requirements; To allow Treasury and our independent risk oversight and control functions to objectively evaluate balance sheet limit requests from our revenue-producing units in the context of our overall balance sheet constraints, including our liability profile and equity capital levels, and key metrics; and To inform the target amount, tenor and type of funding to raise, based on our projected assets and contractual maturities. Treasury and our independent risk oversight and control functions, along with our revenue-producing units, review current and prior period information and expectations for the year to prepare our balance sheet plan. The specific information reviewed includes asset and liability size and composition, limit utilization, risk and performance measures, and capital usage. Our consolidated balance sheet plan, including our balance sheets by business, funding projections and projected key metrics, is reviewed and approved by the Firmwide Asset Liability Committee and the Risk Governance Committee. See “Risk Management — Overview and Structure of Risk Management” for an overview of our risk management structure. Balance Sheet Limits. The Firmwide Asset Liability Committee and the Risk Governance Committee have the responsibility to review and approve balance sheet limits. These limits are set at levels which are close to actual operating levels, rather than at levels which reflect our maximum risk appetite, in order to ensure prompt escalation and discussion among our revenue-producing units, Treasury and our independent risk oversight and control functions on a routine basis. Requests for changes in limits are evaluated after giving consideration to their impact on our key metrics. Compliance with limits is monitored by our revenue-producing units and Treasury, as well as our independent risk oversight and control functions. Monitoring of Key Metrics. We monitor key balance sheet metrics both by business and on a consolidated basis, including asset and liability size and composition, limit utilization and risk measures. We allocate assets to businesses and review and analyze movements resulting from new business activity, as well as market fluctuations. Scenario Analyses. We conduct various scenario analyses, including as part of the Comprehensive Capital Analysis and Review (CCAR) and U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act Stress Tests (DFAST), as well as our resolution and recovery planning. See “Equity Capital Management and Regulatory Capital — Equity Capital Management” for further information about these scenario analyses. These scenarios cover short- and long-term time horizons using various macroeconomic and firm-specific assumptions, based on a range of economic scenarios. We use these analyses to assist us in developing our longer-term balance sheet management strategy, including the level and composition of assets, funding and equity capital. Additionally, these analyses help us develop approaches for maintaining appropriate funding, liquidity and capital across a variety of situations, including a severely stressed environment.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Balance Sheet Analysis and Metrics As of As of Our total securities sold under agreements to repurchase The level of our repurchase agreements fluctuates between and within periods, primarily due to providing clients with access to highly liquid collateral, such as liquid government and agency obligations, through collateralized financing activities. The table below presents information about our balance sheet and leverage ratios.
In the table above: The leverage ratio equals total assets divided by total shareholders’ equity and measures the proportion of equity and debt we use to finance assets. This ratio is different from the leverage ratios included in Note 20 to the consolidated financial statements. The debt-to-equity The table below presents information about our shareholders’ equity and book value per common share, including the reconciliation of common shareholders’ equity to tangible common shareholders’ equity.
In the table above: Tangible common shareholders’ equity is calculated as total shareholders’ equity less preferred stock, goodwill and identifiable intangible assets. We believe that tangible common shareholders’ equity is meaningful because it is a measure that we and investors use to assess capital adequacy. Tangible common shareholders’ equity is a non-GAAP measure and may not be comparable to similarnon-GAAP measures used by other companies.Book value per common share and tangible book value per common share are based on common shares outstanding and restricted stock units granted to employees with no future service requirements and not subject to performance conditions (collectively, basic shares) of non-GAAP measure and may not be comparable to similarnon-GAAP measures used by other companies.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Funding Sources Our primary sources of funding are deposits, collateralized financings, unsecured short- and long-term borrowings, and shareholders’ equity. We seek to maintain broad and diversified funding sources globally across products, programs, markets, currencies and creditors to avoid funding concentrations. The table below presents information about our funding sources.
Our funding is primarily raised in U.S. dollar, Euro, British pound and Japanese yen. We generally distribute our funding products through our own sales force and third-party distributors to a large, diverse creditor base in a variety of markets in the Americas, Europe and Asia. We believe that our relationships with our creditors are critical to our liquidity. Our creditors include banks, governments, securities lenders, corporations, pension funds, insurance companies, mutual funds and individuals. We have imposed various internal guidelines to monitor creditor concentration across our funding programs. Deposits. Our deposits provide us with a diversified source of funding and reduce our reliance on wholesale funding. We raise deposits, including savings, demand and time deposits, from private bank clients, consumers, transaction banking clients, other institutional clients, and through internal and third-party broker-dealers. Secured Funding. We fund a significant amount of inventory and a portion of investments on a secured basis. Secured funding includes collateralized financings in the consolidated balance sheets. We may also pledge our inventory and investments as collateral for securities borrowed under a securities lending agreement. We also use our own inventory and investments to cover transactions in which we or our clients have sold securities that have not yet been purchased. Secured funding is less sensitive to changes in our credit quality than unsecured funding, due to our posting of collateral to our lenders. Nonetheless, we analyze the refinancing risk of our secured funding activities, taking into account trade tenors, maturity profiles, counterparty concentrations, collateral eligibility and counterparty rollover probabilities. We seek to mitigate our refinancing risk by executing term trades with staggered maturities, diversifying counterparties, raising excess secured funding and pre-funding residual risk through our GCLA.We seek to raise secured funding with a term appropriate for the liquidity of the assets that are being financed, and we seek longer maturities for secured funding collateralized by asset classes that may be harder to fund on a secured basis, especially during times of market stress. Our secured funding, excluding funding collateralized by liquid government and agency obligations, is primarily executed for tenors of one month or greater and is primarily executed through term repurchase agreements and securities loaned contracts. The weighted average maturity of our secured funding included in collateralized financings in the consolidated balance sheets, excluding funding that can only be collateralized by liquid government and agency obligations, exceeded 120 days as of Assets that may be harder to fund on a secured basis during times of market stress include certain financial instruments in the following categories: mortgage and other asset-backed loans and securities, non-investment-grade corporate debt securities, equity securities and emerging market securities. Assets that are classified in level 3 of the fair value hierarchy are generally funded on an unsecured basis. See Notes 4 through 10 to the consolidated financial statements for further information about the classification of financial instruments in the fair value hierarchy and “Unsecured Long-Term Borrowings” below for further information about the use of unsecured long-term borrowings as a source of funding.We also raise financing through other types of collateralized financings, such as secured loans and notes. GS Bank USA has access to funding from the Federal Home Loan Bank. Our outstanding borrowings against the Federal Home Loan Bank were Unsecured Short-Term Borrowings. A significant portion of our unsecured short-term borrowings was originally long-term debt that is scheduled to mature within one year of the reporting date. We use unsecured short-term borrowings, including U.S. and non-U.S. hybrid financial instruments and commercial paper, to finance liquid assets and for other cash management purposes. In
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Unsecured Long-Term Borrowings. Unsecured long-term borrowings, including structured notes, are raised through syndicated U.S. registered offerings, U.S. registered and Rule 144A medium-term note programs, offshore medium-term note offerings and other debt offerings. We issue in different tenors, currencies and products to maximize the diversification of our investor base. The table below presents our quarterly unsecured long-term borrowings maturity profile.
The weighted average maturity of our unsecured long-term borrowings as of Shareholders’ Equity. Shareholders’ equity is a stable and perpetual source of funding. See Note 19 to the consolidated financial statements for further information about our shareholders’ equity. Equity Capital Management and Regulatory Capital Capital adequacy is of critical importance to us. We have in place a comprehensive capital management policy that provides a framework, defines objectives and establishes guidelines to assist us in maintaining the appropriate level and composition of capital in both business-as-usual Equity Capital Management We determine the appropriate amount and composition of our equity capital by considering multiple factors, including our current and future regulatory capital requirements, the results of our capital planning and stress testing process, the results of resolution capital models and other factors, such as rating agency guidelines, subsidiary capital requirements, the business environment and conditions in the financial markets. We manage our capital requirements and the levels of our capital usage principally by setting limits on the balance sheet and/or limits on risk, in each case at both the firmwide and business levels. We principally manage the level and composition of our equity capital through issuances and repurchases of our common stock. We may issue, redeem or repurchase our preferred stock, junior subordinated debt issued to trusts, and other subordinated debt or other forms of capital as business conditions warrant. Prior to such redemptions or repurchases, we must receive approval from the Board of Governors of the Federal Reserve System (FRB). See Notes 14 and 19 to the consolidated financial statements for further information about our preferred stock, junior subordinated debt issued to trusts and other subordinated debt. Capital Planning and Stress Testing Process. As part of capital planning, we project sources and uses of capital given a range of business environments, including stressed conditions. Our stress testing process is designed to identify and measure material risks associated with our business activities, including market risk, credit risk and operational risk, as well as our ability to generate revenues. Our capital planning process incorporates an internal capital adequacy assessment with the objective of ensuring that we are appropriately capitalized relative to the risks in our businesses. We incorporate stress scenarios into our capital planning process with a goal of holding sufficient capital to ensure we remain adequately capitalized after experiencing a severe stress event. Our assessment of capital adequacy is viewed in tandem with our assessment of liquidity adequacy and is integrated into our overall risk management structure, governance and policy framework.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Our stress tests incorporate our internally designed stress scenarios, including our internally developed severely adverse scenario, and those required As required by the FRB’s CCAR rules, we submit an annual capital plan for review by the FRB. The purpose of the FRB’s review is to ensure that we have a robust, forward-looking capital planning process that accounts for our unique risks and that permits continued operation during times of economic and financial stress. We submitted our The FRB evaluates us based, in part, on whether we have the capital necessary to continue operating under the baseline and severely adverse scenarios provided by the FRB and those developed internally. This evaluation also takes into account our process for identifying risk, our controls and governance for capital planning, and our guidelines for making capital planning decisions. In addition, the FRB evaluates our plan to make capital distributions (i.e., dividend payments and repurchases or redemptions of stock, subordinated debt or other capital securities) and issue capital, across the range of macroeconomic scenarios and firm-specific assumptions. The FRB determines the COVID-19 pandemic on the economy, the FRB required all large bank holding companies (BHCs) to suspend stock repurchases through the fourth quarter of 2020 and to notGS Bank USA has its own capital planning process, but Contingency Capital Plan. As part of our comprehensive capital management policy, we maintain a contingency capital plan. Our contingency capital plan provides a framework for analyzing and responding to a perceived or actual capital deficiency, including, but not limited to, identification of drivers of a capital deficiency, as well as mitigants and potential actions. It outlines the appropriate communication procedures to follow during a crisis period, including internal dissemination of information, as well as timely communication with external stakeholders.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Capital Attribution. We assess each of our businesses’ capital usage based on our internal assessment of risks, which incorporates an attribution Effective on January 1, 2021, we adjusted the attributed equity framework in line with the impact of the SCB rule and our SCB of 6.6%, which became effective on October 1, 2020 under the Standardized approach. The adjusted attributed equity framework places greater emphasis on activities that generate significant stress losses and higher Standardized risk weights. As a result of this adjustment, relative to the allocation as of December 2020, the allocation of attributed equity among our segments at the start of this year changed as follows: attributed equity increased by approximately $3.7 billion for Asset Management and approximately $0.7 billion for Consumer & Wealth Management, while attributed equity decreased by approximately $2.3 billion for Global Markets and approximately $2.1 billion for Investment Banking. See “Segment Assets and Operating Results — Segment Operating Results” for information about our average quarterly attributed equity by segment. Share Repurchase Program. We use our share repurchase program to help maintain the appropriate level of common equity. The repurchase program is effected primarily through regular open-market purchases (which may include repurchase plans designed to comply with Rule 10b5-1 and accelerated share repurchases), the amounts and timing of which are determined primarily by our current and projected capital position and our capital plan submitted to the FRB as part of CCAR. The amounts and timing of the repurchases may also be influenced by general market conditions and the prevailing price and trading volumes of our common stock.As of Form 10-Q and Note 19 to the consolidated financial statements for further information about our share repurchase program, and see above for information about our capital planning and stress testing process.Resolution Capital Models. In connection with our resolution planning efforts, we have established a Resolution Capital Adequacy and Positioning framework, which is designed to ensure that our major subsidiaries (GS Bank USA, Goldman Sachs & Co. LLC (GS&Co.), GSI, GSIB, Goldman Sachs Japan Co., Ltd. (GSJCL), Goldman Sachs Asset Management, L.P. In addition, we have established a triggers and alerts framework, which is designed to provide the Board of Directors of Group Inc. (Board) with information needed to make an informed decision on whether and when to commence bankruptcy proceedings for Group Inc. Rating Agency Guidelines The credit rating agencies assign credit ratings to the obligations of Group Inc., which directly issues or guarantees substantially all of our senior unsecured debt obligations. GS&Co. and GSI have been assigned long- and short-term issuer ratings by certain credit rating agencies. GS Bank USA, GSIB and The level and composition of our equity capital are among the many factors considered in determining our credit ratings. Each agency has its own definition 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 “Risk Management — Liquidity Risk Management — Credit Ratings” for further information about credit ratings of Group Inc., GS Bank USA, GSIB, GSBE, GS&Co. and GSI.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Consolidated Regulatory Capital We are subject to consolidated regulatory capital requirements which are calculated in accordance with the regulations of the FRB (Capital Framework). Under the Capital Framework, we are an “Advanced approach” banking organization and have been designated as a global systemically important bank (G-SIB). The capital requirements calculated G-SIB surcharge G-SIB surcharge isG-SIB surcharge G-SIB surcharge and countercyclical capital buffer in the future may differ due to additional guidance from our regulators and/or positional based upon the execution of our previously announced strategic initiatives and achievement of capital efficiencies. See Note 20 to the consolidated financial statements for further information about our risk-based capital ratios and leverage ratios, and the Capital Framework. Total Loss-Absorbing Capacity (TLAC) We are also subject to the FRB’s TLAC and related requirements. Failure to comply with the TLAC and related requirements could result in restrictions being imposed by the FRB and could limit our ability to repurchase shares, pay dividends and make certain discretionary compensation payments. The table below presents TLAC and external long-term debt requirements.
In the table above: The TLAC to RWAs requirement includes (i) the 18% minimum, (ii) the 2.5% buffer, (iii) the 1.5% G-SIB surcharge (Method 1) and (iv) the countercyclical capital buffer, which the FRB has set to zero percent.The TLAC to leverage exposure requirement includes (i) the 7.5% minimum and (ii) the 2.0% leverage exposure buffer. The external long-term debt to RWAs requirement includes (i) the 6% minimum and (ii) the 2.5% G-SIB surcharge (Method 2).The external long-term debt to total leverage exposure is the 4.5% minimum. The table below presents information about our TLAC and external long-term debt ratios.
In the table above: TLAC includes common and preferred stock, and eligible long-term debt issued by Group Inc. Eligible long-term debt represents unsecured debt, which has a remaining maturity of at least one year and satisfies additional requirements. External long-term debt consists of eligible long-term debt subject to a haircut if it is due to be paid between one and two years. RWAs represent Advanced RWAs as of
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Leverage exposure consists of average adjusted total assets and certain off-balance sheet exposures. as permitted by the FRB under a temporary amendment. Effective April 1, 2021, the amendment permitting this exclusion expired and, as a result, the TLAC and external long-term debt to leverage exposure ratios for the three months ended June 2021 will not reflect the impact of the temporary amendment to exclude the holdings of such assets. This temporary amendment See “Business — Regulation” in Part I, Item 1 of the Form 10-K for further information about TLAC.Subsidiary Capital Requirements Many of our subsidiaries, including our bank and broker-dealer subsidiaries, are subject to separate regulation and capital requirements of the jurisdictions in which they operate. Bank Subsidiaries. GS Bank USA is our primary U.S. banking subsidiary and GSIB non-U.S. banking U.S. Regulated Broker-Dealer Subsidiaries. GS&Co. is our primary U.S. regulated broker-dealer subsidiary and is subject to regulatory capital requirements, including those imposed by the SEC and the Financial Industry Regulatory Authority, Inc. In addition, GS&Co. is a registered futures commission merchant and is subject to regulatory capital requirements imposed by the CFTC, the Chicago Mercantile Exchange and the National Futures Association. Rule 15c3-1 of the SEC and Rule 1.17 of the CFTC specify uniform minimum net capital requirements, as defined, for their registrants, and also effectively require that a significant part of the registrants’ assets be kept in relatively liquid form. GS&Co. has elected to calculate its minimum capital requirements in accordance with the “Alternative Net Capital Requirement” as permitted byRule 15c3-1. GS&Co. had regulatory net capital, as defined by Rule 15c3-1, of Rule 15c3-1. GS&Co. is also required to notify the SEC in the event that its tentative net capital is less than $5 billion. As of both Non-U.S. Regulated Broker-Dealer Subsidiaries.Our principal non-U.S. regulated broker-dealer subsidiaries include GSI and GSJCL.GSI, our U.K. broker-dealer, is regulated by the GSI is subject to the U.K. capital framework, The table below presents GSI’s risk-based capital requirements.
In the table above, the risk-based capital requirements incorporate capital guidance received from the PRA and could change in the future.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis The table below presents information about GSI’s risk-based capital ratios.
In the table above, CET1 capital, Tier 1 capital and Total capital as of GSI will become subject to PRA-required leverage ratio GSI is also subject to a minimum requirement for own funds and eligible liabilities issued to affiliates. This requirement is subject to a transitional period which began to phase in from January GSJCL, our Japanese broker-dealer, is regulated by Japan’s Financial Services Agency. GSJCL and certain other non-U.S. subsidiaries are also subject to capital requirements promulgated by authorities of the countries in which they operate. As of both Regulatory and Other Matters Regulatory Matters Our businesses are subject to extensive regulation and supervision worldwide. Regulations have been adopted or are being considered by regulators and policy makers worldwide. Given that many of the new and proposed rules are highly complex, the full impact of regulatory reform will not be known until the rules are implemented and market practices develop under the final regulations. See “Business — Regulation” in Part I, Item 1 of the Form 10-K for further information about the laws, rules and regulations and proposed laws, rules and regulations that apply to us and our operations.Other Matters Replacement of Interbank Offered Rates (IBORs), including LIBOR. Central banks and regulators in a number of major jurisdictions (for example, U.S., U.K., E.U., Switzerland and Japan) have convened working groups to find, and implement the transition to suitable replacements for IBORs. In March 2021, the FCA and the Intercontinental Exchange Benchmark Authority announced that the publication of all EUR and CHF LIBOR settings along with certain JPY, GBP and USD LIBOR settings will cease after December 31, 2021 and the publication of the most commonly used USD LIBOR settings will cease after June 30, 2023. The FCA plans to consult the market on publishing synthetic rates for certain GBP and JPY LIBOR settings for a limited time. In April 2021, the State of New York approved legislation which
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and The IBOR Fallbacks Protocol, which We have Form 10-K for further information about our transition program.Impact of COVID-19 Pandemic.COVID-19 pandemic, We have continued to successfully execute on our Business Continuity Planning (BCP) strategy since initially activating it in the first quarter of 2020 in response to the emergence of the COVID-19 pandemic. Our priority has been to safeguard our employees and to seek to ensure continuity of business operations on behalf of our clients. Our business continuity response to theCOVID-19 pandemic is managed by a central team, which is led by our chief administrative officer and chief medical officer, and includes senior management within Risk and the chief operating officers across all regions and businesses. on-site testing and other protocols, such as controls around building access, strict physical distancing measures and enhanced cleaning Our systems and infrastructure have COVID-19 pandemic, enabling us to COVID-19 pandemic, our Management Committee and other senior leaders have met regularly and our executive officers have provided regular and enhanced communications to promote connectivity with our clients and employees worldwide.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis We maintained a strong level of liquidity As a result of the COVID-19 pandemic, we have had to apply a greater degree of judgment in making certain accounting estimates and assumptions. The Value-at-Risk COVID-19 COVID-19 pandemic,
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis The COVID-19 pandemic, see “Risk Factors” in Part Form 10-K.
Off-Balance Sheet ArrangementsIn the ordinary course of business, we enter into various types of off-balance sheet arrangements. Our involvement in these arrangements can take many different forms, including:Purchasing or retaining residual and other interests in special purpose entities, such as mortgage-backed and other asset-backed securitization vehicles; Holding senior and subordinated debt, interests in limited and general partnerships, and preferred and common stock in other nonconsolidated vehicles; Entering into interest rate, foreign currency, equity, commodity and credit derivatives, including total return swaps; and Providing guarantees, indemnifications, commitments, letters of credit and representations and warranties. We enter into these arrangements for a variety of business purposes, including securitizations. The securitization vehicles that purchase mortgages, corporate bonds, and other types of financial assets are critical to the functioning of several significant investor markets, including the mortgage-backed and other asset-backed securities markets, since they offer investors access to specific cash flows and risks created through the securitization process. We also enter into these arrangements to underwrite client securitization transactions; provide secondary market liquidity; make investments in performing and nonperforming debt, distressed loans, power-related assets, equity securities, real estate and other assets; provide investors with credit-linked and asset-repackaged notes; and receive or provide letters of credit to satisfy margin requirements and to facilitate the clearance and settlement process. The table below presents where information about our various off-balance sheet arrangements may be found in thisForm 10-Q. In addition, see Note 3 to the consolidated financial statements for information about our consolidation policies.
Contractual Obligations We have certain contractual obligations which require us to make future cash payments. These contractual obligations include our time deposits, secured long-term financings, unsecured long-term borrowings, interest payments and operating lease payments. Our obligations to make future cash payments also include our commitments and guarantees related to off-balance sheet arrangements, which are excluded from the table below. See Note 18 to the consolidated financial statements for further information about such commitments and guarantees.Due to the uncertainty of the timing and amounts that will ultimately be paid, our liability for unrecognized tax benefits has been excluded from the table below. See Note 24 to the consolidated financial statements for further information about our unrecognized tax benefits. The table below presents our contractual obligations by type.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis The table below presents our contractual obligations by expiration.
In the table above: Obligations maturing within one year of our financial statement date or redeemable within one year of our financial statement date at the option of the holders are excluded as they are treated as short-term obligations. See Note 14 to the consolidated financial statements for further information about our short-term borrowings. Obligations that are repayable prior to maturity at our option are reflected at their contractual maturity dates and obligations that are redeemable prior to maturity at the option of the holders are reflected at the earliest dates such options become exercisable. As of As of As of Interest payments represents estimated future contractual interest payments related to unsecured long-term borrowings, secured long-term financings and time deposits based on applicable interest rates as of Operating lease payments includes lease commitments for office space that expire on various dates through 2069. Certain agreements are subject to periodic escalation provisions for increases in real estate taxes and other charges. See Note 15 to the consolidated financial statements for further information about our operating lease liabilities. Risk Management Risks are inherent in our businesses and include liquidity, market, credit, operational, model, legal, compliance, conduct, regulatory and reputational risks. Our risks include the risks across our risk categories, regions or global businesses, as well as those which have uncertain outcomes and have the potential to materially impact our financial results, our liquidity and our reputation. For further information about our risk management processes, see “Overview and Structure of Risk Management,” and for information about our areas of risk, see “Liquidity Risk Management,” “Market Risk Management,” “Credit Risk Management,” “Operational Risk Management” and “Model Risk Management” and “Risk Factors” in Part Form 10-K. Overview and Structure of Risk Management Overview We believe that effective risk management is critical to our success. Accordingly, we have established an enterprise risk management framework that employs a comprehensive, integrated approach to risk management, and is designed to enable comprehensive risk management processes through which we identify, assess, monitor and manage the risks we assume in conducting our activities. Our risk management structure is built around three core components: governance, processes and people. Governance. Risk management governance starts with the Board, which both directly and through its committees, including its Risk Committee, oversees our risk management policies and practices implemented through the enterprise risk management framework. The Board is also responsible for the annual review and approval of our risk appetite statement. The risk appetite statement describes the levels and types of risk we are willing to accept or to avoid, in order to achieve our objectives included in our strategic business plan, while remaining in compliance with regulatory requirements. The Board reviews our strategic business plan and is ultimately responsible for overseeing and providing direction about our strategy and risk appetite.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis The Board receives regular briefings on firmwide risks, including liquidity risk, market risk, credit risk, operational risk and model risk, from our independent risk oversight and control functions, including the chief risk officer, and on compliance risk and conduct risk from Compliance, on legal and regulatory enforcement matters from the The implementation of our risk governance structure and core risk management processes are overseen by Enterprise Risk, which reports to our chief risk officer, and is responsible for ensuring that our enterprise risk management framework provides the Board, our risk committees and senior management with a consistent and integrated approach to managing our various risks in a manner consistent with our risk appetite. Our revenue-producing units, as well as Treasury, Engineering, Human Capital Management, Operations, and Our independent risk oversight and control functions are considered our second line of defense and provide independent assessment, oversight and challenge of the risks taken by our first line of defense, as well as lead and participate in risk committees. Independent risk oversight and control functions include Compliance, Conflicts Resolution, Controllers, Internal Audit is considered our third line of defense and reports to the Audit Committee of the Board and administratively to our chief executive officer. Internal Audit includes professionals with a broad range of audit and industry experience, including risk management expertise. Internal Audit is responsible for independently assessing and validating the effectiveness of key controls, including those within the risk management framework, and providing timely reporting to the Audit Committee of the Board, senior management and regulators. The three lines of defense structure promotes the accountability of first line risk takers, provides a framework for effective challenge by the second line and empowers independent review from the third line. Processes. We maintain various processes that are critical components of our risk management framework, including (i) risk identification and assessment, (ii) risk appetite, limit and threshold setting, (iii) risk reporting and monitoring, and (iv) risk decision-making. Risk Identification and Assessment. To effectively assess our risks, we maintain a daily discipline of marking substantially all of our inventory to current market levels. We carry our inventory at fair value, with changes in valuation reflected immediately in our risk management systems and in net revenues. We do so because we believe this discipline is one of the most effective tools for assessing and managing risk and that it provides transparent and realistic insight into our inventory exposures. An important part of our risk management process is firmwide stress testing. It allows us to quantify our exposure to tail risks, highlight potential loss concentrations, undertake risk/reward analysis, and assess and mitigate our risk positions. Firmwide stress tests are performed on a regular basis and are designed to ensure a comprehensive analysis of our vulnerabilities and idiosyncratic risks combining financial and nonfinancial risks, including, but not limited to, credit, market, liquidity and funding, operational and compliance, strategic, systemic and emerging risks into a single combined scenario. We also perform ad hoc stress tests in anticipation of market events or conditions. Stress tests are also used to assess capital adequacy as part of our capital planning and stress testing process. See “Equity Capital Management and Regulatory Capital — Equity Capital Management” for further information.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Risk Appetite, Limit and Threshold Setting. The Risk Governance Committee is responsible for approving limits at firmwide, business and product levels. Certain limits may be set at levels that will require periodic adjustment, rather than at levels that reflect our maximum risk appetite. This fosters an ongoing dialogue about risk among our first and second lines of defense, committees and senior management, as well as rapid escalation of risk-related matters. Additionally, through delegated authority from the Risk Governance Committee, Market Risk sets limits at certain product and desk levels, and Credit Risk sets limits for individual counterparties, counterparties and their subsidiaries, industries and countries. Limits are reviewed regularly and amended on a permanent or temporary basis to reflect changing market conditions, business conditions or risk tolerance.Risk Reporting and Monitoring. We evaluate changes in our risk profile and our businesses, including changes in business mix or jurisdictions in which we operate, by monitoring risk factors at a firmwide level. Risk Decision-Making. decision-making on risk management issues and ensures implementation of those decisions. We make extensive use of risk committees that meet regularly and serve as an important means to facilitate and foster ongoing discussions to manage and mitigate risks.We maintain strong and proactive communication about risk and we have a culture of collaboration in decision-making among our first and second lines of defense, committees and senior management. While our first line of defense is responsible for management of their risk, we dedicate extensive resources to our second line of defense in order to ensure a strong oversight structure and an appropriate segregation of duties. We regularly reinforce our strong culture of escalation and accountability across all functions. People. Even the best technology serves only as a tool for helping to make informed decisions in real time about the risks we are taking. Ultimately, effective risk management requires our people to interpret our risk data on an ongoing and timely basis and adjust risk positions accordingly. The experience of our professionals, and their understanding of the nuances and limitations of each risk measure, guides us in assessing exposures and maintaining them within prudent levels. We reinforce a culture of effective risk management, consistent with our risk appetite, in our training and development programs, as well as in the way we evaluate performance, and recognize and reward our people. Our training and development programs, including certain sessions led by our most senior leaders, are focused on the importance of risk management, client relationships and reputational excellence. As part of our
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Structure Ultimate oversight of risk is the responsibility of our Board. The Board oversees risk both directly and through its committees, including its Risk Committee. We have a series of committees with specific risk management mandates that have oversight or decision-making responsibilities for risk management activities. Committee membership generally consists of senior managers from both our first and second lines of defense. We have established procedures for these committees to ensure that appropriate information barriers are in place. Our primary risk committees, most of which also have additional sub-committees or working groups, are described below. In addition to these committees, we have other risk committees that provide oversight for different businesses, activities, products, regions and entities. All of our committees have responsibility for considering the impact on our reputation of the transactions and activities Membership of our risk committees is reviewed regularly and updated to reflect changes in the responsibilities of the committee members. Accordingly, the length of time that members serve on the respective committees varies as determined by the committee chairs and based on the responsibilities of the members. The chart below presents an overview of our risk management governance structure. Management Committee. The Management Committee oversees our global activities. It provides this oversight directly and through authority delegated to committees it has established. This committee consists of our most senior leaders, and is chaired by our chief executive officer. Most members of the Management Committee are also members of other committees. The following are the committees that are principally involved in firmwide risk management. Firmwide Enterprise Risk Committee. The Firmwide Enterprise Risk Committee is responsible for overseeing all of our financial and nonfinancial risks. As co-chaired by our chief financial officer and our chief risk officer, who are appointed as chairs by our chief executive officer, and reports to the Management Committee. The following are the primary committees that report to the Firmwide Enterprise Risk Committee:Firmwide Risk Committee. co-chaired by the chairs of the Firmwide Enterprise Risk Committee.Firmwide New Activity Committee. co-chaired by the controller and chief accounting officer, and the head of Operations and Firmwide Operational Risk and Resilience Committee. co-chaired by our chief administrative officer and deputy chief risk officer, who are appointed as chairs by the chairs of the Firmwide Enterprise Risk Committee.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Firmwide Conduct Committee. Risk Governance Committee. Firmwide Client and Business Standards Committee. The Firmwide Client and Business Standards Committee is responsible for overseeing relationships with our clients, client service and experience, and related business standards, as well as client-related reputational matters. This committee is chaired by our president and chief operating officer, who is appointed as chair by the chief executive officer, and reports to the Management Committee. This committee periodically provides updates to, and receives guidance from, the Public Responsibilities Committee of the Board. The following committees report jointly to the Firmwide Enterprise Risk Committee and the Firmwide Client and Business Standards Committee: Firmwide Reputational Risk Committee. Firmwide Suitability Committee. co-chaired by our chief compliance officer, and theco-head of EMEA FICC sales, who are appointed as chairs by the chair of the Firmwide Client and Business Standards Committee.Firmwide Investment Policy Committee. co-chaired by the head of our co-head of our Global Markets Division and the chief risk officer, who are appointed as chairs by our president and chief operating officer and our chief financial officer.Firmwide Capital Committee. co-chaired by the head of Credit Risk and Market Risk, and aco-head of the Financing Group, who are appointed as chairs by the chairs of the Firmwide Enterprise Risk Committee.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Firmwide Commitments Committee. co-chaired by theco-head of the Industrials Group in our Investment Banking Division, the chief Firmwide Asset Liability Committee. The Firmwide Asset Liability Committee reviews and approves the strategic direction for our financial resources, including capital, liquidity, funding and balance sheet. This committee has oversight responsibility for asset liability management, including interest rate and currency risk, funds transfer pricing, capital allocation and incentives, and credit ratings. This committee makes recommendations as to any adjustments to asset liability management and financial resource allocation in light of current events, risks, exposures, and regulatory requirements and approves related policies. This committee is co-chaired by our chief financial officer and our global treasurer, who are appointed as chairs by our chief executive officer, and reports to the Management Committee.Conflicts Management Conflicts of interest and our approach to dealing with them are fundamental to our client relationships, our reputation and our long-term success. The term “conflict of interest” does not have a universally accepted meaning, and conflicts can arise in many forms within a business or between businesses. The responsibility for identifying potential conflicts, as well as complying with our policies and procedures, is shared by all of our employees. We have a multilayered approach to resolving conflicts and addressing reputational risk. Our senior management oversees policies related to conflicts resolution, and, in conjunction with Conflicts Resolution, Legal and Compliance, the Firmwide Client and Business Standards Committee, and other internal committees, formulates policies, standards and principles, and assists in making judgments regarding the appropriate resolution of particular conflicts. Resolving potential conflicts necessarily depends on the facts and circumstances of a particular situation and the application of experienced and informed judgment. As a general matter, Conflicts Resolution reviews financing and advisory assignments in Investment Banking and certain of our investing, lending and other activities. In addition, we have various transaction oversight committees, such as the Firmwide Capital, Commitments and Suitability Committees and other committees that also review new underwritings, loans, investments and structured products. These groups and committees work with internal and external counsel and Compliance to evaluate and address any actual or potential conflicts. Conflicts Resolution reports to our president and chief operating officer. We regularly assess our policies and procedures that address conflicts of interest in an effort to conduct our business in accordance with the highest ethical standards and in compliance with all applicable laws, rules and regulations. Compliance Risk Management Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to our reputation arising from our failure to comply with the requirements of applicable laws, rules and regulations, and our internal policies and procedures. Compliance risk is inherent in all activities through which we conduct our businesses. Our Compliance Risk Management Program, administered by Compliance, assesses our compliance, regulatory and reputational risk; monitors for compliance with new or amended laws, rules and regulations; designs and implements controls, policies, procedures and training; conducts independent testing; investigates, surveils and monitors for compliance risks and breaches; and leads our responses to regulatory examinations, audits and inquiries. We monitor and review business practices to assess whether they meet or exceed minimum regulatory and legal standards in all markets and jurisdictions in which we conduct business.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Liquidity Risk Management Overview Liquidity risk is the risk that we will be unable to fund ourselves or meet our liquidity needs in the event of firm-specific, broader industry or market liquidity stress events. We have in place a comprehensive and conservative set of liquidity and funding policies. Our principal objective is to be able to fund ourselves and to enable our core businesses to continue to serve clients and generate revenues, even under adverse circumstances. Treasury, which reports to our chief financial officer, has primary responsibility for developing, managing and executing our liquidity and funding strategy within our risk appetite. Liquidity Risk, which is independent of our revenue-producing units and Treasury, and reports to our chief risk officer, has primary responsibility for assessing, monitoring and managing our liquidity risk through firmwide oversight across our global businesses and the establishment of stress testing and limits frameworks. Liquidity Risk Management Principles We manage liquidity risk according to three principles: (i) hold sufficient excess liquidity in the form of GCLA to cover outflows during a stressed period, (ii) maintain appropriate Asset-Liability Management and (iii) maintain a viable Contingency Funding Plan. GCLA. GCLA is liquidity that we maintain to meet a broad range of potential cash outflows and collateral needs in a stressed environment. A primary liquidity principle is to pre-fund our estimated potential cash and collateral needs during a liquidity crisis and hold this liquidity in the form of unencumbered, highly liquid securities and cash. We believe that the securities held in our GCLA would be readily convertible to cash in a matter of days, through liquidation, by entering into repurchase agreements or from maturities of Our GCLA reflects the following principles: The first days or weeks of a liquidity crisis are the most critical to a company’s survival; Focus must be maintained on all potential cash and collateral outflows, not just disruptions to financing flows. Our businesses are diverse, and our liquidity needs are determined by many factors, including market movements, collateral requirements and client commitments, all of which can change dramatically in a difficult funding environment; During a liquidity crisis, credit-sensitive funding, including unsecured debt, certain deposits and some types of secured financing agreements, may be unavailable, and the terms (e.g., interest rates, collateral provisions and tenor) or availability of other types of secured financing may change and certain deposits may be withdrawn; and As a result of our policy to pre-fund liquidity that we estimate may be needed in a crisis, we hold more unencumbered securities and have larger funding balances than our businesses would otherwise require. We believe that our liquidity is stronger with greater balances of highly liquid unencumbered securities, even though it increases our total assets and our funding costs.We maintain our GCLA across Group Inc., Goldman Sachs Funding LLC (Funding IHC) and Group Inc.’s major broker-dealer and bank subsidiaries, asset types and clearing agents to provide us with sufficient operating liquidity to ensure timely settlement in all major markets, even in a difficult funding environment. In addition to the GCLA, we maintain cash balances and securities in several of our other entities, primarily for use in specific currencies, entities or jurisdictions where we do not have immediate access to parent company liquidity. Asset-Liability Management. Our liquidity risk management policies are designed to ensure we have a sufficient amount of financing, even when funding markets experience persistent stress. We manage the maturities and diversity of our funding across markets, products and counterparties, and seek to maintain a diversified funding profile with an appropriate tenor, taking into consideration the characteristics and liquidity profile of our assets. Our approach to asset-liability management includes: Conservatively managing the overall characteristics of our funding book, with a focus on maintaining long-term, diversified sources of funding in excess of our current requirements. See “Balance Sheet and Funding Sources — Funding Sources” for further information; Actively managing and monitoring our asset base, with particular focus on the liquidity, holding period and ability to fund assets on a secured basis. We assess our funding requirements and our ability to liquidate assets in a stressed environment while appropriately managing risk. This enables us to determine the most appropriate funding products and tenors. See “Balance Sheet and Funding Sources — Balance Sheet Management” for further information about our balance sheet management process and “— Funding Sources — Secured Funding” for further information about asset classes that may be harder to fund on a secured basis; and
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Raising secured and unsecured financing that has a long tenor relative to the liquidity profile of our assets. This reduces the risk that our liabilities will come due in advance of our ability to generate liquidity from the sale of our assets. Because we maintain a highly liquid balance sheet, the holding period of certain of our assets may be materially shorter than their contractual maturity dates. Our goal is to ensure that we maintain sufficient liquidity to fund our assets and meet our contractual and contingent obligations in normal times, as well as during periods of market stress. Through our dynamic balance sheet management process, we use actual and projected asset balances to determine secured and unsecured funding requirements. Funding plans are reviewed and approved by the Firmwide Asset Liability Committee. In addition, our independent risk oversight and control functions analyze, and the Firmwide Asset Liability Committee reviews, our consolidated total capital position (unsecured long-term borrowings plus total shareholders’ equity) so that we maintain a level of long-term funding that is sufficient to meet our long-term financing requirements. In a liquidity crisis, we would first use our GCLA in order to avoid reliance on asset sales (other than our GCLA). However, we recognize that orderly asset sales may be prudent or necessary in a severe or persistent liquidity crisis. Subsidiary Funding Policies The majority of our unsecured funding is raised by Group Inc., which Our intercompany funding policies assume that a subsidiary’s funds or securities are not freely available to its parent, Funding IHC or other subsidiaries unless (i) legally provided for and (ii) there are no additional regulatory, tax or other restrictions. In particular, many of our subsidiaries are subject to laws that authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to Group Inc. or Funding IHC. Regulatory action of that kind could impede access to funds that Group Inc. needs to make payments on its obligations. Accordingly, we assume that the capital provided to our regulated subsidiaries is not available to Group Inc. or other subsidiaries and any other financing provided to our regulated subsidiaries is not available to Group Inc. or Funding IHC until the maturity of such financing. Group Inc. has provided substantial amounts of equity and subordinated indebtedness, directly or indirectly, to its regulated subsidiaries. For example, as of Contingency Funding Plan. We maintain a contingency funding plan to provide a framework for analyzing and responding to a liquidity crisis situation or periods of market stress. Our contingency funding plan outlines a list of potential risk factors, key reports and metrics that are reviewed on an ongoing basis to assist in assessing the severity of, and managing through, a liquidity crisis and/or market dislocation. The contingency funding plan also describes in detail our potential responses if our assessments indicate that we have entered a liquidity crisis, which include pre-funding for what we estimate will be our potential cash and collateral needs, as well as utilizing secondary sources of liquidity. Mitigants and action items to address specific risks which may arise are also described and assigned to individuals responsible for execution.The contingency funding plan identifies key groups of individuals and their responsibilities, which include fostering effective coordination, control and distribution of information, implementing liquidity maintenance activities and managing internal and external communication, all of which are critical in the management of a crisis or period of market stress.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Stress Tests In order to determine the appropriate size of our GCLA, we model liquidity outflows over a range of scenarios and time horizons. One of our primary internal liquidity risk models, referred to as the Modeled Liquidity Outflow, quantifies our liquidity risks over a 30-day stress scenario. We also consider other factors, including, but not limited to, an assessment of our potential intraday liquidity needs through an additional internal liquidity risk model, referred to as the Intraday Liquidity Model, the results of our long-term stress testing models, our resolution liquidity models and other applicable regulatory requirements and a qualitative assessment of our condition, as well as the financial markets. The results of the Modeled Liquidity Outflow, the Intraday Liquidity Model, the long-term stress testing models and the resolution liquidity models are reported to senior management on a regular basis. We also perform firmwide stress tests. See “Overview and Structure of Risk Management” for information about firmwide stress tests.Modeled Liquidity Outflow. Our Modeled Liquidity Outflow is based on conducting multiple scenarios that include combinations of market-wide and firm-specific stress. These scenarios are characterized by the following qualitative elements: Severely challenged market environments, which includes low consumer and corporate confidence, financial and political instability, and adverse changes in market values, including potential declines in equity markets and widening of credit spreads; and A firm-specific crisis potentially triggered by material losses, reputational damage, litigation and/or a ratings downgrade. The following are key modeling elements of our Modeled Liquidity Outflow: Liquidity needs over a 30-day scenario;A two-notch downgrade of our long-term senior unsecured credit ratings;Changing conditions in funding markets, which limit our access to unsecured and secured funding; No support from additional government funding facilities. Although we have access to various central bank funding programs, we do not assume reliance on additional sources of funding in a liquidity crisis; and A combination of contractual outflows, such as upcoming maturities of unsecured debt, and contingent outflows, including, but not limited to, the withdrawal of customer credit balances in our prime brokerage business, increase in variation margin requirements due to adverse changes in the value of our exchange-traded and OTC-cleared derivatives, and withdrawals of deposits that have no contractual maturity.Intraday Liquidity Model. Our Intraday Liquidity Model measures our intraday liquidity needs using a scenario analysis characterized by the same qualitative elements as our Modeled Liquidity Outflow. The model assesses the risk of increased intraday liquidity requirements during a scenario where access to sources of intraday liquidity may become constrained. Long-Term Stress Testing. We utilize longer-term stress tests to take a forward view on our liquidity position through prolonged stress periods in which we experience a severe liquidity stress and recover in an environment that continues to be challenging. We are focused on ensuring conservative asset-liability management to prepare for a prolonged period of potential stress, seeking to maintain a diversified funding profile with an appropriate tenor, taking into consideration the characteristics and liquidity profile of our assets. Resolution Liquidity Models. In connection with our resolution planning efforts, we have established our Resolution Liquidity Adequacy and Positioning framework, which estimates liquidity needs of our major subsidiaries in a stressed environment. The liquidity needs are measured using our Modeled Liquidity Outflow assumptions and include certain additional inter-affiliate exposures. We have also established our Resolution Liquidity Execution Need framework, which measures the liquidity needs of our major subsidiaries to stabilize and wind-down following a Group Inc. bankruptcy filing in accordance with our preferred resolution strategy. In addition, we have established a triggers and alerts framework, which is designed to provide the Board with information needed to make an informed decision on whether and when to commence bankruptcy proceedings for Group Inc. Limits We use liquidity risk limits at various levels and across liquidity risk types to manage the size of our liquidity exposures. Limits are measured relative to acceptable levels of risk given our liquidity risk tolerance. See “Overview and Structure of Risk Management” for information about the limit approval process. Limits are monitored by Treasury and Liquidity Risk. Liquidity Risk is responsible for identifying and escalating to senior management and/or the appropriate risk committee, on a timely basis, instances where limits have been exceeded.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis GCLA and Unencumbered Metrics GCLA. Based on the results of our internal liquidity risk models, described above, as well as our consideration of other factors, including, but not limited to, a qualitative assessment of our condition, as well as the financial markets, we believe our liquidity position as of both The table below presents information about our GCLA.
In the table above: The U.S. dollar-denominated GCLA consists of (i) unencumbered U.S. government and agency obligations (including highly liquid U.S. agency mortgage-backed obligations), all of which are eligible as collateral in Federal Reserve open market operations and (ii) certain overnight U.S. dollar cash deposits. The non-U.S. dollar-denominated GCLA consists ofnon-U.S. government obligations (only unencumbered German, French, Japanese and U.K. government obligations) and certain overnight cash deposits in highly liquid currencies.We maintain our GCLA to enable us to meet current and potential liquidity requirements of our parent company, Group Inc., and its subsidiaries. Our Modeled Liquidity Outflow and Intraday Liquidity Model incorporate a requirement for Group Inc., as well as a standalone requirement for each of our major broker-dealer and bank subsidiaries. Funding IHC is required to provide the necessary liquidity to Group Inc. during the ordinary course of business, and is also obligated to provide capital and liquidity support to major subsidiaries in the event of our material financial distress or failure. Liquidity held directly in each of our major broker-dealer and bank subsidiaries is intended for use only by that subsidiary to meet its liquidity requirements and is assumed not to be available to Group Inc. or Funding IHC unless (i) legally provided for and (ii) there are no additional regulatory, tax or other restrictions. In addition, the Modeled Liquidity Outflow and Intraday Liquidity Model also incorporate a broader assessment of standalone liquidity requirements for other subsidiaries and we hold a portion of our GCLA directly at Group Inc. or Funding IHC to support such requirements. Other Unencumbered Assets. In addition to our GCLA, we have a significant amount of other unencumbered cash and financial instruments, including other government obligations, high-grade money market securities, corporate obligations, marginable equities, loans and cash deposits not included in our GCLA. The fair value of our unencumbered assets averaged Liquidity Regulatory Framework As a BHC, we are subject to a minimum Liquidity Coverage Ratio (LCR) under the LCR rule approved by the U.S. federal bank regulatory agencies. The LCR rule requires organizations to maintain an adequate ratio of eligible high-quality liquid assets (HQLA) to expected net cash outflows under an acute, short-term liquidity stress scenario. Eligible HQLA excludes HQLA held by subsidiaries that is in excess of their minimum requirement and is subject to transfer restrictions. We are required to maintain a minimum LCR of 100%. We expect that fluctuations in client activity, business mix and the market environment will impact our LCR. The table below presents information about our average daily LCR.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis
In October 2020, the U.S. federal bank regulatory agencies issued a final rule that establishes a net stable funding ratio (NSFR) requirement for large U.S. banking organizations. This rule will become effective on July 1, 2021 and requires banking organizations to ensure they have access to stable funding over a one-year time horizon. The rule also requires disclosure of the ratio on a semi-annual basis and a description of the banking organization’s stable funding sources beginning in 2023. Our estimated NSFR as of March 2021 exceeded the minimum requirement, based on our current interpretation of the final rule.The following provides information about our subsidiary liquidity regulatory requirements: GS Bank USA. GSI. Other Subsidiaries. The implementation of these rules and any amendments adopted by the regulatory authorities could impact our liquidity and funding requirements and practices in the future. Credit Ratings We rely on the short- and long-term debt capital markets to fund a significant portion of our day-to-day Form 10-K for information about the risks associated with a reduction in our credit ratings.The table below presents the unsecured credit ratings and outlook of Group Inc.
In the table above: The ratings and outlook are by DBRS, Inc. (DBRS), Fitch, Inc. (Fitch), Moody’s Investors Service (Moody’s), Rating and Investment Information, Inc. (R&I), and Standard & Poor’s Ratings Services (S&P). The ratings for trust preferred relate to the guaranteed preferred beneficial interests issued by Goldman Sachs Capital I. The DBRS, Fitch, Moody’s and S&P ratings for preferred stock include the APEX issued by Goldman Sachs Capital II and Goldman Sachs Capital III. In The table below presents the unsecured credit ratings and outlook of GS Bank USA, GSIB, GSBE, GS&Co. and GSI.
In April 2021, Fitch revised the outlook of GS Bank USA, GSIB, GSBE, GS&Co. and GSI from negative to stable.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis We believe our credit ratings are primarily based on the credit rating agencies’ assessment of: Our liquidity, market, credit and operational risk management practices; Our level and variability of earnings; Our capital base; Our franchise, reputation and management; Our corporate governance; and The external operating and economic environment, including, in some cases, the assumed level of government support or other systemic considerations, such as potential resolution. Certain of our derivatives have been transacted under bilateral agreements with counterparties who may require us to post collateral or terminate the transactions based on changes in our credit ratings. We manage our GCLA to ensure we would, among other potential requirements, be able to make the additional collateral or termination payments that may be required in the event of a two-notch reduction in our long-term credit ratings, as well as collateral that has not been called by counterparties, but is available to them.See Note 7 to the consolidated financial statements for further information about derivatives with credit-related contingent features and the additional collateral or termination payments related to our net derivative liabilities under bilateral agreements that could have been called by counterparties in the event of a one- ortwo-notch downgrade in our credit ratings.Cash Flows As a global financial institution, our cash flows are complex and bear little relation to our net earnings and net assets. Consequently, we believe that traditional cash flow analysis is less meaningful in evaluating our liquidity position than the liquidity and asset-liability management policies described above. Cash flow analysis may, however, be helpful in highlighting certain macro trends and strategic initiatives in our businesses. Our cash and cash equivalents increased by Our cash and cash equivalents decreased by
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Market Risk Management Overview Market risk is the risk of loss in the value of our inventory, investments, loans and other financial assets and liabilities accounted for at fair value due to changes in market conditions. We hold such positions primarily for market making for our clients and for our investing and financing activities, and therefore, these positions change based on client demands and our investment opportunities. Since these positions are accounted for at fair value, they fluctuate on a daily basis, with the related gains and losses included in the consolidated statements of earnings. We employ a variety of risk measures, each described in the respective sections below, to monitor market risk. Categories of market risk include the following: Interest rate risk: results from exposures to changes in the level, slope and curvature of yield curves, the volatilities of interest rates, prepayment speeds and credit spreads; Equity price risk: results from exposures to changes in prices and volatilities of individual equities, baskets of equities and equity indices; Currency rate risk: results from exposures to changes in spot prices, forward prices and volatilities of currency rates; and Commodity price risk: results from exposures to changes in spot prices, forward prices and volatilities of commodities, such as crude oil, petroleum products, natural gas, electricity, and precious and base metals. Market Risk, which is independent of our revenue-producing units and reports to our chief risk officer, has primary responsibility for assessing, monitoring and managing our market risk through firmwide oversight across our global businesses. Managers in revenue-producing units and Market Risk discuss market information, positions and estimated loss scenarios on an ongoing basis. Managers in revenue-producing units are accountable for managing risk within prescribed limits. These managers have in-depth knowledge of their positions, markets and the instruments available to hedge their exposures.Market Risk Management Process Our process for managing market risk includes the critical components of our risk management framework described in the “Overview and Structure of Risk Management,” as well as the following: Monitoring compliance with established market risk limits and reporting our exposures; Diversifying exposures; Controlling position sizes; and Evaluating mitigants, such as economic hedges in related securities or derivatives. Our market risk management systems enable us to perform an independent calculation of VaR and stress measures, capture risk measures at individual position levels, attribute risk measures to individual risk factors of each position, report many different views of the risk measures (e.g., by desk, business, product type or entity) and produce ad hoc analyses in a timely manner. Risk Measures We produce risk measures and monitor them against established market risk limits. These measures reflect an extensive range of scenarios and the results are aggregated at product, business and firmwide levels. We use a variety of risk measures to estimate the size of potential losses for both moderate and more extreme market moves over both short- and long-term time horizons. Our primary risk measures are VaR, which is used for shorter-term periods, and stress tests. Our risk reports detail key risks, drivers and changes for each desk and business, and are distributed daily to senior management of both our revenue-producing units and our independent risk oversight and control functions. Value-at-Risk. VaR is the potential loss in value due to adverse market movements over a defined time horizon with a specified confidence level. For assets and liabilities included in VaR, see “Financial Statement Linkages to Market Risk Measures.” We typically employ a one-day time horizon with a 95% confidence level. We use a single VaR model, which captures risks, including interest rates, equity prices, currency rates and commodity prices. As such, VaR facilitates comparison across portfolios of different risk characteristics. VaR also captures the diversification of aggregated risk at the firmwide level.We are aware of the inherent limitations to VaR and therefore use a variety of risk measures in our market risk management process. Inherent limitations to VaR include: VaR does not estimate potential losses over longer time horizons where moves may be extreme; VaR does not take account of the relative liquidity of different risk positions; and Previous moves in market risk factors may not produce accurate predictions of all future market moves.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis To comprehensively capture our exposures and relevant risks in our VaR calculation, we use historical simulations with full valuation of market factors at the position level by simultaneously shocking the relevant market factors for that position. These market factors include spot prices, credit spreads, funding spreads, yield curves, volatility and correlation, and are updated periodically based on changes in the composition of positions, as well as variations in market conditions. We sample from five years of historical data to generate the scenarios for our VaR calculation. The historical data is weighted so that the relative importance of the data reduces over time. This gives greater importance to more recent observations and reflects current asset volatilities, which improves the accuracy of our estimates of potential loss. As a result, even if our positions included in VaR were unchanged, our VaR would increase with increasing market volatility and vice versa. Given its reliance on historical data, VaR is most effective in estimating risk exposures in markets in which there are no sudden fundamental changes or shifts in market conditions. Our VaR measure does not include: Positions that are best measured and monitored using sensitivity measures; and The impact of changes in counterparty and our own credit spreads on derivatives, as well as changes in our own credit spreads on financial liabilities for which the fair value option was elected. We perform daily backtesting of our VaR model (i.e., comparing daily net revenues for positions included in VaR to the VaR measure calculated as of the prior business day) at the firmwide level and for each of our businesses and major regulated subsidiaries. Stress Testing. Stress testing is a method of determining the effect of various hypothetical stress scenarios. We use stress testing to examine risks of specific portfolios, as well as the potential impact of our significant risk exposures. We use a variety of stress testing techniques to calculate the potential loss from a wide range of market moves on our portfolios, including firmwide stress tests, sensitivity analysis and scenario analysis. The results of our various stress tests are analyzed together for risk management purposes. See “Overview and Structure of Risk Management” for information about firmwide stress tests. Sensitivity analysis is used to quantify the impact of a market move in a single risk factor across all positions (e.g., equity prices or credit spreads) using a variety of defined market shocks, ranging from those that could be expected over a one-day time horizon up to those that could take many months to occur. We also use sensitivity analysis to quantify the impact of the default of any single entity, which captures the risk of large or concentrated exposures.Scenario analysis is used to quantify the impact of a specified event, including how the event impacts multiple risk factors simultaneously. For example, for sovereign stress testing we calculate potential direct exposure associated with our sovereign positions, as well as the corresponding debt, equity and currency exposures associated with our non-sovereign positions that may be impacted by the sovereign distress. When conducting scenario analysis, we often consider a number of possible outcomes for each scenario, ranging from moderate to severely adverse market impacts. In addition, these stress tests are constructed using both historical events and forward-looking hypothetical scenarios.Unlike VaR measures, which have an implied probability because they are calculated at a specified confidence level, there may not be an implied probability that our stress testing scenarios will occur. Instead, stress testing is used to model both moderate and more extreme moves in underlying market factors. When estimating potential loss, we generally assume that our positions cannot be reduced or hedged (although experience demonstrates that we are generally able to do so). Limits We use market risk limits at various levels to manage the size of our market exposures. These limits are set based on VaR and on a range of stress tests relevant to our exposures. See “Overview and Structure of Risk Management” for information about the limit approval process. Market Risk is responsible for monitoring these limits, and identifying and escalating to senior management and/or the appropriate risk committee, on a timely basis, instances where limits have been exceeded (e.g., due to positional changes or changes in market conditions, such as increased volatilities or changes in correlations). Such instances are remediated by a reduction in the positions we hold and/or a temporary or permanent increase to the limit. Metrics We analyze VaR at the firmwide level and a variety of more detailed levels, including by risk category, business and region. Diversification effect in the tables below represents the difference between total VaR and the sum of the VaRs for the four risk categories. This effect arises because the four market risk categories are not perfectly correlated. The table below presents our average daily VaR.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Our average daily VaR Our average daily VaR increased to The table below presents our period-end VaR.
Our period-end VaR decreased to Our period-end VaR decreased to $84 million as of March 2021 from $123 million as of March 2020, due to decreases in the interest rates, During the The table below presents our high and low VaR.
The chart below presents our daily VaR for the The table below presents, by number of business days, the frequency distribution of our daily net revenues for positions included in VaR.
Daily net revenues for positions included in VaR are compared with VaR calculated as of the end of the prior business day. Net losses incurred on a single day for such positions did not exceed our 95% one-day VaR (i.e., a VaR exception) during
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis During periods in which we have significantly more positive net revenue days than net revenue loss days, we expect to have fewer VaR exceptions because, under normal conditions, our business model generally produces positive net revenues. In periods in which our franchise revenues are adversely affected, we generally have more loss days, resulting in more VaR exceptions. The daily net revenues for positions included in VaR used to determine VaR exceptions reflect the impact of any intraday activity, including bid/offer net revenues, which are more likely than not to be positive by their nature. Sensitivity Measures Certain portfolios and individual positions are not included in VaR because VaR is not the most appropriate risk measure. Other sensitivity measures we use to analyze market risk are described below. 10% Sensitivity Measures. The table below presents our market risk by asset category for positions accounted for at fair value, that are not included in VaR.
In the table above: The market risk of these positions is determined by estimating the potential reduction in net revenues of a 10% decline in the value of these positions. Equity positions relate to private and restricted public equity securities, including interests in funds that invest in corporate equities and real estate and interests in hedge funds. Debt positions include interests in funds that invest in corporate mezzanine and senior debt instruments, loans backed by commercial and residential real estate, corporate bank loans and other corporate debt, including acquired portfolios of distressed loans. Funded equity and debt positions are included in our consolidated balance sheets in investments and loans. See Note 8 to the consolidated financial statements for further information about investments and Note 9 to the consolidated financial statements for further information about loans. These measures do not reflect the diversification effect across asset categories or across other market risk measures. Credit and Funding Spread Sensitivity on Derivatives and Financial Liabilities. VaR excludes the impact of changes in counterparty credit spreads, our own credit spreads and unsecured funding spreads on derivatives, as well as changes in our own credit spreads (debt valuation adjustment) on financial liabilities for which the fair value option was elected. The estimated sensitivity to a one basis point increase in credit spreads (counterparty and our own) and unsecured funding spreads on derivatives (including hedges) was a loss of $2 million as of March 2021 and $3 million as of Interest Rate Sensitivity. Loans accounted for at amortized cost were Other Market Risk Considerations available-for-sale, held-to-maturity Direct investments in real estate are accounted for at cost less accumulated depreciation. See Note 12 to the consolidated financial statements for further information about other assets.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Financial Statement Linkages to Market Risk Measures We employ a variety of risk measures, each described in the respective sections above, to monitor market risk across the consolidated balance sheets and consolidated statements of earnings. The related gains and losses on these positions are included in market making, other principal transactions, interest income and interest expense in the consolidated statements of earnings, and debt valuation adjustment in the consolidated statements of comprehensive income. The table below presents certain assets and liabilities in our consolidated balance sheets and the market risk measures used to assess those assets and liabilities.
Credit Risk Management Overview Credit risk represents the potential for loss due to the default or deterioration in credit quality of a counterparty (e.g., an OTC derivatives counterparty or a borrower) or an issuer of securities or other instruments we hold. Our exposure to credit risk comes mostly from client transactions in OTC derivatives and loans and lending commitments. Credit risk also comes from cash placed with banks, securities financing transactions (i.e., resale and repurchase agreements and securities borrowing and lending activities) and customer and other receivables. Credit Risk, which is independent of our revenue-producing units and reports to our chief risk officer, has primary responsibility for assessing, monitoring and managing our credit risk through firmwide oversight across our global businesses. Credit Risk Management Process Our process for managing credit risk includes the critical components of our risk management framework described in the “Overview and Structure of Risk Management,” as well as the following: Monitoring compliance with established credit risk limits and reporting our credit exposures and credit concentrations; Establishing or approving underwriting standards; Assessing the likelihood that a counterparty will default on its payment obligations; Measuring our current and potential credit exposure and losses resulting from a counterparty default; Using credit risk mitigants, including collateral and hedging; and Maximizing recovery through active workout and restructuring of claims. We also perform credit reviews, which include initial and ongoing analyses of our counterparties. For substantially all of our credit exposures, the core of our process is an annual counterparty credit review. A credit review is an independent analysis of the capacity and willingness of a counterparty to meet its financial obligations, resulting in an internal credit rating. The determination of internal credit ratings also incorporates assumptions with respect to the nature of and outlook for the counterparty’s industry, and the economic environment. Senior personnel, with expertise in specific industries, inspect and approve credit reviews and internal credit ratings. Our risk assessment process may also include, where applicable, reviewing certain key metrics, including, but not limited to, delinquency status, collateral values, FICO credit scores and other risk factors.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Our credit risk management systems capture credit exposure to individual counterparties and on an aggregate basis to counterparties and their subsidiaries. These systems also provide management with comprehensive information about our aggregate credit risk by product, internal credit rating, industry, country and region. Risk Measures We measure our credit risk based on the potential loss in the event of non-payment by a counterparty using current and potential exposure. For derivatives and securities financing transactions, current exposure represents the amount presently owed to us after taking into account applicable netting and collateral arrangements, while potential exposure represents our estimate of the future exposure that could arise over the life of a transaction based on market movements within a specified confidence level. Potential exposure also takes into account netting and collateral arrangements. For loans and lending commitments, the primary measure is a function of the notional amount of the position.Stress Tests We conduct regular stress tests to calculate the credit exposures, including potential concentrations that would result from applying shocks to counterparty credit ratings or credit risk factors (e.g., currency rates, interest rates, equity prices). These shocks cover a wide range of moderate and more extreme market movements, including shocks to multiple risk factors, consistent with the occurrence of a severe market or economic event. In the case of sovereign default, we estimate the direct impact of the default on our sovereign credit exposures, changes to our credit exposures arising from potential market moves in response to the default, and the impact of credit market deterioration on corporate borrowers and counterparties that may result from the sovereign default. Unlike potential exposure, which is calculated within a specified confidence level, stress testing does not generally assume a probability of these events occurring. We also perform firmwide stress tests. See “Overview and Structure of Risk Management” for information about firmwide stress tests. To supplement these regular stress tests, as described above, we also conduct tailored stress tests on an ad hoc basis in response to specific market events that we deem significant. We also utilize these stress tests to estimate the indirect impact of certain hypothetical events on our country exposures, such as the impact of credit market deterioration on corporate borrowers and counterparties along with the shocks to the risk factors described above. The parameters of these shocks vary based on the scenario reflected in each stress test. We review estimated losses produced by the stress tests in order to understand their magnitude, highlight potential loss concentrations, and assess and mitigate our exposures where necessary. Limits We use credit risk limits at various levels, as well as underwriting standards to manage the size and nature of our credit exposures. Limits for industries and countries are based on our risk appetite and are designed to allow for regular monitoring, review, escalation and management of credit risk concentrations. See “Overview and Structure of Risk Management” for information about the limit approval process. Credit Risk is responsible for monitoring these limits, and identifying and escalating to senior management and/or the appropriate risk committee, on a timely basis, instances where limits have been exceeded. Risk Mitigants To reduce our credit exposures on derivatives and securities financing transactions, we may enter into netting agreements with counterparties that permit us to offset receivables and payables with such counterparties. We may also reduce credit risk with counterparties by entering into agreements that enable us to obtain collateral from them on an upfront or contingent basis and/or to terminate transactions if the counterparty’s credit rating falls below a specified level. We monitor the fair value of the collateral to ensure that our credit exposures are appropriately collateralized. We seek to minimize exposures where there is a significant positive correlation between the creditworthiness of our counterparties and the market value of collateral we receive. For loans and lending commitments, depending on the credit quality of the borrower and other characteristics of the transaction, we employ a variety of potential risk mitigants. Risk mitigants include collateral provisions, guarantees, covenants, structural seniority of the bank loan claims and, for certain lending commitments, provisions in the legal documentation that allow us to adjust loan amounts, pricing, structure and other terms as market conditions change. The type and structure of risk mitigants employed can significantly influence the degree of credit risk involved in a loan or lending commitment. When we do not have sufficient visibility into a counterparty’s financial strength or when we believe a counterparty requires support from its parent, we may obtain third-party guarantees of the counterparty’s obligations. We may also mitigate our credit risk using credit derivatives or participation agreements.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Credit Exposures As of non-investment-grade counterparties (based on our internally determined public rating agency equivalents) decreased Cash and Cash Equivalents. Our credit exposure on cash and cash equivalents arises from our unrestricted cash, and includes both interest-bearing and non-interest-bearing deposits. To mitigate the risk of credit loss, we place substantially all of our deposits with highly rated banks and central banks.The table below presents our credit exposure from unrestricted cash and cash equivalents, and the concentration by industry, region and
The table above excludes cash segregated for regulatory and other purposes of OTC Derivatives. Our credit exposure on OTC derivatives arises primarily from our market-making activities. As a market maker, we enter into derivative transactions to provide liquidity to clients and to facilitate the transfer and hedging of their risks. We also enter into derivatives to manage market risk exposures. We manage our credit exposure on OTC derivatives using the credit risk process, measures, limits and risk mitigants described above. We generally enter into OTC derivatives transactions under bilateral collateral arrangements that require the daily exchange of collateral. As credit risk is an essential component of fair value, we include a credit valuation adjustment (CVA) in the fair value of derivatives to reflect counterparty credit risk, as described in Note 7 to the consolidated financial statements. CVA is a function of the present value of expected exposure, the probability of counterparty default and the assumed recovery upon default. The table below presents our net credit exposure from OTC derivatives and the concentration by industry and region.
In the table above: OTC derivative assets, included in the consolidated balance sheets, are reported on a net-by-counterparty Collateral represents cash collateral and the fair value of securities collateral, primarily U.S. and non-U.S. government and agency obligations, received under credit support agreements, that we consider when determining credit risk, but such collateral is not eligible for netting under U.S. GAAP.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis The table below presents the distribution of our net credit exposure from OTC derivatives by tenor.
In the table above: Tenor is based on remaining contractual maturity. Netting includes counterparty netting across tenor categories and The tables below present the distribution of our net credit exposure from OTC derivatives by tenor and internally determined public rating agency equivalents.
Lending Activities. We manage our lending activities using the credit risk process, measures, limits and risk mitigants described above. Other lending positions, including secondary trading positions, are risk-managed as a component of market risk. The table below presents our loans and lending commitments.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis The table below presents our credit exposure from corporate loans and lending
In the table above, credit exposure excludes $2.99 billion as of March 2021 and $3.20 billion as of December 2020 relating to issued letters of credit which are classified as guarantees in our consolidated financial statements. See Note 18 to the consolidated financial statements for further information about guarantees. Wealth Management. Wealth management loans and lending commitments are extended to The table below presents our credit exposure from wealth management loans and lending commitments, and the concentration by region, internally determined public rating agency equivalents and other credit metrics.
In the table above, other metrics/unrated loans primarily include loans backed by residential real estate. Our risk assessment process for such loans include reviewing certain key metrics, such as loan-to-value
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Commercial Real Estate. Commercial real estate loans and lending commitments include originated loans and lending commitments (other than those extended to private bank clients) that are directly or indirectly secured by hotels, retail stores, multifamily housing complexes and commercial and The table below presents our credit exposure from commercial real estate loans and lending commitments, and the concentration by
In addition, we also have credit exposure to certain commercial real estate Residential Real Estate. Residential real estate loans and lending commitments The table below presents our credit exposure from
In the table above:
Credit exposure includes loans and lending commitments of $10.53 billion as of March 2021 and $5.71 billion as of December 2020 which are extended to clients who warehouse assets that are directly or indirectly secured by residential real estate. Other metrics/unrated primarily includes loans purchased by us. Our risk assessment process for such loans includes reviewing certain key metrics, such as loan-to-value In addition, we also have exposure to residential real estate loans held for securitization of $7.21 billion as of March 2021 and $5.57 billion as of December 2020. Such loans are included in trading assets in our consolidated balance sheets.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Installment and Credit Card Lending. We originate unsecured installment loans and credit card loans (pursuant to revolving lines of credit) to consumers in the Americas. The credit card lines are cancellable by us and therefore do not result in credit exposure. The table below presents our credit exposure from originated installment and credit card
See Note 9 to the consolidated financial statements for further information about Other. Other loans and lending commitments are extended to clients who warehouse assets that are directly or indirectly secured by consumer loans, including auto loans and private student loans. Other loans also includes unsecured consumer and credit card loans purchased by us. The table below presents our credit exposure from other loans and lending commitments, and the concentration by region internally determined public rating agency equivalents and other credit metrics.
In the table above: Credit exposure includes loans and lending commitments extended to clients who warehouse assets of $7.49 billion as of March 2021 and $7.28 billion as of December 2020. Other metrics/unrated primarily includes consumer and credit card loans purchased by us. Our risk assessment process for such loans includes reviewing certain key metrics, such as expected cash flows, delinquency status and other risk factors. In addition, we also have exposure to other loans held for securitization of $414 million as of March 2021 and $420 million as of December 2020. Such loans are included in trading assets in our consolidated balance sheets. Credit Hedges To mitigate the credit risk associated with our lending activities, we obtain credit protection on certain loans and lending commitments through credit default swaps, both single-name and index-based contracts, and through the issuance of credit-linked notes. In addition, Sumitomo Mitsui Financial Group, Inc. provides us with credit loss protection on certain approved loan commitments.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Securities Financing Transactions. We enter into securities financing transactions in order to, among other things, facilitate client activities, invest excess cash, acquire securities to cover short positions and finance certain activities. We bear credit risk related to resale agreements and securities borrowed only to the extent that cash advanced or the value of securities pledged or delivered to the counterparty exceeds the value of the collateral received. We also have credit exposure on repurchase agreements and securities loaned to the extent that the value of securities pledged or delivered to the counterparty for these transactions exceeds the amount of cash or collateral received. Securities collateral non-U.S. government and agency obligations.The table below presents our credit exposure from securities financing transactions and the concentration by industry, region and
The table above reflects both netting agreements and collateral that we consider when determining credit risk. Other Credit Exposures. We are exposed to credit risk from our receivables from brokers, dealers and clearing organizations and customers and counterparties. Receivables from brokers, dealers and clearing organizations primarily consist of initial margin placed with clearing organizations and receivables related to sales of securities which have traded, but not yet settled. These receivables generally have minimal credit risk due to the low probability of clearing organization default and the short-term nature of receivables related to securities settlements. Receivables from customers and counterparties generally consist of collateralized receivables related to customer securities transactions and generally have minimal credit risk due to both the value of the collateral received and the short-term nature of these receivables. The table below presents our other credit exposures and the concentration by industry, region and
The table above reflects collateral that we consider when determining credit risk. Selected Exposures We have credit and market exposures, as described below, that have had heightened focus
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Country Exposures. High external funding needs and fiscal policy changes have led to significant depreciation of the Turkish Lira prompting concerns about foreign exchange reserves and economic instability. As of March 2021, our total credit exposure to Turkey was $2.42 billion, which was with non-sovereign counterparties or borrowers. Such exposure consisted of $1.46 billion related to OTC derivatives, $290 million related to loans and lending commitments and $668 million related to secured receivables. After taking into consideration the benefit of hedges and Turkish corporate and sovereign collateral, and other risk mitigants provided by Turkish counterparties, our net credit exposure was $551 million. In addition, our total market exposure to Turkey as of March 2021 was $228 million, primarily withnon-sovereign issuers or underliers. Such exposure consisted of $319 million related to debt, $(89) million related to credit derivatives and $(2) million related to equities.Liquidity pressures prompted the Argentine government to non-sovereign counterparties or borrowers, and was primarily related to loans and lending commitments. Our total market exposure to Argentina as of The restructuring of Lebanon’s sovereign debt COVID-19 pandemic have led to concerns about Zambia’s financial stability. As of Venezuela has delayed payments on its sovereign debt and its political situation remains unclear. As of We have a comprehensive framework to monitor, measure and assess our country exposures and to determine our risk appetite. We determine the country of risk by the location of the counterparty, issuer or underlier’s assets, where they generate revenue, the country in which they are headquartered, the jurisdiction where a claim against them could be enforced, and/or the government whose policies affect their ability to repay their obligations. We monitor our credit exposure to a specific country both at the individual counterparty level, as well as at the aggregate country level. See “Stress Tests” for information about stress tests that are designed to estimate the direct and indirect impact of events involving the above countries. Industry Exposures. The COVID-19 pandemic has resulted in a significant impact to the gaming and lodging industry. As of non-investment-grade counterparties ($non-investment-grade counterparties. In addition, we have exposure to our clients in the gaming and lodging industry arising from derivatives. As of non-investment-grade counterparties. After taking into consideration the benefit of $80 million of hedges, our net credit exposure was $2.38 billion. As of non-investment-grade issuers or underliers. Such exposure consisted of Concerns surrounding the COVID-19 pandemic have resulted in a sharp decline in travel which has significantly impacted the airline industry. As of non-investment-grade counterparties, non-investment-grade counterparties). After taking into consideration the benefit of non-investment-grade issuers or underliers. Such exposure consisted of
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Operational Risk Management Overview Operational risk is the risk of an adverse outcome resulting from inadequate or failed internal processes, people, systems or from external events. Our exposure to operational risk arises from routine processing errors, as well as extraordinary incidents, such as major systems failures or legal and regulatory matters. Potential types of loss events related to internal and external operational risk include: Clients, products and business practices; Execution, delivery and process management; Business disruption and system failures; Employment practices and workplace safety; Damage to physical assets; Internal fraud; and External fraud. Operational Risk, which is independent of our revenue-producing units and reports to our chief risk officer, has primary responsibility for developing and implementing a formalized framework for assessing, monitoring and managing operational risk with the goal of maintaining our exposure to operational risk at levels that are within our risk appetite. Operational Risk Management Process Our process for managing operational risk includes the critical components of our risk management framework described in the “Overview and Structure of Risk Management,” including a comprehensive data collection process, as well as firmwide policies and procedures, for operational risk events. We combine top-down andbottom-up approaches to manage and measure operational risk. From atop-down perspective, our senior management assesses firmwide and business-level operational risk profiles. From abottom-up perspective, our first and second lines of defense are responsible for risk identification and risk management on aday-to-day We maintain a comprehensive control framework designed to provide a well-controlled environment to minimize operational risks. The Firmwide Operational Risk and Resilience Committee is responsible for overseeing operational risk, and for ensuring our business and operational resilience. Our operational risk management framework is in part designed to comply with the operational risk measurement rules under the Capital Framework and has evolved based on the changing needs of our businesses and regulatory guidance. We have established policies that require all employees to report and escalate operational risk events. When operational risk events are identified, our policies require that the events be documented and analyzed to determine whether changes are required in our systems and/or processes to further mitigate the risk of future events. We use operational risk management applications to capture and organize operational risk event data and key metrics. One of our key risk identification and assessment tools is an operational risk and control self-assessment process, which is performed by our managers. This process consists of the identification and rating of operational risks, on a forward-looking basis, and the related controls. The results from this process are analyzed to evaluate operational risk exposures and identify businesses, activities or products with heightened levels of operational risk. Risk Measurement We measure our operational risk exposure using both statistical modeling and scenario analyses, which involve qualitative and quantitative assessments of internal and external operational risk event data and internal control factors for each of our businesses. Operational risk measurement also incorporates an assessment of business environment factors, including: Evaluations of the complexity of our business activities; The degree of automation in our processes; New activity information; The legal and regulatory environment; and Changes in the markets for our products and services, including the diversity and sophistication of our customers and counterparties. The results from these scenario analyses are used to monitor changes in operational risk and to determine business lines that may have heightened exposure to operational risk. These analyses are used in the determination of the appropriate level of operational risk capital to hold. We also perform firmwide stress tests. See “Overview and Structure of Risk Management” for information about firmwide stress tests.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Types of Operational Risks Increased reliance on technology and third-party relationships has resulted in increased operational risks, such as information and cyber security risk, third-party risk and business resilience risk. We manage those risks as follows: Information and Cyber Security Risk. Information and cyber security risk is the risk of compromising the confidentiality, integrity or availability of our data and systems, leading to an adverse impact to us, our reputation, our clients and/or the broader financial system. We seek to minimize the occurrence and impact of unauthorized access, disruption or use of information and/or information systems. We deploy and operate preventive and detective controls and processes to mitigate emerging and evolving information security and cyber security threats, including monitoring our network for known vulnerabilities and signs of unauthorized attempts to access our data and systems. There is increased information risk through diversification of our data across external service providers, including use of a variety of cloud-provided or -hosted services and applications. See “Risk Factors” in Part Form 10-K for further information about information and cyber security risk.Third-Party Risk. Third-party risk, including vendor risk, is the risk of an adverse impact due to reliance on third parties performing services or activities on our behalf. These risks may include legal, regulatory, information security, reputational, operational or any other risks inherent in engaging a third party. We identify, manage and report key third-party risks and conduct due diligence across multiple risk domains, including information security and cyber security, resilience and additional third-party dependencies. The Third-Party Risk Program monitors, reviews and reassesses third-party risks on an ongoing basis. See “Risk Factors” in Part Form 10-K for further information about third-party risk.Business Resilience Risk. Business resilience risk is the risk of disruption to our critical processes. We monitor threats and assess risks and seek to ensure our state of readiness in the event of a significant operational disruption to the normal operations of our critical functions or their dependencies, such as critical facilities, systems, third parties, data and/or personnel. We approach BCP through the lens of business and operational resilience. The resilience framework defines the fundamental principles for BCP and crisis management to ensure that critical functions can continue to operate in the event of a disruption. The business continuity program is comprehensive, consistent firmwide and up-to-date, COVID-19 pandemic. See “Business — Business Continuity and Information Security” in Part I, Item 1 of the Form 10-K for further information about business continuity.Model Risk Management Overview Model risk is the potential for adverse consequences from decisions made based on model outputs that may be incorrect or used inappropriately. We rely on quantitative models across our business activities primarily to value certain financial assets and liabilities, to monitor and manage our risk, and to measure and monitor our regulatory capital. Model Risk, which is independent of our revenue-producing units, model developers, model owners and model users, and reports to our chief risk officer, has primary responsibility for assessing, monitoring and managing our model risk through firmwide oversight across our global businesses, and provides periodic updates to senior management, risk committees and the Risk Committee of the Board. Our model risk management framework is managed through a governance structure and risk management controls, which encompass standards designed to ensure we maintain a comprehensive model inventory, including risk assessment and classification, sound model development practices, independent review and model-specific usage controls. The Firmwide Model Risk Control Committee oversees our model risk management framework.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Model Review and Validation Process Model Risk consists of quantitative professionals who perform an independent review, validation and approval of our models. This review includes an analysis of the model documentation, independent testing, an assessment of the appropriateness of the methodology used, and verification of compliance with model development and implementation standards. We regularly refine and enhance our models to reflect changes in market or economic conditions and our business mix. All models are reviewed on an annual basis, and new models or significant changes to existing models and their assumptions are approved prior to implementation. The model validation process incorporates a review of models and trade and risk parameters across a broad range of scenarios (including extreme conditions) in order to critically evaluate and verify: The model’s conceptual soundness, including the reasonableness of model assumptions, and suitability for intended use; The testing strategy utilized by the model developers to ensure that the models function as intended; The suitability of the calculation techniques incorporated in the model; The model’s accuracy in reflecting the characteristics of the related product and its significant risks; The model’s consistency with models for similar products; and The model’s sensitivity to input parameters and assumptions. See “Critical Accounting Policies — Fair Value — Review of Valuation Models,” “Liquidity Risk Management,” “Market Risk Management,” “Credit Risk Management” and “Operational Risk Management” for further information about our use of models within these areas. Available Information Our internet address is www.goldmansachs.com and the investor relations section of our website is located atwww.goldmansachs.com/investor-relations , where we make available, free of charge, our annual reports onForm 10-K, quarterly reports onForm 10-Q and current reports onForm 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Also posted on our website, and available in print upon request of any shareholder to our Investor Relations Department (Investor Relations), are our certificate of incorporation andby-laws, charters for our Audit, Risk, Compensation, Corporate Governance and Nominating, and Public Responsibilities Committees, our Policy Regarding Director Independence Determinations, our Policy on Reporting of Concerns Regarding Accounting and Other Matters, our Corporate Governance Guidelines, Our website also includes information about (i) purchases and sales of our equity securities by our executive officers and directors; (ii) disclosure relating to certain non-GAAP financial measures (as defined in the SEC’s Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by other means; (iii) DFAST results; (iv) the public portion of our resolution plan submission; (v) our Pillar 3 disclosure; and (vi) our average daily LCR.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Investor Relations can be contacted at The Goldman Sachs Group, Inc., 200 West Street, 29th Floor, New York, New York 10282, Attn: Investor Relations, telephone: 212-902-0300, e-mail: gs-investor-relations@gs.com twitter.com/GoldmanSachs ), our Instagram account (instagram.com/GoldmanSachs ) and other social media channels as additional means of disclosing public information to investors, the media and others. Our officers may use similar social media channels to disclose public information. It is possible that certain information we or our officers post on our website and on social media could be deemed material, and we encourage investors, the media and others interested in Goldman Sachs to review the business and financial information we or our officers post on our website and on the social media channels identified above. The information on our website and those social media channels is not incorporated by reference into thisForm 10-Q.
We have included in this Form 10-Q, and our management may make, statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts or statements of current conditions, but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control.By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results, financial condition, liquidity and capital actions may differ, possibly materially, from the anticipated results, financial condition and liquidity in these forward-looking statements. Important factors that could cause our results, financial condition, liquidity and capital actions to differ from those in these statements include, among others, those described below and in “Risk Factors” in Part I, Item 1A of the 2020 Form 10-K. These statements may relate to, among other things, (i) our future plans and results, including our target ROE, ROTE, efficiency ratio and CET1 capital ratio, and how they can be achieved, (ii) co-branded credit card relationship with General Motors), (xiv) the G-SIB surcharge, (xxv) legal proceedings, governmental investigations or other contingencies, (xxvi) the 1MDB settlements, including the asset recovery guarantee and our COVID-19 pandemic on our business, results, financial position and liquidity,
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Statements about our target ROE, ROTE, efficiency ratio and expense savings, and how they can be achieved, are based on our current expectations regarding our business prospects and are subject to the risk that we may be unable to achieve our targets due to, among other things, changes in our business mix, lower profitability of new business initiatives, increases in technology and other costs to launch and bring new business initiatives to scale, and increases in liquidity requirements. Statements about our target ROE, ROTE and CET1 capital ratio, and how they can be achieved, are based on our current expectations regarding the capital requirements applicable to us and are subject to the risk that our actual capital requirements may be higher than currently anticipated because of, among other factors, changes in the regulatory capital requirements applicable to us resulting from changes in regulations or the interpretation or application of existing regulations or changes in the nature and composition of our activities. Statements about the timing, costs, profitability, benefits and other aspects of business and expense savings initiatives, the level and composition of more durable revenues and increases in market share are based on our current expectations regarding our ability to implement these initiatives and actual results may differ, possibly materially, from current expectations due to, among other things, a delay in the timing of these initiatives, increased competition and an inability to reduce expenses and grow businesses with durable revenues. Statements about the level of future compensation expense, including as a percentage of both operating expenses and revenues net of provision for credit losses, and our efficiency ratio as our platform business initiatives reach scale are subject to the risks that the compensation and other costs to operate our businesses, including platform initiatives, may be greater than currently expected. Statements about our investment banking transaction backlog are subject to the risk that such transactions may be modified or may not be completed at all and related net revenues may not be realized or may be materially less than expected. Important factors that could have such a result include, for underwriting transactions, a decline or weakness in general economic conditions, an outbreak of hostilities, volatility in the securities markets or an adverse development with respect to the issuer of the securities and, for financial advisory transactions, a decline in the securities markets, an inability to obtain adequate financing, an adverse development with respect to a party to the transaction or a failure to obtain a required regulatory approval. For information about other important factors that could adversely affect our investment banking transactions, see “Risk Factors” in Part I, Item 1A of the 2020 Form 10-K. Statements about the projected growth of our deposits and other funding, asset liability management and funding strategies and related interest expense savings, and our installment loan and credit card businesses, are subject to the risk that actual growth and savings may differ, possibly materially, from that currently anticipated due to, among other things, changes in interest rates and competition from other similar products. Statements about planned Statements about our expected provisions for credit losses (including those related to our planned co-branded credit card relationship with General Motors) are subject to the risk that actual credit losses may differ and our expectations may change, possibly materially, from that currently anticipated due to, among other things, changes to the composition of our loan portfolio and changes in the economic environment in future periods and our forecasts of future economic conditions, as well as changes in our models, policies and other management judgments.Statements about our NSFR are based on our current interpretation and expectations of the relevant rules, and reflect significant assumptions about how our NSFR is calculated. The methods used to calculate our NSFR may differ, possibly materially, from those used to calculate our NSFR for future disclosures. Statements about our future effective income tax rate are subject to the risk that it may differ from the anticipated rate indicated in such statements, possibly materially, due to, among other things, changes in the tax rates applicable to us, changes in our earnings mix, our profitability and entities in which we generate profits, the assumptions we have made in forecasting our expected tax rate, as well as any corporate tax legislation that may be enacted or any guidance that may be issued by the U.S. Internal Revenue Service.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Statements about the future state of our liquidity and regulatory capital ratios G-SIB surcharge), and our prospective capital distributions (including Statements about the risk exposure related to the asset recovery guarantee provided to the Government of Malaysia are subject to the risk that the actual value of assets and proceeds from assets seized and returned to the Government of Malaysia may be less than currently anticipated. Statements about the application for and pursuit of exemptions and authorizations from regulatory authorities, including the U.S. Department of Labor, in connection with the settlements relating to Statements about our objectives in management of our human capital, including our diversity goals, are based on our current expectations and are subject to the risk that we may not achieve these objectives and goals due to, among other things, competition in recruiting and attracting diverse candidates and unsuccessful efforts in retaining diverse employees. Statements about our plans for our people to return to our offices are based on our current expectations and that return may be delayed due to, among other factors, future events that are unpredictable, including the course of the COVID-19 pandemic, responses of governmental authorities and the availability, use and effectiveness of vaccines.Item 3. Quantitative and Qualitative Disclosures About Market Risk Quantitative and qualitative disclosures about market risk are set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management” in Part I, Item 2 of this Form 10-Q. Item 4. Controls and Procedures As of the end of the period covered by this report, an evaluation was carried out by our management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, no change in our internal control over financial reporting (as defined inRule 13a-15(f) under the Exchange Act) occurred during the quarter ended PART II. OTHER INFORMATION Item 1. Legal Proceedings We are involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of our businesses. Many of these proceedings are in early stages, and many of these cases seek an indeterminate amount of damages. We have estimated the upper end of the range of reasonably possible aggregate loss for matters where we have been able to estimate a range and we believe, based on currently available information, that the results of matters where we have not been able to estimate a range of reasonably possible loss, in the aggregate, will not have a material adverse effect on our financial condition, but may be material to our operating results in a given period. Given the range of litigation and investigations presently under way, our litigation expenses Form 10-Q. See Notes 18 and 27 to the consolidated financial statements in Part I, Item 1 of thisForm 10-Q for information about our reasonably possible aggregate loss estimate and judicial, regulatory and legal proceedings.Item The table below presents purchases made by or on behalf of Group Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the three months ended
Since March 2000, our Board has approved a repurchase program authorizing repurchases of up to 605 million shares of our common stock. The repurchase program is effected primarily through regular open-market purchases (which may include repurchase plans designed to comply with Rule 10b5-1 and accelerated share repurchases), the amounts and timing of which are determined primarily by our current and projected capital position, but which may also be influenced by general market conditions and the prevailing price and trading volumes of our common stock. The repurchase program has no set expiration or termination date.
Item 6. Exhibits Exhibits
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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