THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Operating expenses were $8.64$7.65 billion for the second quarter of 2021, 17%2022, 11% lower than the second quarter of 2020, due to2021, reflecting significantly lower net provisions for litigation and regulatory proceedings, partially offset by higher compensation and benefits expenses (reflecting a decline in operating performance compared with a strong performance). In addition, transaction based expenses and technology expenses were higher.prior year period), partially offset by higher20212022 was 56.1%64.5%, compared with 78.3%56.1% for the second quarter of 2020. In the second quarter of 2020, net provisions for litigation and regulatory proceedings increased our efficiency ratio by 22.2 percentage points.
2021.non-compensation
expenses. Our efficiency ratio (total operating expenses divided by total net revenues) for the second quarter of We returned $1.44$1.22 billion of capital to common shareholders, including $1.00 billion$500 million of common share repurchases and $441$719 million of common stock dividends. As of June 2021,2022, our Common Equity Tier 1 (CET1) capital ratio was 14.4%14.2% under the Standardized Capital Rules and 13.4%14.3% under the Advanced Capital Rules. See Note 20 to the consolidated financial statements for further information about our capital ratios.
In April 2022, we completed the acquisition of NN Investment Partners (NNIP) in our strategic initiative to achieve the annualrun-rateAsset Management business.expense efficiencies target of $1.3 billion byyear-end2022. In addition, we expect that we will achieve an additional $400 million of expense efficiencies beyondyear-end2022.
Six Months Ended June 20212022 versus June 2020.2021.
We generated net earnings of $6.87 billion for the first half of 2022 compared with $12.32 billion for the first half of 2021, significantly higher2021. Diluted EPS was $18.47 for the first half of 2022 compared with $1.59$33.64 for the first half of 2021. Annualized ROE was 12.8% for the first half of 2022, compared with 27.3% for the first half of 2021.
Net revenues were $24.80 billion for the first half of 2020. Diluted EPS was $33.64 for the2022, 25% lower than a strong first half of 2021, reflecting significantly lower net revenues in Asset Management and Investment Banking, partially offset by higher compared with $3.66 for the first half of 2020. Annualized ROE was 27.3% for the first half of 2021, compared with 3.3% for the first half of 2020.
geopolitical concerns led to volatility in global equity prices and wider credit spreads, contributing to net losses in Equity investments and significantly lower net revenues in Lending and debt investments within Asset Management and significantly lower net revenues in Equity underwriting within Investment Banking. Net revenues were $33.09 billion for the first half of 2021, 50% higher than the first half of 2020, due toin Global Markets reflected significantly higher net revenues in Asset Management, primarily reflecting strong Equity investmentsFICC, partially offset by slightly lower net revenues in Investment Banking, primarily reflectingEquities compared with a strong Underwritingprior year period, and Financial advisory net revenues and in Consumer & Wealth Management reflectingreflected growth in both Wealth management and Consumer banking net revenues. Net revenues in Global Markets were strong across both FICC and Equities, but essentially unchanged compared with the first half of 2020.banking.
Provision for credit losses was $1.23 billion for the first half of 2022, compared with a net benefit of $162 million forin the first half of 2021. Provisions in the first half of 2022 primarily reflected portfolio growth (primarily in credit cards) and the impact of macroeconomic and geopolitical concerns. The net benefit in the first half of 2021 compared with net provisions of $2.53 billion for the first half of 2020. The first half of 2021 includedreflected reserve reductions on wholesale and consumer loans reflecting continued improvement inas the broaderbroad economic environment continued to improve following challenging conditions that began in the first half of 2020 as a resultinitial impact of theprovisions related to portfolio growth (primarily in credit cards, including provisions related to the pending acquisition of the General Motorsco-brandedcredit card portfolio).growth.
COVID-19
pandemic, partially offset by Operating expenses were $18.08$15.37 billion for the first half of 2021, 7% higher2022, 15% lower than the first half of 2020,2021, reflecting significantly higherlower compensation and benefits expenses (reflecting a decline in operating performance compared with a strong performance)prior year period), partially offset by significantly lowerhigherexpenses. Withinnon-compensationexpenses, net provisions for litigation and regulatory proceedings were significantly lower, partially offset by higher transaction based expenses and higher technology expenses. Our efficiency ratio (total operating expenses divided by total net revenues) for the first half of 20212022 was 54.6%62.0%, compared with 76.6%54.6% for the first half of 2020. In the first half of 2020, net provisions for litigation and regulatory proceedings increased our efficiency ratio by 14.3 percentage points.2021.
non-compensation
During the first half of 2021,2022, we returned $4.59$2.43 billion of capital to common shareholders, including $3.70$1.00 billion of common share repurchases and $889 million in$1.43 billion of common stock dividends.
Business Environment
During the second quarter of 2021,2022, the global economy continued its recovery fromcontinuation of broad macroeconomic and geopolitical concerns, including inflationary pressures and theCOVID-19pandemic, as prolonged war in Ukraine, and uncertainty about the lifting of healthoutlook weighed on economic activity and safety restrictions in parts of the world amid vaccine distribution facilitated an increase in global economic activity. The broader economic improvement was also aided by accommodative monetary policy provided bykept market volatility high. In response, global central banks have continued to tighten monetary policy with additional policy interest rates increases during the quarter. These factors contributed to a decrease in response toglobal equity prices and wider corporate credit spreads compared with the pandemic (through low policy ratesend of the first quarter of 2022.
The economic outlook remains uncertain, reflecting concerns about the continuation or escalation of the war between Russia and large-scale asset purchases)Ukraine and in the U.S., the prospect of further fiscal stimulus in the form of infrastructure spending. The growth in economic activity and demand for goods and services, alongside labor shortagesother geopolitical risks, inflation and supply chain complications, contributed to rising inflationary pressures. However, investors remained optimisticand the persistence ofeffects. See “Results of Operations — Segment Assets and Operating Results — Segment Operating Results” for further information about the prospectoperating environment for continued economic recovery, as global equity prices generally increased during the quarter, while volatility continued to moderate from elevated levels. In addition, long-term government bond yields generally declined.each of our business segments.
COVID-19-related
| Goldman Sachs June |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.,with related gains or losses generally recognized in our consolidated statements of earnings. The use of fair value to measure financial instruments is fundamental to our risk management practices and is our most critical accounting policy.
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 1.8% as of June 2021, 2.1%2022, and 1.6% as of both March 20212022 and 2.3% as of December 2020,2021, of our total assets. See Notes 4 through 10 to the consolidated financial statements for further information about level 3 financial assets, including changes in level 3 financial assets and related fair value measurements. Absent evidence to the contrary, instruments classified in level 3 of the fair value hierarchy are initially valued at transaction price, which is considered to be the best initial estimate of fair value. Subsequent to the transaction date, we use other methodologies to determine fair value, which vary based on the type of instrument. Estimating the fair value of level 3 financial instruments requires judgments to be made. These judgments include:
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.
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.
| Goldman Sachs June 2022 Form 10-Q | 104 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 that are accounted for at amortized cost. To determine the allowance for credit losses, we classify our loans accounted for at amortized cost into wholesale and consumer portfolios. These portfolios represent the level at which we have developed and documented our methodology to determine the allowance for credit losses. The allowance for credit losses is measured on a collective basis for loans that exhibit similar risk characteristics using a modeled approach and on an asset-specific basis for loans that do not share similar risk characteristics.
The allowance for credit losses also includes qualitative components which allow managementtakes into account the weighted average of a range of forecasts of future economic conditions over the expected life of the loans and lending commitments. The expected life of each loan or lending commitment is determined based on the contractual term adjusted for extension options or demand features, or is modeled in the case of revolving credit card loans. The forecasts include baseline, favorable and adverse economic scenarios over a three-year period. For loans with expected lives beyond three years, the model reverts to reflecthistorical loss information based on auncertain nature of economic forecasting, capture uncertainty regarding model inputs,wholesale and account for model imprecision and concentration risk. The determination of allowance for credit losses entails significant judgment on various risk factors.consumer portfolios. Risk factors for wholesale loans include internal credit ratings, industry default and loss data, expected life, macroeconomic indicators (e.g., unemployment rates and GDP), the borrower’s capacity to meet its financial obligations, the borrower’s country of risk and industry, loan seniority and collateral type. In addition, for loans backed by real estate, risk factors includeratio, debt service ratio and home price index. Risk factors for installment and credit card loans include Fair Isaac Corporation (FICO) credit scores, delinquency status, loan vintage and macroeconomic indicators.
non-linear
modeled approach. We apply judgment in weighting individual scenarios each quarter based on a variety of factors, including our internally derived economic outlook, market consensus, recent macroeconomic conditions and industry trends. The forecasted economic scenarios consider a number of risk factors relevant to the loan-to-value
| 105 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
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 that are accounted for at amortized cost. Such allowance is determined using the same methodology as the allowance for loan losses, while also taking into consideration the probability of drawdowns or funding, and whether such commitments are cancellable by us.
To estimate the potential impact of an adverse macroeconomic environment on our allowance for credit losses, we, among other things, compared the expected credit losses under the weighted average forecast used in the calculation of allowance for credit losses as of June 2022 (which was weighted towards the baseline and adverse economic scenarios) to the expected credit losses under a 100% weighted adverse economic scenario. The adverse macroeconomic scenario assumes a global recession in the second half of 2022 through the first half of 2023 resulting in an economic contraction, decline in consumer spending and rising unemployment rates. A 100% weighting to the adverse economic scenario would have resulted in an approximate $1.1 billion increase in our allowance for credit losses as of June 2022. This hypothetical increase does not take into consideration any potential adjustments to qualitative reserves. The forecasts of macroeconomic conditions are inherently uncertain and do not take into account any other offsetting or correlated effects. The actual credit loss in an adverse macroeconomic environment may differ significantly from this estimate. See Note 9 to the consolidated financial statements for further information about the allowance for credit losses.
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 provisionsaccounting for losses that may arise from tax audits.income taxes.
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 net of provision for credit losses earned in such periods. In addition to the level of net revenues net of provision for credit losses, 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.
| Goldman Sachs June 2022 Form 10-Q | 106 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Identifiable intangible assets are tested for impairment when events or changes in circumstances suggest that an asset’s or asset group’s carrying value may not be fully recoverable. Judgment is required to evaluate whether indications of potential impairment have occurred, and to test identifiable intangible assets for impairment, if required. An impairment is recognized if the estimated undiscounted cash flows relating to the asset or asset group is less than the corresponding carrying value. See Note 12 to the consolidated financial statements for further information about identifiable intangible assets.
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 abasis and represents an estimate of probable losses after considering, among other factors, the progress of each case, proceeding or investigation, our experience and the experience of others in similar cases, proceedings or investigations, and the opinions and views of legal counsel.
case-by-case
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. We use estimates to recognize current and deferred income taxes in the U.S. federal, state and local and
non-U.S.
jurisdictions in which we operate. The income tax laws in these jurisdictions are complex and can be subject to different interpretations between taxpayers and taxing authorities. Disputes may arise over these interpretations and can be settled by audit, administrative appeals or judicial proceedings. Our interpretations are reevaluated quarterly based on guidance currently available, tax examination experience and the opinions of legal counsel, among other factors. We recognize deferred taxes based on the amount that will more likely than not be realized in the future based on enacted income tax laws. Our estimate for deferred taxes includes estimates for future taxable earnings, including the level and character of those earnings, and various tax planning strategies. See Note 24 to the consolidated financial statements in Part II, Item 8 of the 2021Form 10-K
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 I, Item 1A of the 20202021
Form 10-K
for further information about the impact of economic and market conditions on our results of operations.| 107 | Goldman Sachs June |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Financial Overview
The table below presents an overview of our financial results and selected financial ratios.
Three Months Ended June | Six Months Ended June | Three Months Ended June | Six Months Ended June | |||||||||||||||||||||||||||||||||
$ in millions, except per share amounts | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
Net revenues | $15,388 | $13,295 | $33,092 | $22,038 | $11,864 | $15,388 | $24,797 | $33,092 | ||||||||||||||||||||||||||||
Pre-tax earnings | $ 6,840 | $ 1,291 | $15,177 | $ 2,639 | $ 3,544 | $ 6,840 | $ 8,200 | $15,177 | ||||||||||||||||||||||||||||
Net earnings | $ 5,486 | $ 373 | $12,322 | $ 1,586 | $ 2,927 | $ 5,486 | $ 6,866 | $12,322 | ||||||||||||||||||||||||||||
Net earnings to common | $ 5,347 | $ 197 | $12,058 | $ 1,320 | $ 2,786 | $ 5,347 | $ 6,617 | $12,058 | ||||||||||||||||||||||||||||
Diluted EPS | $ 15.02 | $ 0.53 | $ 33.64 | $ 3.66 | $ 7.73 | $ 15.02 | $ 18.47 | $ 33.64 | ||||||||||||||||||||||||||||
ROE | 23.7% | 1.0% | 27.3% | 3.3% | 10.6% | 23.7% | 12.8% | 27.3% | ||||||||||||||||||||||||||||
ROTE | 25.1% | 1.0% | 28.9% | 3.5% | 11.4% | 25.1% | 13.6% | 28.9% | ||||||||||||||||||||||||||||
Net earnings to average assets | 1.6% | 0.1% | 1.9% | 0.3% | 0.7% | 1.6% | 0.9% | 1.9% | ||||||||||||||||||||||||||||
Return on average shareholders’ equity | 22.1% | 1.6% | 25.2% | 3.5% | 10.1% | 22.1% | 12.0% | 25.2% | ||||||||||||||||||||||||||||
Average equity to average assets | 7.3% | 8.1% | 7.5% | 8.3% | 7.4% | 7.3% | 7.4% | 7.5% | ||||||||||||||||||||||||||||
Dividend payout ratio | 8.3% | 235.8% | 7.4% | 68.3% | 25.9% | 8.3% | 21.7% | 7.4% | ||||||||||||||||||||||||||||
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 assets and return on average shareholders’ equity are annualized amounts.
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 shareholders’ equity is calculated by dividing annualized net earnings by average monthly shareholders’ equity.The table below presents our average equity and the reconciliation of average common shareholders’ equity to average tangible common shareholders’ equity. |
| Average for the | Average for the | |||||||||||||||||||||||||||||||||||
Three Months Ended June | Six Months Ended June | Three Months Ended June | Six Months Ended June | |||||||||||||||||||||||||||||||||
$ in millions | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
Total shareholders’ equity | $ | $ 91,802 | $ 97,735 | $ 90,956 | $116,229 | $99,294 | $114,286 | $97,735 | ||||||||||||||||||||||||||||
Preferred stock | (9,203 | ) | (11,203 | ) | (9,489 | ) | (11,203 | ) | (10,703 | ) | (9,203 | ) | (10,703 | ) | (9,489 | ) | ||||||||||||||||||||
Common shareholders’ equity | 90,091 | 80,599 | 88,246 | 79,753 | 105,526 | 90,091 | 103,583 | 88,246 | ||||||||||||||||||||||||||||
Goodwill | (4,332 | ) | (4,196 | ) | (4,332 | ) | (4,196 | ) | (5,957 | ) | (4,332 | ) | (5,241 | ) | (4,332 | ) | ||||||||||||||||||||
Identifiable intangible assets | (552 | ) | (610 | ) | (581 | ) | (618 | ) | (1,844 | ) | (552 | ) | (1,242 | ) | (581 | ) | ||||||||||||||||||||
Tangible common shareholders equity | $ | $ 75,793 | $ 83,333 | $ 74,939 | ||||||||||||||||||||||||||||||||
Tangible common shareholders’ equity | $ 97,725 | $85,207 | $ 97,100 | $83,333 | ||||||||||||||||||||||||||||||||
Net Revenues
The table below presents our net revenues by line item.
Three Months Ended June | Six Months Ended June | Three Months Ended June | Six Months Ended June | |||||||||||||||||||||||||||||||||
$ in millions | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
Investment banking | $ 3,450 | $ 2,733 | $ | $ 4,475 | $ 1,785 | $ 3,450 | $ 3,916 | $ 7,016 | ||||||||||||||||||||||||||||
Investment management | 1,905 | 1,635 | 3,701 | 3,403 | 2,393 | 1,905 | 4,457 | 3,701 | ||||||||||||||||||||||||||||
Commissions and fees | 833 | 875 | 1,906 | 1,895 | 1,073 | 833 | 2,084 | 1,906 | ||||||||||||||||||||||||||||
Market making | 3,274 | 5,787 | 9,167 | 9,469 | 4,929 | 3,274 | 10,919 | 9,167 | ||||||||||||||||||||||||||||
Other principal transactions | 4,297 | 1,321 | 8,191 | 539 | (50 | ) | 4,297 | (140 | ) | 8,191 | ||||||||||||||||||||||||||
Total non-interest revenues | 13,759 | 12,351 | 29,981 | 19,781 | 10,130 | 13,759 | 21,236 | 29,981 | ||||||||||||||||||||||||||||
Interest income | 2,939 | 3,034 | 5,993 | 7,784 | 4,851 | 2,939 | 8,063 | 5,993 | ||||||||||||||||||||||||||||
Interest expense | 1,310 | 2,090 | 2,882 | 5,527 | 3,117 | 1,310 | 4,502 | 2,882 | ||||||||||||||||||||||||||||
Net interest income | 1,629 | 944 | 3,111 | 2,257 | 1,734 | 1,629 | 3,561 | 3,111 | ||||||||||||||||||||||||||||
Total net revenues | $15,388 | $ 13,295 | $ | $ 22,038 | $11,864 | $15,388 | $24,797 | $33,092 | ||||||||||||||||||||||||||||
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.
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(OTC) transactions. These activities are included in our Global Markets and Consumer & Wealth Management segments.
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 debt investing and lending activities (included across our four segments).
| Goldman Sachs June | 108 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Operating Environment.
During the second quarter of 2021, economic recovery,2022, the lifting of healthoperating environment continued to be generally characterized by broad macroeconomic and safety restrictionsgeopolitical concerns and market volatility, which contributed to a decrease in partsglobal equity prices, wider credit spreads and a further increase in commodity prices compared with the end of the world amid vaccine distribution, and continued monetary and fiscal support from central banks and governments provided a favorable market backdrop.first quarter of 2022. These factors contributed to generally higher global equity prices compared with the first quarter of 2021, a supportive environment for alternative investments, elevated investment banking activity levels, and more modest yet solid market-making activity levels.
If concerns about the economic outlook grow, including those about the continuation or escalation of geopolitical concerns, inflation and supply chain complications, and the persistence ofeffects, it may lead to a continued decline in equity markets,prices or further widening of credit spreads, or a decline in market-making activity levels, or a continued decline in investment banking volumes, and net revenues and the provision for credit losses would likely be negatively impacted. See “Segment Assets and Operating Results — Segment Operating Results” for information about the operating environment and material trends and uncertainties that may impact our results of operations.
COVID-19-related
Three Months Ended June 20212022 versus June 2020.2021.
Net revenues in the consolidated statements of earnings were $15.39$11.86 billion for the second quarter of 2021, 16% higher2022, 23% lower than thea strong second quarter of 2020,2021, primarily reflecting significantly higherlower other principal transactions investment banking revenues and net interest income, and higher investment managementbanking revenues, partially offset by significantly lowerhigher market making revenues.revenues, investment management revenues and commissions and fees.
Non-Interest
Revenues.Investment banking revenues in the consolidated statements of earnings were $3.45$1.79 billion for the second quarter of 2021, 26% higher2022, 48% lower than thea strong second quarter of 2020,2021, due to significantly lower revenues in both equity and debt underwriting, reflecting significantly highera significant decline in industry-wide activity, and slightly lower revenues in financial advisory, reflecting an increasea decrease in industry-wide completed mergers and acquisitions transactions, and higher revenues in equity underwriting, primarily driven by strong industry-wide initial public offering activity, partially offset by a significant decline in industry-wide secondary offerings. These increases were partially offset by slightly lower revenues in debt underwriting, primarily reflecting significantly lower industry-wide investment-grade volumes, partially offset by elevated industry-wide leveraged finance volumes.transactions.
Investment management revenues in the consolidated statements of earnings were $1.91$2.39 billion for the second quarter of 2021, 17%2022, 26% higher than the second quarter of 2020,2021, primarily due to higher management and other fees, primarily reflecting the inclusion of NNIP and the impact of higher average assets under supervision (AUS), partially offset by fee waivers on money market funds.funds in the prior year period.
Commissions and fees in the consolidated statements of earnings were $833 million$1.07 billion for the second quarter of 2021, slightly lower2022, 29% higher than the second quarter of 2020.2021, primarily reflecting higher volumes in Equities.
Market making revenues in the consolidated statements of earnings were $3.27$4.93 billion for the second quarter of 2021, 43% lower2022, 51% higher than the second quarter of 2020,2021, primarily due toreflecting significantly lowerhigher revenues in interest rate products, credit products, equity products (primarily in cash products), commodities and currencies.
currencies, partially offset by negative revenues in mortgages.
Other principal transactions revenues in the consolidated statements of earnings were a negative $50 million for the second quarter of 2022, compared with $4.30 billion for the second quarter of 2021, compared with $1.32 billion for the second quarter of 2020, primarily reflecting significantnet losses from investments in public equities, significantly higherlower net gains from investments in private equities driven by company-specific events, including capital raisescompared with a strong prior year period and sales, and improved corporate performance versus a challenging second quarter of 2020.
net losses in debt investments compared with net gains in the prior year period.mark-to-market
Net Interest Income.
Net interest income in the consolidated statements of earnings was $1.63$1.73 billion for the second quarter of 2021, 73%2022, 6% higher than the second quarter of 2020,2021, reflecting a decrease in interest expense primarily related to long-term borrowings and deposits, both reflecting the impact of lower interest rates. The decrease in interest expense was partially offset by a decreasean increase in interest income primarily related to collateralized agreements, other interest-earning assets, and trading assets, bothdeposits with banks, each reflecting the impact of lowerhigher interest rates, partially offset byand loans, reflecting the impact of higher interest rates and higher average balances forbalances. The increase in interest income was partially offset by an increase in interest expense related to other interest-earning assets.interest-bearing liabilities, borrowings, and collateralized financings, each reflecting the impact of higher interest rates, and deposits reflecting the impact of higher interest rates and higher average balances. See “Statistical Disclosures — Distribution of Assets, Liabilities and Shareholders’ Equity” for further information about our sources of net interest income.
Six Months Ended June 20212022 versus June 2020.2021.
Net revenues in the consolidated statements of earnings were $33.09$24.80 billion for the first half of 2021, 50% higher2022, 25% lower than the first half of 2020, due to2021, primarily reflecting significantly higherlower other principal transactions revenues and investment banking revenues, partially offset by significantly higher market making revenues and to a lesser extent, net interest income.investment management revenues.
Non-Interest
Revenues.Investment banking revenues in the consolidated statements of earnings were $7.02$3.92 billion for the first half of 2022, 44% lower than the first half of 2021, 57%due to significantly lower revenues in both equity and debt underwriting, reflecting a significant decline in industry-wide activity, and slightly lower revenues in financial advisory, reflecting a decrease in industry-wide completed mergers and acquisitions transactions.
Investment management revenues in the consolidated statements of earnings were $4.46 billion for the first half of 2022, 20% higher than the first half of 2020,2021, reflecting significantlythe inclusion of NNIP, the impact of higher revenuesaverage assets under supervision and the impact of fee waivers on money market funds in equity underwriting, primarily driven by strong industry-wide initial public offering activity, and in financial advisory, reflecting a significant increase in completed mergers and acquisitions transactions, as well as higher revenues in debt underwriting, reflecting elevated industry-wide leveraged finance activity.the prior year period.
| 109 | Goldman Sachs June |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Commissions and fees in the consolidated statements of earnings were $1.91$2.08 billion for the first half of 2021, essentially unchanged compared with2022, 9% higher than the first half of 2020.2021, primarily reflecting higher volumes in Equities.
Market making revenues in the consolidated statements of earnings were $9.17$10.92 billion for the first half of 2021, slightly lower2022, 19% higher than a strongthe first half of 2020, as2021, primarily reflecting significantly higher revenues in currencies, commodities and interest rate products, partially offset by significantly lower revenues in interest rateequity products and credit products were largely offset by significantly higherand negative revenues in equity products (primarily in derivatives) and in mortgages.
Other principal transactions revenues in the consolidated statements of earnings were a negative $140 million for the first half of 2022, compared with $8.19 billion for the first half of 2021, compared with $539 million for the first half of 2020, primarily reflecting significantnet losses from investments in public equities, significantly higherlower net gains from investments in private equities driven by company-specific events, including capital raisescompared with a strong prior year period and sales, and improved corporate performance versus a challenging first half of 2020. In addition,net losses in debt investments compared with net gains from investments in public equities and debt investments were significantly higher.
the prior year period.mark-to-market
Net Interest Income.
Net interest income in the consolidated statements of earnings was $3.11$3.56 billion for the first half of 2021, 38%2022, 14% higher than the first half of 2020,2021, reflecting a decreasean increase in interest expenseincome primarily related to other interest-bearing liabilities, deposits, long-term borrowings and collateralized financings, eachloans, reflecting the impact of lower interest rates, partially offset by the impact of higher average balances, in trading liabilities. The decrease in interest expense was partially offset by a decrease in interest income primarily related toand collateralized agreements, tradingother interest-earning assets and deposits with banks, each reflecting the impact of lowerhigher interest rates. The increase in interest income was partially offset by an increase in interest expense primarily related to deposits, reflecting the impact of higher average balances and higher interest rates, and other interest-bearing liabilities, and collateralized financings, both reflecting the impact of higher interest rates. See “Statistical Disclosures — Distribution of Assets, Liabilities and Shareholders’ Equity” for further information about our sources of net interest income.
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 June | Six Months Ended June | Three Months Ended June | Six Months Ended June | |||||||||||||||||||||||||||||||||
$ in millions | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
Provision for credit losses | $ | ) | $ 1,590 | $ (162 | ) | $ | $667 | $(92 | ) | $1,228 | $(162 | ) | ||||||||||||||||||||||||
Three Months Ended June 20212022 versus June 2020.2021.
Provision for credit losses in the consolidated statements of earnings was $667 million for the second quarter of 2022, compared with a net benefit of $92 million for the second quarter of 2021, compared with2021. Provisions in the second quarter of 2022 reflected portfolio growth (primarily in credit cards) and the impact of broad macroeconomic concerns. The net provisions of $1.59 billionbenefit for the second quarter of 2020. The second quarter of 2021 includedreflected reserve reductions on wholesale and consumer loans reflecting continued improvement inas the broaderbroad economic environment continued to improve following challenging conditions that began in the first half of 2020 as a resultinitial impact of theprovisions related to portfolio growth (primarily in credit cards).growth.
COVID-19
pandemic, partially offset by Six Months Ended June 20212022 versus June 2020.2021.
Provision for credit losses in the consolidated statements of earnings was $1.23 billion for the first half of 2022, compared with a net benefit of $162 million for the first half of 2021, compared with net provisions of $2.53 billion2021. Provisions for the first half of 2020.2022 primarily reflected portfolio growth (primarily in credit cards) and the impact of macroeconomic and geopolitical concerns. The first half of 2021 included reserve reductions on wholesale and consumer loans reflecting continued improvement in the broader economic environment following challenging conditions that begannet benefit in the first half of 20202021 reflected reserve reductions as a resultthe broad economic environment continued to improve following the initial impact of theprovisions related to portfolio growth (primarily in credit cards, including $185 million of provisions related to the pending acquisition of the General Motorsco-brandedcredit card portfolio).growth.
COVID-19
pandemic, partially offset by 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 net of provision for credit losses, 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.
Three Months Ended June | Six Months Ended June | Three Months Ended June | Six Months Ended June | |||||||||||||||||||||||||||||||||
$ in millions | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
Compensation and benefits | $ 5,263 | $ 4,478 | $11,306 | $ 7,713 | $ 3,695 | $ 5,263 | $ 7,778 | $11,306 | ||||||||||||||||||||||||||||
Transaction based | 1,125 | 1,014 | 2,381 | 2,044 | 1,317 | 1,125 | 2,561 | 2,381 | ||||||||||||||||||||||||||||
Market development | 115 | 89 | 195 | 242 | 235 | 115 | 397 | 195 | ||||||||||||||||||||||||||||
Communications and technology | 371 | 345 | 746 | 666 | 444 | 371 | 868 | 746 | ||||||||||||||||||||||||||||
Depreciation and amortization | 520 | 499 | 1,018 | 936 | 570 | 520 | 1,062 | 1,018 | ||||||||||||||||||||||||||||
Occupancy | 241 | 233 | 488 | 471 | 259 | 241 | 510 | 488 | ||||||||||||||||||||||||||||
Professional fees | 344 | 311 | 704 | 658 | 490 | 344 | 927 | 704 | ||||||||||||||||||||||||||||
Other expenses | 661 | 3,445 | 1,239 | 4,142 | 643 | 661 | 1,266 | 1,239 | ||||||||||||||||||||||||||||
Total operating expenses | $ 8,640 | $10,414 | $18,077 | $16,872 | $ 7,653 | $ 8,640 | $15,369 | $18,077 | ||||||||||||||||||||||||||||
Headcount at period-end | 40,800 | 39,100 | 47,000 | 40,800 | ||||||||||||||||||||||||||||||||
| Goldman Sachs June | 110 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Three Months Ended June 20212022 versus June 2020.2021.
Operating expenses in the consolidated statements of earnings were $8.64$7.65 billion for the second quarter of 2021, 17%2022, 11% lower than the second quarter of 2020.2021. Our efficiency ratio (total operating expenses divided by total net revenues) for the second quarter of 20212022 was 56.1%64.5%, compared with 78.3%56.1% for the second quarter of 2020. In the second quarter of 2020, net provisions for litigation and regulatory proceedings increased our efficiency ratio by 22.2 percentage points.2021.
The decrease in operating expenses compared with the second quarter of 20202021 was primarily due to significantly lowernon-compensationexpenses, partially offset by higher compensation and benefits expenses (reflecting a decline in operating performance compared with a strong performance)prior year period). Withinnon-compensationexpenses,In addition, net provisions for litigation and regulatory proceedings were significantly lower,lower. These decreases were partially offset by higherincreases from the inclusion of NNIP and GreenSky, Inc. (GreenSky), transaction based expenses, and higher technologymarket development expenses, (included in communicationsprofessional fees and technology expenses. The inclusion of NNIP and depreciationGreenSky contributed approximately $200 million of non-compensation expenses for the second quarter of 2022. While certain non-compensation expenses (e.g., occupancy and amortization).market development) were impacted by inflationary pressures, such overall impact was not material for the three months ended June 2022. Going forward, we plan to slow our hiring velocity and reduce certain professional fees, although these actions will take some time to be reflected in our results.
Net provisions for litigation and regulatory proceedings for the second quarter of 20212022 were $226$91 million compared with $2.96 billion$226 million for the second quarter of 2020.2021.
Six Months Ended June 20212022 versus June 2020.2021.
Operating expenses in the consolidated statements of earnings were $18.08$15.37 billion for the first half of 2021, 7% higher2022, 15% lower than the first half of 2020.2021. Our efficiency ratio (total operating expenses divided by total net revenues)for the first half of 2022 was 62.0%, compared with our target efficiency ratio of approximately 60.0%. Our efficiency ratio for the first half of 2021 was 54.6%, compared with 76.6% for the first half of 2020. In the first half of 2020, net provisions for litigation and regulatory proceedings increased our efficiency ratio by 14.3 percentage points..
The increasedecrease in operating expenses compared with the first half of 20202021 was due to significantly higherlower compensation and benefits expenses (reflecting a decline in operating performance compared with a strong performance)prior year period), partially offset by significantly lowernon-compensationexpenses. Withinnon-compensationincreases from the inclusion of NNIP and GreenSky, technology expenses, net provisions for litigation and regulatory proceedings were significantly lower, partially offset by higher transaction basedmarket development expenses and higher technology expenses (included in communications and technology and depreciation and amortization).professional fees.
Net provisions for litigation and regulatory proceedings for the first half of 20212022 were $300$216 million compared with $3.14 billion$300 million for the first half of 2020.2021.
As of June 2021,2022, headcount was essentially unchangedincreased 7% compared with December 2020.2021, primarily reflecting the acquisitions of NNIP and GreenSky, and investments in growth initiatives.
Provision for Taxes
The effective income tax rate for the first half of 20212022 was 18.8%16.3%, down from the full year income tax rate of 24.2%20.0% for 2020,2021, primarily due to a decrease in provisions fornon-deductiblelitigationthe impact of tax benefits on the settlement of employee share-based awards in the first half of 20212022 compared with 2020.the full year of 2021. The increase compared with 18.0%15.4% for the first quarter of 20212022 was primarily due to a decrease in the impact of tax benefits on the settlement of employee share-based awards, partially offset by permanent tax benefits, in the first half of 20212022 compared with the first quarter of 2021.2022.
Segment Assets and Operating Results
Segment Assets.
The table below presents assets by segment.
| As of | As of | |||||||||||||||
$ in millions | June 2021 | | December 2020 | | June 2022 | | December 2021 | | ||||||||
Investment Banking | $ 145,836 | $ 116,242 | $ 154,593 | $ 144,157 | ||||||||||||
Global Markets | 1,025,631 | 844,606 | 1,202,432 | 1,082,378 | ||||||||||||
Asset Management | 96,605 | 95,751 | 91,100 | 91,115 | ||||||||||||
Consumer & Wealth Management | 119,850 | 106,429 | 153,099 | 146,338 | ||||||||||||
Total | $1,387,922 | $1,163,028 | $1,601,224 | $1,463,988 | ||||||||||||
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.
| 111 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Segment Operating Results.
The table below presents our segment operating results.
Three Months Ended June | Six Months Ended June | Three Months Ended June | Six Months Ended June | |||||||||||||||||||||||||||||||||
$ in millions | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
Investment Banking | ||||||||||||||||||||||||||||||||||||
Net revenues | $ 3,609 | $ 2,657 | $ 7,380 | $ 4,841 | $ 2,137 | $ 3,609 | $ 4,548 | $ 7,380 | ||||||||||||||||||||||||||||
Provision for credit losses | (107 | ) | 819 | (270 | ) | 1,441 | 83 | (107 | ) | 247 | (270 | ) | ||||||||||||||||||||||||
Operating expenses | 1,955 | 2,704 | 3,818 | 3,873 | 1,105 | 1,955 | 2,353 | 3,818 | ||||||||||||||||||||||||||||
Pre-tax earnings/(loss) | $ 1,761 | $ (866 | ) | $ 3,832 | $ (473 | ) | ||||||||||||||||||||||||||||||
Net earnings/(loss) to common | $ 1,393 | $ (662 | ) | $ 3,072 | $ (319 | ) | ||||||||||||||||||||||||||||||
Pre-tax earnings | $ | $ 1,761 | $ 1,948 | $ 3,832 | ||||||||||||||||||||||||||||||||
Net earnings to common | $ | $ 1,393 | $ 1,595 | $ 3,072 | ||||||||||||||||||||||||||||||||
Average common equity | $ 9,792 | $11,070 | $10,078 | $11,141 | $ 10,454 | $ 9,792 | $ 11,028 | $10,078 | ||||||||||||||||||||||||||||
Return on average common equity | 56.9% | (23.9)% | 61.0% | (5.7)% | 29.3% | 56.9% | 28.9% | 61.0% | ||||||||||||||||||||||||||||
Global Markets | ||||||||||||||||||||||||||||||||||||
Net revenues | $ 4,900 | $ 7,176 | $12,481 | $12,339 | $ 6,467 | $ 4,900 | $ 14,339 | $12,481 | ||||||||||||||||||||||||||||
Provision for credit losses | 14 | 183 | (6 | ) | 251 | 131 | 14 | 233 | (6 | ) | ||||||||||||||||||||||||||
Operating expenses | 3,373 | 5,179 | 7,558 | 8,026 | 3,366 | 3,373 | 7,127 | 7,558 | ||||||||||||||||||||||||||||
Pre-tax earnings | $ 1,513 | $ 1,814 | $ 4,929 | $ 4,062 | $ 2,970 | $ 1,513 | $ 6,979 | $ 4,929 | ||||||||||||||||||||||||||||
Net earnings to common | $ 1,121 | $ 305 | $ 3,851 | $ 2,269 | $ 2,367 | $ 1,121 | $ 5,694 | $ 3,851 | ||||||||||||||||||||||||||||
Average common equity | $44,430 | $42,702 | $42,741 | $40,970 | $ 55,595 | $44,430 | $ 54,078 | $42,741 | ||||||||||||||||||||||||||||
Return on average common equity | 10.1% | 2.9% | 18.0% | 11.1% | 17.0% | 10.1% | 21.1% | 18.0% | ||||||||||||||||||||||||||||
Asset Management | ||||||||||||||||||||||||||||||||||||
Net revenues | $ 5,132 | $ 2,101 | $ 9,746 | $ 2,005 | $ 1,084 | $ 5,132 | $ 1,630 | $ 9,746 | ||||||||||||||||||||||||||||
Provision for credit losses | (65 | ) | 271 | (12 | ) | 350 | 59 | (65 | ) | 100 | (12 | ) | ||||||||||||||||||||||||
Operating expenses | 1,943 | 1,332 | 3,833 | 2,530 | 1,461 | 1,943 | 2,556 | 3,833 | ||||||||||||||||||||||||||||
Pre-tax earnings/(loss) | $ 3,254 | $ 498 | $ 5,925 | $ (875 | ) | $ | ) | $ 3,254 | $ | ) | $ 5,925 | |||||||||||||||||||||||||
Net earnings/(loss) to common | $ 2,592 | $ 684 | $ 4,757 | $ (566 | ) | $ | ) | $ 2,592 | $ | ) | $ 4,757 | |||||||||||||||||||||||||
Average common equity | $25,410 | $19,322 | $25,092 | $20,371 | $ 24,310 | $25,410 | $ 24,132 | $25,092 | ||||||||||||||||||||||||||||
Return on average common equity | 40.8% | 14.2% | 37.9% | (5.6)% | (6.3)% | 40.8% | (7.4)% | 37.9% | ||||||||||||||||||||||||||||
Consumer & Wealth Management | Consumer & Wealth Management | |||||||||||||||||||||||||||||||||||
Net revenues | $ 1,747 | $ 1,361 | $ 3,485 | $ 2,853 | $ 2,176 | $ 1,747 | $ 4,280 | $ 3,485 | ||||||||||||||||||||||||||||
Provision for credit losses | 66 | 317 | 126 | 485 | 394 | 66 | 648 | 126 | ||||||||||||||||||||||||||||
Operating expenses | 1,369 | 1,199 | 2,868 | 2,443 | 1,721 | 1,369 | 3,333 | 2,868 | ||||||||||||||||||||||||||||
Pre-tax earnings/(loss) | $ 312 | $ (155 | ) | $ 491 | $ (75 | ) | ||||||||||||||||||||||||||||||
Net earnings/(loss) to common | $ 241 | $ (130 | ) | $ 378 | $ (64 | ) | ||||||||||||||||||||||||||||||
Average common equity | $10,459 | $ 7,505 | $10,335 | $ 7,271 | ||||||||||||||||||||||||||||||||
Return on average common equity | 9.2% | (6.9)% | 7.3% | (1.8)% | ||||||||||||||||||||||||||||||||
Total net revenues | $15,388 | $13,295 | $33,092 | $22,038 | ||||||||||||||||||||||||||||||||
Total provision for credit losses | (92 | ) | 1,590 | (162 | ) | 2,527 | ||||||||||||||||||||||||||||||
Total operating expenses | 8,640 | 10,414 | 18,077 | 16,872 | ||||||||||||||||||||||||||||||||
Total pre-tax earnings | $ 6,840 | $ 1,291 | $15,177 | $ 2,639 | ||||||||||||||||||||||||||||||||
Pre-tax earnings | $ | $ 312 | $ | $ 491 | ||||||||||||||||||||||||||||||||
Net earnings to common | $ 5,347 | $ 197 | $12,058 | $ 1,320 | $ | $ 241 | $ | $ 378 | ||||||||||||||||||||||||||||
Average common equity | $90,091 | $80,599 | $88,246 | $79,753 | $ 15,167 | $10,459 | $ 14,345 | $10,335 | ||||||||||||||||||||||||||||
Return on average common equity | 23.7% | 1.0% | 27.3% | 3.3% | 0.9% | 9.2% | 3.2% | 7.3% | ||||||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||||||
Net revenues | $ 11,864 | $15,388 | $ 24,797 | $33,092 | ||||||||||||||||||||||||||||||||
Provision for credit losses | 667 | (92 | ) | 1,228 | (162 | ) | ||||||||||||||||||||||||||||||
Operating expenses | 7,653 | 8,640 | 15,369 | 18,077 | ||||||||||||||||||||||||||||||||
Pre-tax earnings | $ 3,544 | $ 6,840 | $ 8,200 | $15,177 | ||||||||||||||||||||||||||||||||
Net earnings to common | $ 2,786 | $ 5,347 | $ 6,617 | $12,058 | ||||||||||||||||||||||||||||||||
Average common equity | $105,526 | $90,091 | $103,583 | $88,246 | ||||||||||||||||||||||||||||||||
Return on average common equity | 10.6% | 23.7% | 12.8% | 27.3% | ||||||||||||||||||||||||||||||||
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.We review and first half of 2021 reflects updatesmake any necessary adjustments to our attributed equity framework (effectivein January 1, 2021)of each year, to incorporatereflect, among other things, the impactresults of the stress capital buffer (SCB) rulelatest Comprehensive Capital Analysis and Review (CCAR) process, as well as projected changes in our SCB of 6.6%, which became effective on October 1, 2020 under the Standardized Approach.balance sheet. See “Equity Capital“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 2021.2022. 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 second quarter and first half of 2021. See “Equity Capital Management and Regulatory Capital — Equity Capital Management” for information about our updated SCB, which will become effective on October 1, 2021.respective periods.
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.
| As of | ||||||||
$ in millions | June 2022 | | December 2021 | | ||||
Cash and cash equivalents | $ 70,496 | $ 64,437 | ||||||
Collateralized agreements | 18,968 | 21,354 | ||||||
Customer and other receivables | 4,751 | 5,248 | ||||||
Trading assets | 24,393 | 20,338 | ||||||
Investments | 1,071 | 1,053 | ||||||
Loans | 32,697 | 29,555 | ||||||
Other assets | 2,217 | 2,172 | ||||||
Total | $154,593 | $144,157 | ||||||
The table below presents details about our Investment Banking loans.
| As of | ||||||||
$ in millions | June 2022 | | December 2021 | | ||||
Corporate | $ 33,645 | $ 30,421 | ||||||
Loans, gross | 33,645 | 30,421 | ||||||
Allowance for loan losses | (948 | ) | (866 | ) | ||||
Total loans | $ 32,697 | $ 29,555 | ||||||
| Goldman Sachs June | 112 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents our average Investment Banking assets.gross loans by loan type.
| As of | ||||||||
$ in millions | June 2021 | | December 2020 | | ||||
Cash and cash equivalents | $ 63,903 | $ 34,730 | ||||||
Collateralized agreements | 18,795 | 20,242 | ||||||
Customer and other receivables | 9,762 | 2,465 | ||||||
Trading assets | 25,879 | 29,493 | ||||||
Investments | 1,441 | 1,078 | ||||||
Loans | 24,136 | 26,544 | ||||||
Other assets | 1,920 | 1,690 | ||||||
Total | $145,836 | $116,242 | ||||||
| Average for the | ||||||||||||||||||
Three Months Ended June | Six Months Ended June | |||||||||||||||||
$ in millions | 2022 | 2021 | 2022 | 2021 | ||||||||||||||
Corporate | $33,668 | $25,297 | $32,439 | $26,639 | ||||||||||||||
Loans, gross | $33,668 | $25,297 | $32,439 | $26,639 | ||||||||||||||
The table below presents our Investment Banking operating results.
Three Months Ended June | Six Months Ended June | Three Months Ended June | Six Months Ended June | |||||||||||||||||||||||||||||||||
$ in millions | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
Financial advisory | $1,257 | $ 686 | $ 2,374 | $ 1,467 | $ 1,197 | $ 1,257 | $ 2,324 | $ 2,374 | ||||||||||||||||||||||||||||
Equity underwriting | 1,243 | 1,057 | 2,812 | 1,435 | 131 | 1,243 | 392 | 2,812 | ||||||||||||||||||||||||||||
Debt underwriting | 950 | 990 | 1,830 | 1,573 | 457 | 950 | 1,200 | 1,830 | ||||||||||||||||||||||||||||
Underwriting | 2,193 | 2,047 | 4,642 | 3,008 | 588 | 2,193 | 1,592 | 4,642 | ||||||||||||||||||||||||||||
Corporate lending | 159 | (76 | ) | 364 | 366 | 352 | 159 | 632 | 364 | |||||||||||||||||||||||||||
Net revenues | 3,609 | 2,657 | 7,380 | 4,841 | 2,137 | 3,609 | 4,548 | 7,380 | ||||||||||||||||||||||||||||
Provision for credit losses | (107 | ) | 819 | (270 | ) | 1,441 | 83 | (107 | ) | 247 | (270 | ) | ||||||||||||||||||||||||
Operating expenses | 1,955 | 2,704 | 3,818 | 3,873 | 1,105 | 1,955 | 2,353 | 3,818 | ||||||||||||||||||||||||||||
Pre-tax earnings/(loss) | 1,761 | (866 | ) | 3,832 | (473 | ) | ||||||||||||||||||||||||||||||
Provision/(benefit) for taxes | 348 | (227 | ) | 721 | (188 | ) | ||||||||||||||||||||||||||||||
Net earnings/(loss) | 1,413 | (639 | ) | 3,111 | (285 | ) | ||||||||||||||||||||||||||||||
Pre-tax earnings | 949 | 1,761 | 1,948 | 3,832 | ||||||||||||||||||||||||||||||||
Provision for taxes | 163 | 348 | 317 | 721 | ||||||||||||||||||||||||||||||||
Net earnings | 786 | 1,413 | 1,631 | 3,111 | ||||||||||||||||||||||||||||||||
Preferred stock dividends | 20 | 23 | 39 | 34 | 20 | 20 | 36 | 39 | ||||||||||||||||||||||||||||
Net earnings/(loss) to common | $1,393 | $ (662 | ) | $ 3,072 | $ (319 | ) | ||||||||||||||||||||||||||||||
Net earnings to common | $ 766 | $ 1,393 | $ 1,595 | $ 3,072 | ||||||||||||||||||||||||||||||||
Average common equity | $9,792 | $11,070 | $10,078 | $11,141 | $10,454 | $ 9,792 | $11,028 | $10,078 | ||||||||||||||||||||||||||||
Return on average common equity | 56.9% | (23.9)% | 61.0% | (5.7)% | 29.3% | 56.9% | 28.9% | 61.0% | ||||||||||||||||||||||||||||
The table below presents our financial advisory and underwriting transaction volumes.
| Three Months Ended June | Six Months Ended June | Three Months Ended June | Six Months Ended June | |||||||||||||||||||||||||||||||||
$ in billions | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
Announced mergers and acquisitions | $ | $ 61 | $ | $ 282 | $ 460 | $ 571 | $ 814 | $ 944 | ||||||||||||||||||||||||||||
Completed mergers and acquisitions | $ | $ 412 | $ | $ 610 | $ 378 | $ 332 | $ 755 | $ 652 | ||||||||||||||||||||||||||||
Equity and equity-related offerings | $ | $ 40 | $ | $ 52 | $ 8 | $ 36 | $ 18 | $ 86 | ||||||||||||||||||||||||||||
Debt offerings | $ | $ 115 | $ | $ 208 | $ 50 | $ 93 | $ 136 | $ 187 | ||||||||||||||||||||||||||||
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.Environment
. During the second quarter of 2021,2022, Investment Banking operated in an environment generally characterized by continued strong industry-wide activity across mergers and acquisitions and underwriting, as the global economy continued to recover. Involumes, although completed mergers and acquisitions volumes declined compared with the first quarter of 2022, as well as a continued decline in industry-wide completed and announced transactions remained at high levels, reflecting supportive market conditions and CEO confidence. In underwriting industry-wide activity levels reflected continued strength involumes, as equity underwriting particularlyvolumes remained low amid volatile equity markets and a decline in initial public offerings,prices, and debt underwriting reflecting elevatedvolumes declined across leveraged finance volumes.and investment-grade issuances amid rising interest rates.
In the future, if market and economic conditions deteriorate further, and industry-wide mergers and acquisitions transactions decline, or if industry-wide equity and debt underwriting volumes continue to decline, or credit spreads related to hedges on our relationship lending portfolio tighten, net revenues in Investment Banking would likely be negatively impacted. In addition, a deterioration inif economic conditions deteriorate further or if the creditworthiness of borrowers would negatively impact thedeteriorates, provision for credit losses.losses would likely be negatively impacted.
Three Months Ended June 20212022 versus June 2020.2021.
Net revenues in Investment Banking were $3.61$2.14 billion for the second quarter of 2021, 36% higher2022, 41% lower than thea strong second quarter of 2020,2021, primarily reflecting significantly higher net revenues in Financial advisory and Corporate lending and higherlower net revenues in Underwriting.
The increasedecrease in Underwriting was due to significantly lower net revenues in both Equity and Debt underwriting, reflecting a significant decline in industry-wide volumes. Net revenues in Financial advisory net revenues reflected an increasewere slightly lower, reflecting a decrease in industry-wide completed mergers and acquisitions transactions. The increase in Corporate lending net revenues primarily reflectedwere significantly higher, net interest income. The increase in Underwriting net revenues wasprimarily due to net gains from hedges related to relationship lending activities and higher net revenues in Equity underwriting, primarily driven by strong industry-wide initial public offering activity,from transaction banking, partially offset by a significant decline in industry-wide secondary offerings. Debt underwriting net revenues were slightly lower, primarily reflecting significantly lower industry-wide investment-grade volumes, partially offset by elevated industry-wide leveraged finance volumes.mark-downs of approximately $225 million on acquisition financing activities.
Provision for credit losses was $83 million for the second quarter of 2022, compared with a net benefit of $107 million for the second quarter of 2021. Provisions in the second quarter of 2022 primarily reflected the impact of broad macroeconomic concerns, while the net benefit in the second quarter of 2021 compared with net provisionsreflected reserve reductions as the broad economic environment continued to improve following the initial impact of $819the
COVID-19
pandemic.Operating expenses were $1.11 billion for the second quarter of 2022, 43% lower than the second quarter of 2021, primarily reflecting significantly lower compensation and benefits expenses.2020, primarily due to reserve reductions reflecting continued improvement in2022, 46% lower than the broader economic environment following challenging conditions that began in the first halfsecond quarter of 2020.
2021.Pre-tax
earnings were $949 million for the second quarter of | 113 | Goldman Sachs June |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
As of June 2021,2022, our investment banking transaction backlog increaseddecreased compared with March 2021,2022, due to highersignificantly lower estimated net revenues acrossfrom potential financial advisorydebt underwriting transactions (primarily in leveraged finance transactions) and lower estimated net revenues from potential equity underwriting transactions (particularly fromin initial public offerings) and, partially offset by higher estimated net revenues from potential debt underwriting transactions (particularly from leveraged finance and investment-grade transactions).advisory transactions.
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 time. In addition, our backlog is subject to certain limitations, such as assumptions about the likelihood that individual client transactions will occur in the future. Transactions may be cancelled or modified, and transactions not included in the estimate may also occur, including underwriting transactions for which the time frame from discussion to completion has shortened in the current environment.occur.
Six Months Ended June 20212022 versus June 2020.2021.
Net revenues in Investment Banking were $7.38$4.55 billion for the first half of 2021, 52% higher2022, 38% lower than the first half of 2020, due to2021, primarily reflecting significantly higherlower net revenues in Underwriting and Financial advisory. Net revenues in Corporate lending were essentially unchanged.Underwriting.
The increasedecrease in Underwriting net revenues was due to significantly higherlower net revenues in both Equity and Debt underwriting, reflecting a significant decline in industry-wide volumes. Net revenues in Financial advisory were slightly lower, reflecting a decrease in industry-wide completed mergers and acquisitions transactions. Corporate lending net revenues were significantly higher, primarily driven by strong industry-wide initial public offering activity,due to net gains from hedges related to relationship lending activities and higher net revenues in Debt underwriting, reflecting elevated industry-wide leveraged finance volumes. The increase in Financial advisoryfrom transaction banking, partially offset by net revenues reflected a significant increase in completed mergers and acquisitions transactions.mark-downs on acquisition financing activities.
Provision for credit losses was $247 million for the first half of 2022, compared with a net benefit of $270 million for the first half of 2021. Provisions for the first half of 2022 primarily reflected the impact of macroeconomic and geopolitical concerns, and portfolio growth, while the net benefit in the first half of 2021 compared with net provisionsreflected reserve reductions as the broad economic environment continued to improve following the initial impact of $1.44the
COVID-19
pandemic.Operating expenses were $2.35 billion for the first half of 2020, primarily due to reserve reductions reflecting continued improvement in the broader economic environment following challenging conditions that began in2022, 38% lower than the first half of 2020.2021, primarily reflecting significantly lower compensation and benefits expenses.
Pre-tax
As of June 2021,2022, our investment banking transaction backlog increased significantlydecreased compared with December 2020,2021, due to significantly higherlower estimated net revenues across potential financial advisory transactions,from potential debt underwriting transactions (particularly(primarily from leveraged finance and investment-grade transactions) and lower estimated net revenues from potential equity underwriting transactions (primarily from initial public offerings).transactions.
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.Products
.
Investment-grade and high-yield corporate securities, credit derivatives, exchange-traded funds (ETFs), bank and bridge loans, municipal securities, emerging market and distressed debt, and trade claims.
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.| Goldman Sachs June | 114 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Commodities.
Commodity derivatives and, to a lesser extent, physical commodities, involving crude oil and petroleum products, natural gas, agricultural, base, precious and other metals, electricity, coal, agriculturalincluding renewable power, environmental products 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
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.
| 115 | Goldman Sachs June |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents our Global Markets assets.
| As of | As of | |||||||||||||||
$ in millions | June 2021 | | December 2020 | | June 2022 | | December 2021 | | ||||||||
Cash and cash equivalents | $ 125,615 | $ 86,663 | $ 152,482 | $ 131,390 | ||||||||||||
Collateralized agreements | 318,415 | 212,711 | 412,418 | 343,535 | ||||||||||||
Customer and other receivables | 141,769 | 110,473 | 145,288 | 142,547 | ||||||||||||
Trading assets | 332,140 | 339,349 | 326,568 | 337,040 | ||||||||||||
Investments | 53,488 | 52,929 | 85,379 | 55,285 | ||||||||||||
Loans | 43,040 | 33,214 | 67,290 | 60,916 | ||||||||||||
Other assets | 11,164 | 9,267 | 13,007 | 11,665 | ||||||||||||
Total | $1,025,631 | $844,606 | $1,202,432 | $1,082,378 | ||||||||||||
The table below presents details about our Global Markets loans.
| As of | ||||||||
$ in millions | June 2022 | | December 2021 | | ||||
Corporate | $ 20,942 | $ 18,578 | ||||||
Real estate | 38,579 | 34,986 | ||||||
Other | 8,487 | 7,838 | ||||||
Loans, gross | 68,008 | 61,402 | ||||||
Allowance for loan losses | (718 | ) | (486 | ) | ||||
Total loans | $ 67,290 | $ 60,916 | ||||||
The table below presents our average Global Markets gross loans by loan type.
| Average for the | ||||||||||||||||||
Three Months Ended June | Six Months Ended June | |||||||||||||||||
$ in millions | 2022 | 2021 | 2022 | 2021 | ||||||||||||||
Corporate | $20,595 | $14,553 | $19,924 | $14,012 | ||||||||||||||
Real estate | 37,718 | 21,994 | 36,346 | 20,132 | ||||||||||||||
Other | 7,950 | 4,345 | 7,989 | 3,986 | ||||||||||||||
Loans, gross | $66,263 | $40,892 | $64,259 | $38,130 | ||||||||||||||
The table below presents our Global Markets operating results.
Three Months Ended June | Six Months Ended June | Three Months Ended June | Six Months Ended June | |||||||||||||||||||||||||||||||||
$ in millions | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
FICC intermediation | $ 1,897 | $ 3,786 | $ 5,348 | $ 6,323 | $ 2,839 | $ 1,897 | $ 6,877 | $ 5,348 | ||||||||||||||||||||||||||||
FICC financing | 423 | 449 | 865 | 881 | 768 | 423 | 1,453 | 865 | ||||||||||||||||||||||||||||
FICC | 2,320 | 4,235 | 6,213 | 7,204 | 3,607 | 2,320 | 8,330 | 6,213 | ||||||||||||||||||||||||||||
Equities intermediation | 1,765 | 2,199 | 4,351 | 3,727 | 1,734 | 1,765 | 3,895 | 4,351 | ||||||||||||||||||||||||||||
Equities financing | 815 | 742 | 1,917 | 1,408 | 1,126 | 815 | 2,114 | 1,917 | ||||||||||||||||||||||||||||
Equities | 2,580 | 2,941 | 6,268 | 5,135 | 2,860 | 2,580 | 6,009 | 6,268 | ||||||||||||||||||||||||||||
Net revenues | 4,900 | 7,176 | 12,481 | 12,339 | 6,467 | 4,900 | 14,339 | 12,481 | ||||||||||||||||||||||||||||
Provision for credit losses | 14 | 183 | (6 | ) | 251 | 131 | 14 | 233 | (6 | ) | ||||||||||||||||||||||||||
Operating expenses | 3,373 | 5,179 | 7,558 | 8,026 | 3,366 | 3,373 | 7,127 | 7,558 | ||||||||||||||||||||||||||||
Pre-tax earnings | 1,513 | 1,814 | 4,929 | 4,062 | 2,970 | 1,513 | 6,979 | 4,929 | ||||||||||||||||||||||||||||
Provision for taxes | 312 | 1,395 | 927 | 1,620 | 518 | 312 | 1,135 | 927 | ||||||||||||||||||||||||||||
Net earnings | 1,201 | 419 | 4,002 | 2,442 | 2,452 | 1,201 | 5,844 | 4,002 | ||||||||||||||||||||||||||||
Preferred stock dividends | 80 | 114 | 151 | 173 | 85 | 80 | 150 | 151 | ||||||||||||||||||||||||||||
Net earnings to common | $ 1,121 | $ 305 | $ 3,851 | $ 2,269 | $ 2,367 | $ 1,121 | $ 5,694 | $ 3,851 | ||||||||||||||||||||||||||||
Average common equity | $44,430 | $42,702 | $42,741 | $40,970 | $55,595 | $44,430 | $54,078 | $42,741 | ||||||||||||||||||||||||||||
Return on average common equity | 10.1% | 2.9% | 18.0% | 11.1% | 17.0% | 10.1% | 21.1% | 18.0% | ||||||||||||||||||||||||||||
The table below presents our Global Markets net revenues by line item in the consolidated statements of earnings.
$ in millions | FICC | Equities | | Global Markets | | FICC | Equities | | Global Markets | | ||||||||||||||
Three Months Ended June 2022 | ||||||||||||||||||||||||
Market making | $3,056 | $1,873 | $ 4,929 | |||||||||||||||||||||
Commissions and fees | – | 941 | 941 | |||||||||||||||||||||
Other principal transactions | 108 | 2 | 110 | |||||||||||||||||||||
Net interest income | 443 | 44 | 487 | |||||||||||||||||||||
Total | $3,607 | $2,860 | $ 6,467 | |||||||||||||||||||||
Three Months Ended June 2021 | Three Months Ended June 2021 | |||||||||||||||||||||||
Market making | $1,499 | $1,775 | $ 3,274 | $1,499 | $1,775 | $ 3,274 | ||||||||||||||||||
Commissions and fees | – | 809 | 809 | – | 809 | 809 | ||||||||||||||||||
Other principal transactions | 76 | (1 | ) | 75 | 76 | (1 | ) | 75 | ||||||||||||||||
Net interest income | 745 | (3 | ) | 742 | 745 | (3 | ) | 742 | ||||||||||||||||
Total | $2,320 | $2,580 | $ 4,900 | $2,320 | $2,580 | $ 4,900 | ||||||||||||||||||
Three Months Ended June 2020 | ||||||||||||||||||||||||
Six Months Ended June 2022 | ||||||||||||||||||||||||
Market making | $3,566 | $2,221 | $ 5,787 | $6,953 | $3,966 | $10,919 | ||||||||||||||||||
Commissions and fees | – | 808 | 808 | – | 1,951 | 1,951 | ||||||||||||||||||
Other principal transactions | (45 | ) | (3 | ) | (48 | ) | 246 | 6 | 252 | |||||||||||||||
Net interest income | 714 | (85 | ) | 629 | 1,131 | 86 | 1,217 | |||||||||||||||||
Total | $4,235 | $2,941 | $ 7,176 | $8,330 | $6,009 | $14,339 | ||||||||||||||||||
Six Months Ended June 2021 | Six Months Ended June 2021 | |||||||||||||||||||||||
Market making | $4,758 | $4,409 | $ 9,167 | $4,758 | $4,409 | $ 9,167 | ||||||||||||||||||
Commissions and fees | – | 1,828 | 1,828 | – | 1,828 | 1,828 | ||||||||||||||||||
Other principal transactions | 184 | (1 | ) | 183 | 184 | (1 | ) | 183 | ||||||||||||||||
Net interest income | 1,271 | 32 | 1,303 | 1,271 | 32 | 1,303 | ||||||||||||||||||
Total | $6,213 | $6,268 | $12,481 | $6,213 | $6,268 | $12,481 | ||||||||||||||||||
Six Months Ended June 2020 | ||||||||||||||||||||||||
Market making | $5,900 | $3,569 | $ 9,469 | |||||||||||||||||||||
Commissions and fees | – | 1,788 | 1,788 | |||||||||||||||||||||
Other principal transactions | (65 | ) | 7 | (58 | ) | |||||||||||||||||||
Net interest income | 1,369 | (229 | ) | 1,140 | ||||||||||||||||||||
Total | $7,204 | $5,135 | $12,339 | |||||||||||||||||||||
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 for all periods was client activity.
| Goldman Sachs June | 116 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Operating Environment.
During the second quarter of 2022, Global Markets continued to operate in an environment generally characterized by broad macroeconomic and geopolitical concerns and market volatility, which contributed to solid client activity, a decrease in global equity prices, a further increase in commodity prices and wider credit spreads. For volatility, the average daily VIX for the second quarter of 2022 was 8% higher compared with the first quarter of 2022. In equities, the S&P 500 Index decreased by 16% and the MSCI World Index decreased by 16% and, in commodities, the price of crude oil (WTI per barrel) increased 5% compared with the end of the first quarter of 2022. In the same time period, U.S. investment-grade credit spreads widened by approximately 45 basis points and U.S. high-yield credit spreads widened by approximately 200 basis points. Additionally, global central banks addressed inflation pressures by increasing policy interest rates.
In the future, if market and economic conditions deteriorate further, and activity levels or volatility decline, net revenues in Global Markets would likely be negatively impacted.
Three Months Ended June 2022 versus June 2021.
Net revenues in Global Markets were $6.47 billion for the second quarter of 2022, 32% higher than the second quarter of 2021.
Net revenues in FICC were $3.61 billion, 55% higher than the second quarter of 2021, primarily reflecting significantly higher net revenues in FICC intermediation, driven by significantly higher net revenues in interest rate products, commodities and currencies, partially offset by significantly lower net revenues in mortgages and credit products. Net revenues in FICC financing were also significantly higher, primarily driven by mortgage lending and securities sold under agreements to repurchase (repurchase agreements).
The decreaseincrease in FICC intermediation net revenues primarily reflected solid, but significantly lowerhigher client activity compared with strong activity levels in the prior year period due to high volatilityas we supported clients amid theCOVID-19pandemic.an evolving macroeconomic environment. The following provides information about our FICC intermediation net revenues by business, compared with results in the second quarter of 2020:2021:
Net revenues in most businessesinterest rate products, commodities and currencies primarily reflected lowerhigher client activity.
Net revenues in Equities were $2.58$2.86 billion, 12% lower11% higher than the second quarter of 2020,2021, due to significantly lowerhigher net revenues in Equities financing, primarily reflecting increased activity. Net revenues in Equities intermediation were slightly lower, reflecting significantly lower net revenues in cash products, and lowerpartially offset by higher net revenues in derivatives. Net revenues in Equities financing were higher, reflecting higher average client balances.
Provision for credit losses was $131 million for the second quarter of 2022, compared with $14 million for the second quarter of 2021, compared with $183 million for2021. Provisions in the second quarter of 2020,2022 primarily due to reserve reductions reflecting continued improvement inreflected the broader economic environment following challenging conditions that began in the first halfimpact of 2020.broad macroeconomic concerns.
Operating expenses were $3.37 billion for the second quarter of 2021, 35% lower than2022, essentially unchanged compared with the second quarter of 2020, reflecting significantly lower net provisions for litigation and regulatory proceedings and significantly lower compensation and benefits expenses.2021.$1.51$2.97 billion for the second quarter of 2021, 17% lower2022, 96% higher than the second quarter of 2020. Annualized ROE was 10.1% for the second quarter of 2021, compared with 2.9% for the second quarter of 2020 (which included the impact of net provisions for litigation and regulatory proceedings that reduced annualized ROE by 18.9 percentage points).2021.
Pre-tax
earnings were Six Months Ended June 20212022 versus June 2020.2021.
Net revenues in Global Markets were $12.48$14.34 billion for the first half of 2021, essentially unchanged compared with a strong2022, 15% higher than the first half of 2020.2021.
Net revenues in FICC were $6.21$8.33 billion, 14% lower34% higher than the first half of 2020, due to lower2021, primarily reflecting significantly higher net revenues in FICC intermediation, reflecting significantly lower net revenues in credit products, interest rate products and currencies, and slightly lower net revenues in commodities, partially offsetdriven by significantly higher net revenues in mortgages. In addition,currencies, commodities, and interest rate products, partially offset by significantly lower net revenues in mortgages and credit products. Net revenues in FICC financing were slightly lower, reflecting significantly lower net revenues from resale agreements, partially offset byalso significantly higher, net revenues fromprimarily driven by mortgage lending.
The decreaseincrease in FICC intermediation net revenues reflected solid, but significantly lowerhigher client activity compared with strong activity levels in the prior year period due to high volatilityas we supported clients amid theCOVID-19pandemic. This was partially offset by the impact of improved market-making conditions on our inventory compared with challenging conditions in the prior year period.an evolving macroeconomic environment. The following provides information about our FICC intermediation net revenues by business, compared with results in the first half of 2020:2021:
Net revenues in credit products,currencies, commodities, and interest rate products currencies and commoditiesprimarily reflected lowerhigher client activity, partially offset by the impact of improved market-making conditions on our inventory.activity.
Net revenues in mortgages and credit products primarily reflected the impact of improvedchallenging market-making conditions on our inventory.
Net revenues in Equities were $6.27$6.01 billion, 22% higher4% lower than the first half of 2020,2021, due to higherlower net revenues in Equities intermediation, reflecting significantly higher net revenues in derivatives and higherlower net revenues in cash products, and significantly higher netproducts. Net revenues in Equities financing were higher, primarily reflecting improved market conditions and increased activity (including higher average customer balances in our Prime business).activity.
Provision for credit losses was $233 million for the first half of 2022, compared with a net benefit of $6 million for the first half of 2021, compared with net provisions of $251 million2021. Provisions for the first half of 2020,2022 primarily due to reserve reductions reflecting continued improvement inreflected the broader economic environment following challenging conditions that began in the first halfimpact of 2020.macroeconomic and geopolitical concerns and portfolio growth.
Operating expenses were $7.56$7.13 billion for the first half of 2021,2022, 6% lower than the first half of 2020,2021, reflecting significantly lower net provisions for litigation and regulatory proceedings, partially offset by significantly higher compensation and benefits expenses (reflecting strong performance).expenses.$4.93$6.98 billion for the first half of 2021, 21%2022, 42% higher than the first half of 2020. Annualized ROE was 18.0% for the first half of 2021, compared with 11.1% for the first half of 2020 (which included the impact of net provisions for litigation and regulatory proceedings that reduced annualized ROE by 10.5 percentage points).2021.
Pre-tax
earnings were | 117 | Goldman Sachs June |
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 comingledcommingled 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,longer-term, include investments in corporate equity, credit, real estate and infrastructure assets.
Asset Management generates revenues from the following:
Management and other fees.
Incentive fees.
Equity investments.
Lending and debt investments.
The table below presents our Asset Management assets.
| As of | As of | |||||||||||||||
$ in millions | June 2021 | | December 2020 | | June 2022 | | December 2021 | | ||||||||
Cash and cash equivalents | $13,411 | $ 8,635 | $19,045 | $16,636 | ||||||||||||
Collateralized agreements | 3,658 | 4,749 | 4,833 | 5,227 | ||||||||||||
Customer and other receivables | 923 | 1,261 | 1,104 | 946 | ||||||||||||
Trading assets | 5,033 | 6,819 | 6,213 | 5,000 | ||||||||||||
Investments | 35,759 | 34,386 | 28,281 | 32,318 | ||||||||||||
Loans | 16,068 | 16,558 | 13,415 | 13,698 | ||||||||||||
Other assets | 21,753 | 23,343 | 18,209 | 17,290 | ||||||||||||
Total | $96,605 | $95,751 | $91,100 | $91,115 | ||||||||||||
The table below presents details about our Asset Management loans.
| As of | ||||||||
$ in millions | June 2022 | | December 2021 | | ||||
Corporate | $ 6,959 | $ 6,928 | ||||||
Real estate | 6,554 | 6,810 | ||||||
Other | 629 | 692 | ||||||
Loans, gross | 14,142 | 14,430 | ||||||
Allowance for loan losses | (727 | ) | (732 | ) | ||||
Total loans | $13,415 | $13,698 | ||||||
The table below presents our average Asset Management gross loans by loan type.
| Average for the | ||||||||||||||||||||
Three Months Ended June | Six Months Ended June | |||||||||||||||||||
$ in millions | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Corporate | $ 6,773 | $ 7,604 | $ 6,844 | $ 7,632 | ||||||||||||||||
Real estate | 6,399 | 8,773 | 6,512 | 8,990 | ||||||||||||||||
Other | 679 | 676 | 679 | 668 | ||||||||||||||||
Loans, gross | $13,851 | $17,053 | $14,035 | $17,290 | ||||||||||||||||
The table below presents our Asset Management operating results.
Three Months Ended June | Six Months Ended June | |||||||||||||||||
$ in millions | 2021 | 2020 | 2021 | 2020 | ||||||||||||||
Management and other fees | $ 727 | $ 684 | $ 1,420 | $ 1,324 | ||||||||||||||
Incentive fees | 78 | 34 | 120 | 188 | ||||||||||||||
Equity investments | 3,717 | 924 | 6,837 | 902 | ||||||||||||||
Lending and debt investments | 610 | 459 | 1,369 | (409 | ) | |||||||||||||
Net revenues | 5,132 | 2,101 | 9,746 | 2,005 | ||||||||||||||
Provision for credit losses | (65 | ) | 271 | (12 | ) | 350 | ||||||||||||
Operating expenses | 1,943 | 1,332 | 3,833 | 2,530 | ||||||||||||||
Pre-tax earnings/(loss) | 3,254 | 498 | 5,925 | (875 | ) | |||||||||||||
Provision/(benefit) for taxes | 634 | (212 | ) | 1,115 | (349 | ) | ||||||||||||
Net earnings/(loss) | 2,620 | 710 | 4,810 | (526 | ) | |||||||||||||
Preferred stock dividends | 28 | 26 | 53 | 40 | ||||||||||||||
Net earnings/(loss) to common | $ 2,592 | $ 684 | $ 4,757 | $ (566 | ) | |||||||||||||
Average common equity | $25,410 | $19,322 | $25,092 | $20,371 | ||||||||||||||
Return on average common equity | 40.8% | 14.2% | 37.9% | (5.6)% | ||||||||||||||
Three Months Ended June | Six Months Ended June | |||||||||||||||||
$ in millions | 2021 | 2020 | 2021 | 2020 | ||||||||||||||
Equity Type | ||||||||||||||||||
Private equity | $ 2,816 | $ 288 | $ 5,597 | $ 750 | ||||||||||||||
Public equity | 901 | 636 | 1,240 | 152 | ||||||||||||||
Total | $ 3,717 | $ 924 | $ 6,837 | $902 | ||||||||||||||
Asset Class | ||||||||||||||||||
Real estate | $ | $ 487 | $ 972 | $ 1,038 | ||||||||||||||
Corporate | 3,045 | 437 | 5,865 | (136 | ) | |||||||||||||
Total | $ 3,717 | $ 924 | $ 6,837 | $ 902 | ||||||||||||||
Three Months Ended June | Six Months Ended June | |||||||||||||||||
$ in millions | 2021 | 2020 | 2021 | 2020 | ||||||||||||||
Fair value net gains/(losses) | $ 277 | $ 253 | $ 737 | $ (858 | ) | |||||||||||||
Net interest income | 333 | 206 | 632 | 449 | ||||||||||||||
Total | $ 610 | $ 459 | $ 1,369 | $ (409 | ) | |||||||||||||
Three Months Ended June | Six Months Ended June | |||||||||||||||||||
$ in millions | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Management and other fees | $ 1,008 | $ 727 | $ 1,780 | $ 1,420 | ||||||||||||||||
Incentive fees | 160 | 78 | 212 | 120 | ||||||||||||||||
Equity investments | (221 | ) | 3,717 | (588 | ) | 6,837 | ||||||||||||||
Lending and debt investments | 137 | 610 | 226 | 1,369 | ||||||||||||||||
Net revenues | 1,084 | 5,132 | 1,630 | 9,746 | ||||||||||||||||
Provision for credit losses | 59 | (65 | ) | 100 | (12 | ) | ||||||||||||||
Operating expenses | 1,461 | 1,943 | 2,556 | 3,833 | ||||||||||||||||
Pre-tax earnings/(loss) | (436 | ) | 3,254 | (1,026 | ) | 5,925 | ||||||||||||||
Provision/(benefit) for taxes | (76 | ) | 634 | (167 | ) | 1,115 | ||||||||||||||
Net earnings/(loss) | (360 | ) | 2,620 | (859 | ) | 4,810 | ||||||||||||||
Preferred stock dividends | 22 | 28 | 39 | 53 | ||||||||||||||||
Net earnings/(loss) to common | $ | ) | $ 2,592 | $ | ) | $ 4,757 | ||||||||||||||
Average common equity | $24,310 | $25,410 | $24,132 | $25,092 | ||||||||||||||||
Return on average common equity | (6.3)% | 40.8% | (7.4)% | 37.9% | ||||||||||||||||
| Goldman Sachs June | 118 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents our Equity investments net revenues by equity type and asset class.
Three Months Ended June | Six Months Ended June | |||||||||||||||||||
$ in millions | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Equity Type | ||||||||||||||||||||
Private equity | $ 442 | $2,816 | $ 697 | $5,597 | ||||||||||||||||
Public equity | (663 | ) | 901 | (1,285 | ) | 1,240 | ||||||||||||||
Total | $(221 | ) | $3,717 | $ (588 | ) | $6,837 | ||||||||||||||
Asset Class | ||||||||||||||||||||
Real estate | $ 543 | $ 672 | $ 939 | $ 972 | ||||||||||||||||
Corporate | (764 | ) | 3,045 | (1,527 | ) | 5,865 | ||||||||||||||
Total | $(221 | ) | $3,717 | $ (588 | ) | $6,837 | ||||||||||||||
The table below presents details about our Lending and debt investments net revenues.
Three Months Ended June | Six Months Ended June | |||||||||||||||||||
$ in millions | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Fair value net gains/(losses) | $(138 | ) | $ 277 | $ (329 | ) | $ 737 | ||||||||||||||
Net interest income | 275 | 333 | 555 | 632 | ||||||||||||||||
Total | $ 137 | $ 610 | $ 226 | $1,369 | ||||||||||||||||
Operating Environment.
In the future, if market 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 theCOVID-19pandemic are ineffective,conditions deteriorate further, it may lead to a continued decline in asset prices or further widening of credit spreads, andor investors transitioning to asset classes that typically generate lower fees or investors withdrawing their assets, and net revenues in Asset Management would likely continue to be negatively impacted.
Three Months Ended June 20212022 versus June 2020.2021.
Net revenues in Asset Management were $1.08 billion for the second quarter of 2022, compared with $5.13 billion for the second quarter of 2021, more than double the amountreflecting net losses in the second quarter of 2020, primarily driven byEquity investments and significantly higherlower net revenues in Equity investments. In addition, Lending and debt investments, net revenues, Incentive fees andpartially offset by significantly higher Management and other fees were each higher.fees.
mark-to-market
strong prior year period. The increasedecrease in Lending and debt investments net revenues was primarily due to higherreflected mark-downs on debt securities and loans compared with net interest income.gains in the prior year period. The increase in Incentive fees was due to harvesting.
Management and other fees includedreflected the inclusion of NNIP and the impact of higher average assets under supervision and higher other fees, partially offset by fee waivers on money market funds.funds in the prior year period. Incentive fees were higher, driven by harvesting.
Provision for credit losses was $59 million for the second quarter of 2022, compared with a net benefit of $65 million for the second quarter of 2021. Provisions for the second quarter of 2022 primarily reflected broad macroeconomic concerns, while the net benefit in the second quarter of 2021 compared with net provisionsincluded reserve reductions as the broad economic environment continued to improve following the initial impact of $271the
COVID-19
pandemic.Operating expenses were $1.46 billion for the second quarter of 2022, 25% lower than the second quarter of 2021, reflecting significantly lower compensation and benefits expenses.2020, primarily due2022, compared to reserve reductions reflecting continued improvement in the broader economic environment following challenging conditions that began in the first half of 2020.
Pre-tax
loss was $436 million for the second quarter of Six Months Ended June 20212022 versus June 2020.2021.
Net revenues in Asset Management were $1.63 billion for the first half of 2022, compared with $9.75 billion for the first half of 2021, compared with $2.01 billion for the first half of 2020, driven by significantly higherreflecting net revenueslosses in Equity investments and significantly lower net revenues in Lending and debt investments.investments, partially offset by significantly higher Management and other fees were higher, while Incentive fees were lower.fees.
mark-to-market
Lending and debt investments net revenues primarily reflected net gains acrossmark-downs on debt investments for the first half of 2021, reflecting generally tighter corporate credit spreads,securities and loans compared with net losses forgains in the first half of 2020.
prior year period. The increase in Management and other fees reflected the inclusion of NNIP and the impact of higher average assets under supervision, partially offset by fee waivers on money market funds. The decreasefunds in the prior year period. Incentive fees waswere higher, driven by higher performance in the first half of 2020.harvesting.
Provision for credit losses was a$100 million for the first half of 2022, compared with net benefit of $12 million for the first half of 2021, compared with net provisions of $350 million2021. Provisions for the first half of 2020,2022 primarily due to reserve reductions reflecting continued improvement inreflected the broader economic environment following challenging conditions that beganimpact of macroeconomic and geopolitical concerns, while the net benefit in the first half of 2020.2021 included reserve reductions as the broad economic environment continued to improve following the initial impact of the
COVID-19
pandemic.Operating expenses were $3.83$2.56 billion for the first half of 2021, 52% higher2022, 33% lower than the first half of 2020, primarily due to2021, reflecting significantly higherlower compensation and benefits expenses (reflecting strong performance).expenses.wereof $5.93 billion for the first half of 2021, compared with apre-taxloss of $875 million for the first half of 2020.2021.
Pre-tax
loss was $1.03 billion for the first half of 2022, compared topre-tax
earnings | 119 | Goldman Sachs June |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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,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 foundations and endowments. Our relationships are established directly or introduced through corporations that sponsor financial wellness programs for their employees.
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.
Consumer Banking.
Our Consumer banking business issues unsecured loans, through our digital platform,(Marcus), and credit cards, to finance the purchases of goods or services. We also accept deposits (including savings and time deposits) through Marcus, in Goldman Sachs Bank USA (GS Bank USA) and GSIB. These deposits include savings and time deposits which provide us with a diversified source of funding. Additionally, we provide investing services through, currently offeredto U.S. customers. The acquisition of GreenSky in the U.S.March 2022 expands our offering offinancing.
Marcus by
Goldman Sachs
Marcus Invest
point-of-sale
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 allocatedattributed to consumer deposits.
The table below presents our Consumer & Wealth Management assets.
| As of | As of | |||||||||||||||
$ in millions | June 2021 | | December 2020 | | June 2022 | | December 2021 | | ||||||||
Cash and cash equivalents | $ 37,360 | $ 25,814 | $ 46,583 | $ 48,573 | ||||||||||||
Collateralized agreements | 9,509 | 12,518 | 11,465 | 14,358 | ||||||||||||
Customer and other receivables | 9,640 | 7,132 | 12,108 | 11,932 | ||||||||||||
Trading assets | 12,865 | 17,969 | 14,722 | 13,538 | ||||||||||||
Investments | 39 | 52 | 44 | 63 | ||||||||||||
Loans | 47,293 | 39,799 | 62,536 | 54,393 | ||||||||||||
Other assets | 3,144 | 3,145 | 5,641 | 3,481 | ||||||||||||
Total | $119,850 | $106,429 | $153,099 | $146,338 | ||||||||||||
The table below presents details about our Consumer & Wealth Management loans.
| As of | ||||||||
$ in millions | June 2022 | | December 2021 | | ||||
Wealth management | $ 48,279 | $ 43,998 | ||||||
Installment | 4,582 | 3,672 | ||||||
Credit cards | 11,844 | 8,212 | ||||||
Loans, gross | 64,705 | 55,882 | ||||||
Allowance for loan losses | (2,169 | ) | (1,489 | ) | ||||
Total loans | $ 62,536 | $ 54,393 | ||||||
The table below presents our average Consumer & Wealth Management gross loans by loan type.
| Average for the | ||||||||||||||||||
Three Months Ended June | Six Months Ended June | |||||||||||||||||
$ in millions | 2022 | 2021 | 2022 | 2021 | ||||||||||||||
Wealth management | $46,623 | $37,773 | $45,764 | $36,054 | ||||||||||||||
Installment | 4,311 | 3,352 | 4,087 | 3,513 | ||||||||||||||
Credit cards | 11,200 | 4,764 | 10,194 | 4,514 | ||||||||||||||
Loans, gross | $62,134 | $45,889 | $60,045 | $44,081 | ||||||||||||||
| Goldman Sachs June 2022 Form 10-Q | 120 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents our Consumer & Wealth Management operating results.
Three Months Ended June | Six Months Ended June | Three Months Ended June | Six Months Ended June | |||||||||||||||||||||||||||||||||||
$ in millions | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||
Management and other fees | $ 1,109 | $ 938 | $ 2,186 | $1,897 | $ 1,224 | $ 1,109 | $ 2,479 | $ 2,186 | ||||||||||||||||||||||||||||||
Incentive fees | 15 | 10 | 41 | 79 | 24 | 15 | 51 | 41 | ||||||||||||||||||||||||||||||
Private banking and lending | 260 | 155 | 524 | 337 | 320 | 260 | 659 | 524 | ||||||||||||||||||||||||||||||
Wealth management | 1,384 | 1,103 | 2,751 | 2,313 | 1,568 | 1,384 | 3,189 | 2,751 | ||||||||||||||||||||||||||||||
Consumer banking | 363 | 258 | 734 | 540 | 608 | 363 | 1,091 | 734 | ||||||||||||||||||||||||||||||
Net revenues | 1,747 | 1,361 | 3,485 | 2,853 | 2,176 | 1,747 | 4,280 | 3,485 | ||||||||||||||||||||||||||||||
Provision for credit losses | 66 | 317 | 126 | 485 | 394 | 66 | 648 | 126 | ||||||||||||||||||||||||||||||
Operating expenses | 1,369 | 1,199 | 2,868 | 2,443 | 1,721 | 1,369 | 3,333 | 2,868 | ||||||||||||||||||||||||||||||
Pre-tax earnings/(loss) | 312 | (155 | ) | 491 | (75 | ) | ||||||||||||||||||||||||||||||||
Provision/(benefit) for taxes | 60 | (38 | ) | 92 | (30 | ) | ||||||||||||||||||||||||||||||||
Net earnings/(loss) | 252 | (117 | ) | 399 | (45 | ) | ||||||||||||||||||||||||||||||||
Pre-tax earnings | 61 | 312 | 299 | 491 | ||||||||||||||||||||||||||||||||||
Provision for taxes | 12 | 60 | 49 | 92 | ||||||||||||||||||||||||||||||||||
Net earnings | 49 | 252 | 250 | 399 | ||||||||||||||||||||||||||||||||||
Preferred stock dividends | 11 | 13 | 21 | 19 | 14 | 11 | 24 | 21 | ||||||||||||||||||||||||||||||
Net earnings/(loss) to common | $ | $ (130 | ) | $ | $ (64 | ) | ||||||||||||||||||||||||||||||||
Net earnings to common | $ 35 | $ 241 | $ 226 | $ 378 | ||||||||||||||||||||||||||||||||||
Average common equity | $10,459 | $7,505 | $10,335 | $7,271 | $15,167 | $10,459 | $14,345 | $10,335 | ||||||||||||||||||||||||||||||
Return on average common equity | 9.2% | (6.9)% | 7.3% | (1.8)% | 0.9% | 9.2% | 3.2% | 7.3% | ||||||||||||||||||||||||||||||
Our target is to achieve annual Consumer banking net revenues of more than $4 billion by the end of 2024.
Operating Environment.
During the second quarter of 2022, Consumer & Wealth Management continued to operate in an environment generally characterized by broad macroeconomic and geopolitical concerns and market volatility, which contributed to a decrease in asset prices compared with the end of the first quarter of 2022, negatively affecting assets under supervision. For consumer banking activities, in the U.S., the rate of unemployment remained low and consumer spending increased slightly compared with the first quarter of 2022. Additionally, global central banks addressed inflation pressures by increasing policy interest rates.
In the future, if market and economic conditions deteriorate further, it may lead to a continued decline in asset prices, or investors transitioning to asset classes that typically generate lower fees or withdrawing their assets, or consumers withdrawing their deposits or a deterioration in consumer credit, and net revenues and provision for credit losses in Consumer & Wealth Management would likely be negatively impacted.
Three Months Ended June 2022 versus June 2021.
Net revenues in Consumer & Wealth Management were $2.18 billion for the second quarter of 2022, 25% higher than the second quarter of 2021.
Net revenues in Wealth management were $1.57 billion, 13% higher than the second quarter of 2021, due to higher Management and other fees, reflecting higher placement fees and the impact of higher average assets under supervision, and higher net revenues in Private banking and lending, reflecting higher loan and deposit balances.
Net revenues in Consumer banking were $608 million, 67% higher than the second quarter of 2021, primarily reflecting significantly higher credit card balances and higher deposit balances.
Provision for credit losses was $394 million for the second quarter of 2022, compared with $66 million for the second quarter of 2021. Provisions in the second quarter of 2022 reflected portfolio growth (primarily in credit cards), while the second quarter of 2021 included reserve reductions as the broad economic environment continued to improve following the initial impact of the
COVID-19
pandemic.Operating expenses were $1.72 billion for the second quarter of 2022, 26% higher than the second quarter of 2021, primarily reflecting higher spend on growth initiatives in Consumer banking, including the operating expenses related to GreenSky following its acquisition in March 2022.
Pre-tax
earnings were $61 million for the second quarter of 2022, 80% lower than the second quarter of 2021.Six Months Ended June 2022 versus June 2021.
Net revenues in Consumer & Wealth Management were $4.28 billion for the first half of 2022, 23% higher than the first half of 2021.
Net revenues in Wealth management were $3.19 billion, 16% higher than the first half of 2021, due to higher Management and other fees, primarily reflecting the impact of higher average assets under supervision, and significantly higher net revenues in Private banking and lending, reflecting higher loan and deposit balances.
Net revenues in Consumer banking were $1.09 billion, 49% higher than the first half of 2021, reflecting significantly higher credit card balances and higher deposit balances.
Provision for credit losses was $648 million for the first half of 2022, compared with $126 million for the first half of 2021. The first half of 2022 reflected portfolio growth (primarily in credit cards), while the first half of 2021 included reserve reductions as the broad economic environment continued to improve following the initial impact of the
COVID-19
pandemic.Operating expenses were $3.33 billion for the first half of 2022, 16% higher than the first half of 2021, primarily reflecting higher spend on growth initiatives in Consumer banking, including the operating expenses related to GreenSky following its acquisition in March 2022.
Pre-tax
earnings were $299 million for the first half of 2022, 39% lower than the first half of 2021.| Goldman Sachs June |
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 asclients’ assets (included in our Consumer & Wealth Management segment), where we earn a fee for managing assets on a discretionary basis. This includes net assets in our mutual funds, hedge funds, credit funds, private equity funds, real estate funds, and separately managed accounts for institutional and individual investors. AUS also includes client assets invested with third-party managers, private bank deposits and advisory relationships where we earn a fee for advisory and other services, but do not have investment discretion. AUS does not include the self-directed brokerage assets of our clients.
high-net-worth
The table below presents information about our firmwide
period-end
AUS by segment, asset class, distribution channel, region and vehicle.| As of June | As of June | |||||||||||||||
$ in billions | 2021 | 2020 | 2022 | 2021 | ||||||||||||
Segment | ||||||||||||||||
Asset Management | $1,633 | $1,499 | $1,824 | $1,633 | ||||||||||||
Consumer & Wealth Management | 672 | 558 | 671 | 672 | ||||||||||||
Total AUS | $2,305 | $2,057 | $2,495 | $2,305 | ||||||||||||
Asset Class | ||||||||||||||||
Alternative investments | $ 211 | $ 179 | $ 254 | $ 211 | ||||||||||||
Equity | 558 | 394 | 552 | 558 | ||||||||||||
Fixed income | 914 | 817 | 1,007 | 914 | ||||||||||||
Total long-term AUS | 1,683 | 1,390 | 1,813 | 1,683 | ||||||||||||
Liquidity products | 622 | 667 | 682 | 622 | ||||||||||||
Total AUS | $2,305 | $2,057 | $2,495 | $2,305 | ||||||||||||
Distribution Channel | ||||||||||||||||
Institutional | $ 794 | $ 709 | $ 927 | $ 794 | ||||||||||||
Wealth management | 672 | 558 | 671 | 672 | ||||||||||||
Third-party distributed | 839 | 790 | 897 | 839 | ||||||||||||
Total AUS | $2,305 | $2,057 | $2,495 | $2,305 | ||||||||||||
Region | ||||||||||||||||
Americas | $1,794 | $1,596 | $1,775 | $1,794 | ||||||||||||
EMEA | 336 | 289 | 536 | 336 | ||||||||||||
Asia | 175 | 172 | 184 | 175 | ||||||||||||
Total AUS | $2,305 | $2,057 | $2,495 | $2,305 | ||||||||||||
Vehicle | ||||||||||||||||
Separate accounts | $1,264 | $1,080 | $1,362 | $1,264 | ||||||||||||
Public funds | 759 | 752 | 831 | 759 | ||||||||||||
Private funds and other | 282 | 225 | 302 | 282 | ||||||||||||
Total AUS | $2,305 | $2,057 | $2,495 | $2,305 | ||||||||||||
In the table above:
Liquidity products includes money market funds and private bank deposits.
EMEA represents Europe, Middle East and Africa.
The table below presents changes in our AUS.
Three Months Ended June | Six Months Ended June | |||||||||||||||||||
$ in billions | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Asset Management | ||||||||||||||||||||
Beginning balance | $1,656 | $1,567 | $1,719 | $1,530 | ||||||||||||||||
Net inflows/(outflows): | ||||||||||||||||||||
Alternative investments | 22 | 3 | 24 | 6 | ||||||||||||||||
Equity | 59 | (5 | ) | 65 | (2 | ) | ||||||||||||||
Fixed income | 209 | 12 | 211 | 28 | ||||||||||||||||
Total long-term AUS net inflows/(outflows) | 290 | 10 | 300 | 32 | ||||||||||||||||
Liquidity products | 20 | 16 | 13 | 45 | ||||||||||||||||
Total AUS net inflows/(outflows) | 310 | 26 | 313 | 77 | ||||||||||||||||
Net market appreciation/(depreciation) | (142 | ) | 40 | (208 | ) | 26 | ||||||||||||||
Ending balance | $1,824 | $1,633 | $1,824 | $1,633 | ||||||||||||||||
Consumer & Wealth Management | ||||||||||||||||||||
Beginning balance | $ 738 | $ 637 | $ 751 | $ 615 | ||||||||||||||||
Net inflows/(outflows): | ||||||||||||||||||||
Alternative investments | 1 | 5 | 4 | 7 | ||||||||||||||||
Equity | 3 | 8 | 14 | 19 | ||||||||||||||||
Fixed income | (1 | ) | (1 | ) | (1 | ) | 1 | |||||||||||||
Total long-term AUS net inflows/(outflows) | 3 | 12 | 17 | 27 | ||||||||||||||||
Liquidity products | (13 | ) | – | (12 | ) | (6 | ) | |||||||||||||
Total AUS net inflows/(outflows) | (10 | ) | 12 | 5 | 21 | |||||||||||||||
Net market appreciation/(depreciation) | (57 | ) | 23 | (85 | ) | 36 | ||||||||||||||
Ending balance | $ 671 | $ 672 | $ 671 | $ 672 | ||||||||||||||||
Firmwide | ||||||||||||||||||||
Beginning balance | $2,394 | $2,204 | $2,470 | $2,145 | ||||||||||||||||
Net inflows/(outflows): | ||||||||||||||||||||
Alternative investments | 23 | 8 | 28 | 13 | ||||||||||||||||
Equity | 62 | 3 | 79 | 17 | ||||||||||||||||
Fixed income | 208 | 11 | 210 | 29 | ||||||||||||||||
Total long-term AUS net inflows/(outflows) | 293 | 22 | 317 | 59 | ||||||||||||||||
Liquidity products | 7 | 16 | 1 | 39 | ||||||||||||||||
Total AUS net inflows/(outflows) | 300 | 38 | 318 | 98 | ||||||||||||||||
Net market appreciation/(depreciation) | (199 | ) | 63 | (293 | ) | 62 | ||||||||||||||
Ending balance | $2,495 | $2,305 | $2,495 | $2,305 | ||||||||||||||||
In the table above, total AUS net inflows/(outflows) for the second quarter of 2022 included $305 billion of inflows (substantially all in fixed income and liquidity product assets. The average effective management fee (which excludesnon-asset-basedfees) we earned on our firmwideequity assets) from the acquisition of NNIP, which was included in the Asset Management segment. Total AUS was 29 basis pointsnet inflows/(outflows) for both the three and six months ended June 2021, 29 basis points for the three months ended June 2020 and 30 basis points for the six months ended June 2020. The decrease from the first half of 2020 reflected2022 also included $7 billion of inflows (substantially all in fixed income and equity assets) from the impactacquisition of fee waivers on money market fundsthe assets of Bombardier Global Pension Asset Management Inc., which was included in the first halfAsset Management segment.
| Goldman Sachs June 2022 Form 10-Q | 122 |
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.
| Average for the | ||||||||||||||||||||
Three Months Ended June | Six Months Ended June | |||||||||||||||||||
$ in billions | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Segment | ||||||||||||||||||||
Asset Management | $1,890 | $1,607 | $1,797 | $1,571 | ||||||||||||||||
Consumer & Wealth Management | 699 | 657 | 716 | 640 | ||||||||||||||||
Total AUS | $2,589 | $2,264 | $2,513 | $2,211 | ||||||||||||||||
Asset Class | ||||||||||||||||||||
Alternative investments | $ 257 | $ 203 | $ 248 | $ 199 | ||||||||||||||||
Equity | 603 | 540 | 599 | 514 | ||||||||||||||||
Fixed income | 1,047 | 902 | 993 | 900 | ||||||||||||||||
Total long-term AUS | 1,907 | 1,645 | 1,840 | 1,613 | ||||||||||||||||
Liquidity products | 682 | 619 | 673 | 598 | ||||||||||||||||
Total AUS | $2,589 | $2,264 | $2,513 | $2,211 | ||||||||||||||||
In addition to our AUS, we have discretion over alternative investments where we currently do not earn management feesalternative assets).
(non-fee-earning
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 $2.58$3.73 billion as of June 20212022 and $1.79$3.39 billion as of December 2020.2021. Such amounts are based on the completion of the funds’ financial statements, which is generally one quarter in arrears. These fees will be recognized, assuming no decline in fair value, if and 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 the assets.
Our firmwide management and other fees were $2.23 billion for the second quarter of 2022, $1.84 billion for the second quarter of 2021, $4.26 billion for the six months ended June 2022 and $3.61 billion for the six months ended June 2021. Our target is to achieve annual management and other fees of more than $10 billion (including more than $2 billion from alternative AUS) in 2024.
The table below presents our average effective management fee (which excludes
non-asset-based
fees) earned on our firmwide AUS.Three Months Ended June | Six Months Ended June | |||||||||||||||||||
Effective fees (bps) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Asset Class | ||||||||||||||||||||
Alternative investments | 62 | 63 | 63 | 63 | ||||||||||||||||
Equity | 57 | 60 | 58 | 60 | ||||||||||||||||
Fixed income | 18 | 17 | 17 | 17 | ||||||||||||||||
Liquidity products | 15 | 4 | 12 | 6 | ||||||||||||||||
Total average effective fee | 31 | 29 | 31 | 29 | ||||||||||||||||
The table below presents changes indetails about our AUS.monthly average AUS for alternative investments and the average effective management fee we earned on such assets.
Three Months Ended June | Six Months Ended June | |||||||||||||||||
$ in billions | 2021 | 2020 | 2021 | 2020 | ||||||||||||||
Asset Management | ||||||||||||||||||
Beginning balance | $1,567 | $1,309 | $1,530 | $1,298 | ||||||||||||||
Net inflows/(outflows): | ||||||||||||||||||
Alternative investments | 3 | (2 | ) | 6 | (3 | ) | ||||||||||||
Equity | (5 | ) | 3 | (2 | ) | 5 | ||||||||||||
Fixed income | 12 | 6 | 28 | 13 | ||||||||||||||
Total long-term AUS net inflows/(outflows) | 10 | 7 | 32 | 15 | ||||||||||||||
Liquidity products | 16 | 121 | 45 | 187 | ||||||||||||||
Total AUS net inflows/(outflows) | 26 | 128 | 77 | 202 | ||||||||||||||
Net market appreciation/(depreciation) | 40 | 62 | 26 | (1 | ) | |||||||||||||
Ending balance | $1,633 | $1,499 | $1,633 | $1,499 | ||||||||||||||
Consumer & Wealth Management | ||||||||||||||||||
Beginning balance | $ | $ | $ | $ | ||||||||||||||
Net inflows/(outflows): | ||||||||||||||||||
Alternative investments | 5 | – | 7 | – | ||||||||||||||
Equity | 8 | (1 | ) | 19 | – | |||||||||||||
Fixed income | (1 | ) | – | 1 | (8 | ) | ||||||||||||
Total long-term AUS net inflows/(outflows) | 12 | (1 | ) | 27 | (8 | ) | ||||||||||||
Liquidity products | – | 12 | (6 | ) | 18 | |||||||||||||
Total AUS net inflows/(outflows) | 12 | 11 | 21 | 10 | ||||||||||||||
Net market appreciation/(depreciation) | 23 | 38 | 36 | (13 | ) | |||||||||||||
Ending balance | $ | $ | $ | $ | ||||||||||||||
Firmwide | ||||||||||||||||||
Beginning balance | $2,204 | $1,818 | $2,145 | $1,859 | ||||||||||||||
Net inflows/(outflows): | ||||||||||||||||||
Alternative investments | 8 | (2 | ) | 13 | (3 | ) | ||||||||||||
Equity | 3 | 2 | 17 | 5 | ||||||||||||||
Fixed income | 11 | 6 | 29 | 5 | ||||||||||||||
Total long-term AUS net inflows/(outflows) | 22 | 6 | 59 | 7 | ||||||||||||||
Liquidity products | 16 | 133 | 39 | 205 | ||||||||||||||
Total AUS net inflows/(outflows) | 38 | 139 | 98 | 212 | ||||||||||||||
Net market appreciation/(depreciation) | 63 | 100 | 62 | (14 | ) | |||||||||||||
Ending balance | $2,305 | $2,057 | $2,305 | $2,057 | ||||||||||||||
$ in billions | | Direct Strategies | | | Fund of Funds | | Total | |||||
Three Months Ended June 2022 | ||||||||||||
Average AUS | ||||||||||||
Corporate equity | $ 26 | $58 | $ 84 | |||||||||
Credit | 40 | 2 | 42 | |||||||||
Real estate | 10 | 8 | 18 | |||||||||
Hedge funds and other | 47 | 23 | 70 | |||||||||
Funds and discretionary accounts | $123 | $91 | $214 | |||||||||
Advisory accounts | 43 | |||||||||||
Total average AUS for alternative investments | $257 | |||||||||||
Effective Fees (bps) | ||||||||||||
Corporate equity | 128 | 60 | 81 | |||||||||
Credit | 75 | 50 | 74 | |||||||||
Real estate | 98 | 49 | 76 | |||||||||
Hedge funds and other | 63 | 46 | 57 | |||||||||
Funds and discretionary accounts | 84 | 55 | 72 | |||||||||
Advisory accounts | 16 | |||||||||||
Total average effective fee | 62 | |||||||||||
Three Months Ended June 2021 | ||||||||||||
Average AUS | ||||||||||||
Corporate equity | $ 17 | $59 | $ 76 | |||||||||
Credit | 17 | 2 | 19 | |||||||||
Real estate | 8 | 7 | 15 | |||||||||
Hedge funds and other | 40 | 19 | 59 | |||||||||
Funds and discretionary accounts | $ 82 | $87 | $169 | |||||||||
Advisory accounts | 34 | |||||||||||
Total average AUS for alternative investments | $203 | |||||||||||
Effective Fees (bps) | ||||||||||||
Corporate equity | 133 | 56 | 74 | |||||||||
Credit | 102 | 46 | 97 | |||||||||
Real estate | 93 | 55 | 75 | |||||||||
Hedge funds and other | 67 | 58 | 64 | |||||||||
Funds and discretionary accounts | 91 | 56 | 73 | |||||||||
Advisory accounts | 15 | |||||||||||
Total average effective fee | 63 | |||||||||||
Six Months Ended June 2022 | ||||||||||||
Average AUS | ||||||||||||
Corporate equity | $ 26 | $59 | $ 85 | |||||||||
Credit | 33 | 2 | 35 | |||||||||
Real estate | 9 | 8 | 17 | |||||||||
Hedge funds and other | 47 | 22 | 69 | |||||||||
Funds and discretionary accounts | $115 | $91 | $206 | |||||||||
Advisory accounts | 42 | |||||||||||
Total average AUS for alternative investments | $248 | |||||||||||
Effective Fees (bps) | ||||||||||||
Corporate equity | 130 | 58 | 80 | |||||||||
Credit | 84 | 56 | 82 | |||||||||
Real estate | 98 | 51 | 76 | |||||||||
Hedge funds and other | 63 | 49 | 58 | |||||||||
Funds and discretionary accounts | 87 | 55 | 73 | |||||||||
Advisory accounts | 16 | |||||||||||
Total average effective fee | 63 | |||||||||||
Six Months Ended June 2021 | ||||||||||||
Average AUS | ||||||||||||
Corporate equity | $ 17 | $58 | $ 75 | |||||||||
Credit | 17 | 2 | 19 | |||||||||
Real estate | 7 | 7 | 14 | |||||||||
Hedge funds and other | 39 | 19 | 58 | |||||||||
Funds and discretionary accounts | $ 80 | $86 | $166 | |||||||||
Advisory accounts | 33 | |||||||||||
Total average AUS for alternative investments | $199 | |||||||||||
Effective Fees (bps) | ||||||||||||
Corporate equity | 135 | 57 | 74 | |||||||||
Credit | 103 | 48 | 98 | |||||||||
Real estate | 96 | 56 | 77 | |||||||||
Hedge funds and other | 65 | 58 | 62 | |||||||||
Funds and discretionary accounts | 90 | 57 | 73 | |||||||||
Advisory accounts | 15 | |||||||||||
Total average effective fee | 63 | |||||||||||
| Average for the | ||||||||||||||||||
Three Months Ended June | Six Months Ended June | |||||||||||||||||
$ in billions | 2021 | 2020 | 2021 | 2020 | ||||||||||||||
Segment | ||||||||||||||||||
Asset Management | $1,607 | $1,426 | $1,571 | $1,368 | ||||||||||||||
Consumer & Wealth Management | 657 | 536 | 640 | 546 | ||||||||||||||
Total AUS | $2,264 | $1,962 | $2,211 | $1,914 | ||||||||||||||
Asset Class | ||||||||||||||||||
Alternative investments | $ | $ | $ | $ | ||||||||||||||
Equity | 540 | 369 | 514 | 387 | ||||||||||||||
Fixed income | 902 | 793 | 900 | 799 | ||||||||||||||
Total long-term AUS | 1,645 | 1,341 | 1,613 | 1,367 | ||||||||||||||
Liquidity products | 619 | 621 | 598 | 547 | ||||||||||||||
Total AUS | $2,264 | $1,962 | $2,211 | $1,914 | ||||||||||||||
| Goldman Sachs June |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents information about ourassets,investments,alternative assetsinvestments and total alternative assets.investments.
period-end
AUS for alternative non-fee-earning
$ in billions | AUS | | Non-fee-earning alternative assets | | | Total alternative assets | | AUS | | Non-fee-earning alternative assets | | | Total alternative assets | | ||||||||||
As of June 2022 | ||||||||||||||||||||||||
Corporate equity | $ 84 | $ 83 | $167 | |||||||||||||||||||||
Credit | 43 | 69 | 112 | |||||||||||||||||||||
Real estate | 17 | 37 | 54 | |||||||||||||||||||||
Hedge funds and other | 68 | 2 | 70 | |||||||||||||||||||||
Funds and discretionary accounts | 212 | 191 | 403 | |||||||||||||||||||||
Advisory accounts | 42 | – | 42 | |||||||||||||||||||||
Total alternative investments | $254 | $191 | $445 | |||||||||||||||||||||
As of June 2021 | ||||||||||||||||||||||||
Corporate equity | $ 86 | $ 68 | $154 | $ 79 | $ 68 | $147 | ||||||||||||||||||
Credit | 21 | 77 | 98 | 19 | 76 | 95 | ||||||||||||||||||
Real estate | 19 | 44 | 63 | 15 | 43 | 58 | ||||||||||||||||||
Hedge funds and multi-asset | 85 | 1 | 86 | |||||||||||||||||||||
Other | – | 1 | 1 | |||||||||||||||||||||
Total | $211 | $191 | $402 | |||||||||||||||||||||
As of June 2020 | ||||||||||||||||||||||||
Corporate equity | $ 79 | $ 40 | $119 | |||||||||||||||||||||
Credit | 15 | 53 | 68 | |||||||||||||||||||||
Real estate | 14 | 43 | 57 | |||||||||||||||||||||
Hedge funds and multi-asset | 71 | 1 | 72 | |||||||||||||||||||||
Other | – | 1 | 1 | |||||||||||||||||||||
Total | $179 | $138 | $317 | |||||||||||||||||||||
Hedge funds and other | 62 | 3 | 65 | |||||||||||||||||||||
Funds and discretionary accounts | 175 | 190 | 365 | |||||||||||||||||||||
Advisory accounts | 36 | 1 | 37 | |||||||||||||||||||||
Total alternative investments | $211 | $191 | $402 | |||||||||||||||||||||
In the table above:
Corporate equity primarily includes private equity.
Total alternative assetsinvestments included uncalled capital that is available for future investing of $49 billion as of June 2022 and $47 billion as of June 2021 and $31 billion as of June 2020.2021.
Non-fee-earning
non-fee-earning
The table below presents information about third-party commitments raised in our alternatives business duringfrom 2020 and through the second quarter of 2021.2022.
$ in billions | As of June 2022 | |||
Included in AUS | $ | |||
Included in non-fee-earning | ||||
Third-party commitments raised | $ | |||
In the table above, commitments included inalternative assetsinvestments included approximately $28$46 billion which will begin to earn fees (and become AUS), if and when the commitments are drawn and assets are invested.
non-fee-earning
The table below presents information about alternative investments in our Asset Management segment that we hold on our balance sheet.
$ in billions | Loans | | Debt securities | | | Equity securities | | | CIE investments and other | | Total | Loans | | Debt securities | | | Equity securities | | | CIE investments and other | | Total | ||||||||||||||||||
As of June 2022 | ||||||||||||||||||||||||||||||||||||||||
Corporate equity | $ | $ | $12 | $ | $12 | |||||||||||||||||||||||||||||||||||
Credit | 7 | 11 | – | – | 18 | |||||||||||||||||||||||||||||||||||
Real estate | 6 | 2 | 4 | 13 | 25 | |||||||||||||||||||||||||||||||||||
Other | – | – | – | 1 | 1 | |||||||||||||||||||||||||||||||||||
Total | $13 | $13 | $16 | $14 | $56 | |||||||||||||||||||||||||||||||||||
As of June 2021 | As of June 2021 | |||||||||||||||||||||||||||||||||||||||
Corporate equity | $ | $ | $17 | $ | $17 | $ | $ | $17 | $ | $17 | ||||||||||||||||||||||||||||||
Credit | 8 | 12 | – | – | 20 | 8 | 12 | – | – | 20 | ||||||||||||||||||||||||||||||
Real estate | 8 | 2 | 4 | 18 | 32 | 8 | 2 | 4 | 18 | 32 | ||||||||||||||||||||||||||||||
Other | – | – | – | 1 | 1 | – | – | – | 1 | 1 | ||||||||||||||||||||||||||||||
Total | $16 | $14 | $21 | $19 | $70 | $16 | $14 | $21 | $19 | $70 | ||||||||||||||||||||||||||||||
As of June 2020 | ||||||||||||||||||||||||||||||||||||||||
Corporate equity | $ | $ | $16 | $ | $16 | |||||||||||||||||||||||||||||||||||
Credit | 8 | 11 | – | – | 19 | |||||||||||||||||||||||||||||||||||
Real estate | 8 | 2 | 4 | 20 | 34 | |||||||||||||||||||||||||||||||||||
Other | – | – | – | 1 | 1 | |||||||||||||||||||||||||||||||||||
Total | $16 | $13 | $20 | $21 | $70 | |||||||||||||||||||||||||||||||||||
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.
| As of June | As of June | |||||||||||||||
$ in billions | 2021 | 2020 | 2022 | 2021 | ||||||||||||
Loans | $16 | $16 | $13 | $16 | ||||||||||||
Debt securities | 14 | 13 | 13 | 14 | ||||||||||||
Total | $30 | $29 | $26 | $30 | ||||||||||||
Accounting Classification | ||||||||||||||||
Debt securities at fair value | 46% | 44% | 48% | 46% | ||||||||||||
Loans at amortized cost | 43% | 43% | 43% | 43% | ||||||||||||
Loans at fair value | 11% | 13% | 9% | 11% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
Region | ||||||||||||||||
Americas | 45% | 46% | 46% | 45% | ||||||||||||
EMEA | 34% | 32% | 34% | 34% | ||||||||||||
Asia | 21% | 22% | 20% | 21% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
Industry | ||||||||||||||||
Consumers | 4% | 6% | 4% | 4% | ||||||||||||
Financial Institutions | 8% | 8% | 6% | 8% | ||||||||||||
Healthcare | 8% | 8% | 11% | 8% | ||||||||||||
Industrials | 15% | 15% | 14% | 15% | ||||||||||||
Natural Resources & Utilities | 3% | 4% | 3% | 3% | ||||||||||||
Real Estate | 36% | 34% | 31% | 36% | ||||||||||||
Technology, Media & Telecommunications | 15% | 13% | 20% | 15% | ||||||||||||
Other | 11% | 12% | 11% | 11% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
| Goldman Sachs June |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents the concentration of equity securities within our alternative investments by region and industry.
| As of June | As of June | |||||||||||||||
$ in billions | 2021 | 2020 | 2022 | 2021 | ||||||||||||
Equity securities | $21 | $20 | $16 | $21 | ||||||||||||
Region | ||||||||||||||||
Americas | 52% | 48% | 62% | 52% | ||||||||||||
EMEA | 21% | 16% | 18% | 21% | ||||||||||||
Asia | 27% | 36% | 20% | 27% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
Industry | ||||||||||||||||
Consumers | 5% | 4% | ||||||||||||||
Financial Institutions | 19% | 28% | 11% | 19% | ||||||||||||
Healthcare | 13% | 6% | 10% | 13% | ||||||||||||
Industrials | 7% | 7% | 7% | 7% | ||||||||||||
Natural Resources & Utilities | 8% | 7% | 11% | 8% | ||||||||||||
Real Estate | 17% | 18% | 26% | 17% | ||||||||||||
Technology, Media & Telecommunications | 29% | 27% | 27% | 29% | ||||||||||||
Other | 7% | 7% | 3% | 3% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
In the table above:
Equity securities included $13 billion as of June 2022 and $17 billion as of June 2021 of private equity positions, and $3 billion as of June 2022 and $4 billion as of June 2021 of public equity positions that converted from private equity upon the initial public offerings of the underlying companies.
The concentrations for real estate equity securities as of June 2022 were 6% for multifamily (3% as of June 2021), 5% for office (4% as of June 2021), 8% for mixed use (5% as of June 2021) and 7% for other real estate equity securities (5% as of June 2021).
The table below presents the concentration of equity securities within our alternative investments by vintage.
| Vintage | ||||
As of June | ||||
Total | 100% | |||
As of June | ||||
Total | 100% | |||
on-balance
sheet equity investments.The table above:below presents the rollforward of our equity securities within our alternative investments from the beginning of 2020 through the second quarter of 2022.
$ in billions | Total Equity | |||
Beginning balance | $ 22 | |||
Additions | 7 | |||
Dispositions | (20 | ) | ||
Mark-ups | 7 | |||
Ending balance | $ 16 | |||
CIE Investments and Other.
CIE investments and other included assets held by CIEs of $13 billion as of June 2022 and $18 billion as of June 2021, and $20 billion as of June 2020, which were funded with liabilities of approximately $7 billion as of June 2022 and $10 billion as of June 2021 and $11 billion as of June 2020.2021. Substantially all such liabilities were nonrecourse, thereby reducing our equity at risk.
The table below presents the concentration of CIE assets, net of financings, within our alternative investments by region and asset class.
| As of June | As of June | |||||||||||||||
$ in billions | 2021 | 2020 | 2022 | 2021 | ||||||||||||
CIE assets, net of financings | $8 | $9 | $6 | $8 | ||||||||||||
Region | ||||||||||||||||
Americas | 63% | 61% | 67% | 63% | ||||||||||||
EMEA | 25% | 20% | 23% | 25% | ||||||||||||
Asia | 12% | 19% | 10% | 12% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
Asset Class | ||||||||||||||||
Hospitality | 4% | 4% | 3% | 4% | ||||||||||||
Industrials | 10% | 7% | 12% | 10% | ||||||||||||
Multifamily | 25% | 25% | 22% | 25% | ||||||||||||
Office | 24% | 29% | 23% | 24% | ||||||||||||
Retail | 5% | 7% | 3% | 5% | ||||||||||||
Senior Housing | 13% | 11% | 16% | 13% | ||||||||||||
Student Housing | 7% | 8% | 7% | 7% | ||||||||||||
Other | 12% | 9% | 14% | 12% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
The table below presents the concentration of CIE assets, net of financings, within our alternative investments by vintage.
| Vintage | ||||
As of June | ||||
Total | 100% | |||
As of June | ||||
| 2% | ||||
Total | 100% | |||
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.| Goldman Sachs June |
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“Capital Management and Regulatory Capital — Equity Capital Management” for information about our equity capital management process.
Although our balance sheet fluctuates on abasis, our total assets at
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 allocateattribute 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)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“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.
| Goldman Sachs June |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Balance Sheet Analysis and Metrics
As of June 2021,2022, total assets in our consolidated balance sheets were $1.39$1.60 trillion, an increase of $224.89$137.24 billion from December 2020,2021, primarily reflecting increases in collateralized agreements of $100.16$63.21 billion (primarily reflecting the impact of our and our clients’ activities), cash and cash equivalents of $84.45$27.57 billion (primarily reflecting our activity), and customer and other receivablesinvestments of $40.76$26.06 billion (primarily reflecting client activity)due to an increase in U.S. government obligations accounted for asand loans of $17.38 billion (reflecting increases across the portfolio).
held-to-maturity),
As of June 2021,2022, total liabilities in our consolidated balance sheets were $1.29$1.48 trillion, an increase of $218.94$129.29 billion from December 2020, primarily2021, reflecting increases in customer and other payables of $48.04 billion (primarily reflecting client activity), deposits of $46.18 billion (primarily reflecting increases in institutional, transaction banking, consumer and deposit sweep programs deposits), trading liabilities of $45.37$73.87 billion (primarily due to increases in equity securities and government obligations, reflecting the impact of our and our clients’ activities, and due to an increase in government obligations and equities, partially offset by the impact of interest rates and currency movements on derivative instruments), collateralized financings of $43.54 billion (primarilyinstruments, reflecting the impact of ourcommodity prices and our clients’ activities)currency movements), customer and other payables of $28.05 billion (primarily reflecting client activity), deposits of $27.10 billion (primarily due to increases in transaction banking, brokered certificates of deposits, and deposit sweep program balances, partially offset by a decrease in private bank deposits), and unsecured borrowings of $34.32$7.01 billion (primarily driven by new issuances, partially offset by maturities).
Our total securities sold underrepurchase agreements, to repurchase (repurchase agreements), accounted for as collateralized financings, were $151.69$172.89 billion as of June 20212022 and $126.57$165.88 billion as of December 2020,2021, which were 7%12% higher as of June 20212022 and 24%3% higher as of December 20202021 than the average daily amount of repurchase agreements over the respective quarters. As of June 2021,2022, the increase in our repurchase agreements relative to the average daily amount of repurchase agreements during the quarter resulted from higher levels of our and our clients’ activities at the end of the period.
The level of our repurchase agreements fluctuates between and within periods, primarily due to providing clients with access to highly liquid collateral, such as liquidcertain government and agency obligations, through collateralized financing activities.
The table below presents information about our balance sheet and leverage ratios.
| As of | As of | |||||||||||||||
$ in millions | June 2021 | | December 2020 | | June 2022 | | December 2021 | | ||||||||
Total assets | $1,387,922 | $1,163,028 | $1,601,224 | $1,463,988 | ||||||||||||
Unsecured long-term borrowings | $ 238,930 | $ 213,481 | $ 250,444 | $ 254,092 | ||||||||||||
Total shareholders’ equity | $ 101,890 | $ 95,932 | $ 117,871 | $ 109,926 | ||||||||||||
Leverage ratio | 13.6x | 12.1x | 13.6x | 13.3x | ||||||||||||
Debt-to-equity | 2.3x | 2.2x | 2.1x | 2.3x | ||||||||||||
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.
Theratio equals unsecured long-term borrowings divided by total shareholders’ equity.
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.
| As of | As of | |||||||||||||||
$ in millions, except per share amounts | June 2021 | | December 2020 | | June 2022 | | December 2021 | | ||||||||
Total shareholders’ equity | $101,890 | $ 95,932 | $117,871 | $109,926 | ||||||||||||
Preferred stock | (9,203 | ) | (11,203 | ) | (10,703 | ) | (10,703 | ) | ||||||||
Common shareholders’ equity | 92,687 | 84,729 | 107,168 | 99,223 | ||||||||||||
Goodwill | (4,332 | ) | (4,332 | ) | (6,196 | ) | (4,285 | ) | ||||||||
Identifiable intangible assets | (523 | ) | (630 | ) | (2,014 | ) | (418 | ) | ||||||||
Tangible common shareholders’ equity | $ 87,832 | $ 79,767 | $ 98,958 | $ 94,520 | ||||||||||||
Book value per common share | $ 264.90 | $ 236.15 | $ 301.88 | $ 284.39 | ||||||||||||
Tangible book value per common share | $ 251.02 | $ 222.32 | $ 278.75 | $ 270.91 | ||||||||||||
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 or market conditions (collectively, basic shares) of 349.9355.0 million as of June 20212022 and 358.8348.9 million as of December 2020.2021. We believe that tangible book value per common share (tangible common shareholders’ equity divided by basic shares) is meaningful because it is a measure that we and investors use to assess capital adequacy. Tangible book value per common share is a
non-GAAP
measure and may not be comparable to similarnon-GAAP
measures used by other companies.| Goldman Sachs June |
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.
| As of | As of | |||||||||||||||||||||||||||||||
$ in millions | June 2021 | December 2020 | June 2022 | December 2021 | ||||||||||||||||||||||||||||
Deposits | $306,142 | 33% | $259,962 | 33% | $ 391,326 | 37% | $ 364,227 | 36% | ||||||||||||||||||||||||
Collateralized financings | 217,482 | 23% | 173,947 | 22% | 228,319 | 22% | 230,932 | 23% | ||||||||||||||||||||||||
Unsecured short-term borrowings | 61,740 | 7% | 52,870 | 6% | 57,615 | 6% | 46,955 | 5% | ||||||||||||||||||||||||
Unsecured long-term borrowings | 238,930 | 26% | 213,481 | 27% | 250,444 | 24% | 254,092 | 25% | ||||||||||||||||||||||||
Total shareholders’ equity | 101,890 | 11% | 95,932 | 12% | 117,871 | 11% | 109,926 | 11% | ||||||||||||||||||||||||
Total | $926,184 | 100% | $796,192 | 100% | $1,045,575 | 100% | $1,006,132 | 100% | ||||||||||||||||||||||||
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. Substantially all of our deposits are raised through GS Bank USA and GSIB. See Note 13 to the consolidated financial statements for further information about our deposits, including a maturity profile of our time deposits.
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. See Note 11 to the consolidated financial statements for further information about our collateralized financings, including its maturity profile. 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.
Assets that may be harder to fund on a secured basis during times of market stress include certain financial instruments in the following categories: mortgagemortgage- and other asset-backed loans and 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.
non-investment-grade
corporate debt securities, equity securities and emerging market securities.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 $1.60$2.50 billion as of June 20212022 and we had no outstanding borrowings$100 million as of December 2020.2021. Additionally, we have access to funding through the Federal Reserve discount window. However, we do not rely on this funding in our liquidity planning and stress testing.
| Goldman Sachs June 2022 Form 10-Q | 128 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 accordance with regulatory requirements, Group Inc. does not issue debt with an original maturity of less than one year, other than to its subsidiaries. See Note 14 to the consolidated financial statements for further information about our unsecured short-term borrowings.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.
$ in millions | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | ||||||||||||||||||||||||||||||
As of June 2021 | ||||||||||||||||||||||||||||||||||||||||
2022 | $ – | $ – | $8,115 | $6,467 | $ 14,582 | |||||||||||||||||||||||||||||||||||
As of June 2022 | ||||||||||||||||||||||||||||||||||||||||
2023 | $14,459 | $7,121 | $8,476 | $7,511 | 37,567 | $ – | $ – | $11,314 | $12,005 | $ 23,319 | ||||||||||||||||||||||||||||||
2024 | $ 8,657 | $9,369 | $7,858 | $3,493 | 29,377 | $13,194 | $10,806 | $ 8,445 | $ 7,630 | 40,075 | ||||||||||||||||||||||||||||||
2025 | $ 7,044 | $9,681 | $5,739 | $5,554 | 28,018 | $11,576 | $10,627 | $ 5,490 | $ 6,316 | 34,009 | ||||||||||||||||||||||||||||||
2026 | $ 6,315 | $3,705 | $5,363 | $6,043 | 21,426 | $ 5,775 | $ 3,766 | $ 3,133 | $ 8,778 | 21,452 | ||||||||||||||||||||||||||||||
2027 - thereafter | 107,960 | |||||||||||||||||||||||||||||||||||||||
2027 | $ 9,001 | $ 3,095 | $ 4,320 | $ 9,112 | 25,528 | |||||||||||||||||||||||||||||||||||
2028 - thereafter | 106,061 | |||||||||||||||||||||||||||||||||||||||
Total | $238,930 | $250,444 | ||||||||||||||||||||||||||||||||||||||
The weighted average maturity of our unsecured long-term borrowings as of June 20212022 was approximately seven years. To mitigate refinancing risk, we seek to limit the principal amount of debt maturing over the course of any monthly, quarterly or annual time horizon. We enter into interest rate swaps to convert a portion of our unsecured long-term borrowings into floating-rate obligations to manage our exposure to interest rates. See Note 14 to the consolidated financial statements for further information about our unsecured long-term borrowings.
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.
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 bothand stressed conditions.
business-as-usual
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).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, operational risk and operationalliquidity 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.
Our stress tests incorporate our internally designed stress scenarios, including our internally developed severely adverse scenario, and those required by the FRB, and are designed to capture our specific vulnerabilities and risks. We provide further information about our stress test processes and a summary of the results on our website as described in “Available Information.”
| 129 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
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 SCBstress capital buffer (SCB) applicable to us based on its own annual stress test. The SCB under the Standardized approach is calculated as (i) the difference between our starting and minimum projected CET1 capital ratios under the supervisory severely adverse scenario and (ii) our planned common stock dividends for each of the fourth through seventh quarters of the planning horizon, expressed as a percentage of risk-weighted assets (RWAs).
GS Bank USA has its own capital planning process and, starting in 2022, will beis required to submitconduct stress tests on an annual basis and publish a summary of certain results. GS Bank USA published a summary of its annual stress testDFAST results to the FRB. in June 2022. See “Available Information.”
GSI, GSIB and Goldman Sachs Bank Europe SE (GSBE) also have their own capital planning and stress testing process,processes, which incorporatesincorporate internally designed stress tests developed in accordance with the guidelines of their respective regulators.
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.
Capital Attribution.
We assess each of our businesses’ capital usage based on our internal assessment of risks, which incorporates an attribution of our relevant regulatory capital requirements. These regulatory capital requirements are allocated using our attributed equity framework, which takes into consideration our most binding capital constraints. Our most binding capital constraint is based on the results of the FRB’s annual stress test, which includes the Standardized risk-based capital and leverage ratios.
We review and make any necessary adjustments to our attributed equity framework in January each year, in January, to reflect, our final CCAR results from the prior year.
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 June 2021,2022, the remaining share authorization under our existing repurchase program was 38.131.5 million shares. See “Unregistered Sales of Equity Securities and Use of Proceeds” in Part II, Item 2 of this
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.| Goldman Sachs June 2022 Form 10-Q | 130 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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, GSBE, Goldman Sachs Japan Co., Ltd. (GSJCL), Goldman Sachs Asset Management, L.P. and Goldman Sachs Asset Management International) have access to sufficient loss-absorbing capacity (in the form of equity, subordinated debt and unsecured senior debt) so that they are able to wind-downwind 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.
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 GSBE have also been assigned long- and short-term issuer ratings, as well as ratings on their long- and short-term bank deposits. In addition, credit rating agencies have assigned ratings to debt obligations of certain other subsidiaries of Group Inc.
The level and composition of our equity capital are among the many factors considered in determining our credit ratings. Each agency has its own 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.
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”approaches” banking organization and have been designated as a global systemically important bank
(G-SIB).
The capital requirements calculated under the Capital Framework include the capital conservation buffer requirements, which are comprised of a 2.5% buffer (under the Advanced Capital Rules), the SCB (under the Standardized Capital Rules), a countercyclical capital buffer (under both Capital Rules) and the20212022 and 2022. We expect that ourG-SIBsurcharge will be 3.0% beginning infor 2023. Based on financial data for 2021 and the six months ended June 2021, our current estimate is that2022, we are above the threshold for the 3.5%The earliest this surcharge couldBased on the recent operating environment and our clients’ needs, we are currently targeting to be at the 3.0%isfor our January 2024.2024 G-SIB surcharge). We will continue to evaluate this target through the end of 2022. TheStandardized CET1is to maintain capital ratio remains inratios equal to the regulatory requirements plus a range between 13.0% and 13.5% (including management buffers) based upon the executionbuffer of our previously announced strategic initiatives and achievement of capital efficiencies. However, in light of our most recent SCB based on our 2021 CCAR submission, achieving this target by year-end 2022 will be challenging.50 to 100 basis points.
G-SIB
surcharge (under both Capital Rules). OurG-SIB
surcharge is 2.5% for G-SIB
surcharge. G-SIB
level as of December 2022 (which would be effective G-SIB
surcharge and countercyclical capital buffer in the future may differ due to additional guidance from our regulators and/or positional changes, and our SCB is likely to change from year to year based on the results of the annual supervisory stress tests. Our target 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 couldwould 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.
| As of | ||||||||
June 2021 | | December 2020 | | |||||
TLAC to RWAs | 21.5% | 22.0% | ||||||
TLAC to leverage exposure | 9.5% | 9.5% | ||||||
External long-term debt to RWAs | 8.5% | 8.5% | ||||||
External long-term debt to leverage exposure | 4.5% | 4.5% | ||||||
Requirements | ||||
TLAC to RWAs | 21.5% | |||
TLAC to leverage exposure | 9.5% | |||
External long-term debt to RWAs | 8.5% | |||
External long-term debt to leverage exposure | 4.5% | |||
In the table above:
G-SIB
surcharge (Method 1).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.
| 131 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents information about our TLAC and external long-term debt ratios.
For the Three Months Ended or as of | For the Three Months Ended or as of | |||||||||||||||
$ in millions | June 2021 | | December 2020 | | June 2022 | | December 2021 | | ||||||||
TLAC | $ | $ | $ 304,542 | $ 297,765 | ||||||||||||
External long-term debt | $ | $ | $ 178,699 | $ 174,500 | ||||||||||||
RWAs | $ | $ | $ 691,659 | $ 676,863 | ||||||||||||
Leverage exposure | $1,777,441 | $1,332,937 | $1,945,539 | $1,910,521 | ||||||||||||
TLAC to RWAs | 41.5% | 39.8% | 44.0% | 44.0% | ||||||||||||
TLAC to leverage exposure | 15.6% | 18.2% | 15.7% | 15.6% | ||||||||||||
External long-term debt to RWAs | 24.7% | 22.8% | 25.8% | 25.8% | ||||||||||||
External long-term debt to leverage exposure | 9.3% | 10.4% | 9.2% | 9.1% | ||||||||||||
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 AdvancedStandardized RWAs as of both June 20212022 and December 2020.2021. In accordance with the TLAC rules, the higher of Advanced or Standardized RWAs are used in the calculation of TLAC and external long-term debt ratios and applicable requirements.
Leverage exposure consists of average adjusted total assets and certain Leverage exposure excluded average holdings of U.S. Treasury securities and average deposits at the Federal Reserveas permitted by the FRB under a temporary amendment. This temporary amendment had the effect of increasing the TLAC to leverage exposure ratio and the external long-term debt to leverage ratio. The impact of this temporary amendment was an increase to the TLAC to leverage exposure ratio of 2.4 percentage points and the external long-term debt to leverage exposure ratio of 1.3 percentage points for the three months ended December 2020. 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 did not reflect the impact of the temporary amendment to exclude the holdings of such assets.
off-balance
sheet exposures.See “Business — Regulation” in Part I, Item 1 of the 20202021
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 and GSBE are our primary
non-U.S.
banking subsidiaries. These entities are subject to regulatory capital requirements. See Note 20 to the consolidated financial statements for further information about the regulatory capital requirements of our bank subsidiaries.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. isalso a registered futures commission merchant and a registered swap dealer with the CFTC, and a registered security-based swap dealer with the SEC, and therefore is subject to regulatory capital requirements imposed by the SEC, the Financial Industry Regulatory Authority, Inc., the CFTC, the Chicago Mercantile Exchange and the National Futures Association.RuleRules 1.17 and Part 23 Subpart E 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 by
Rule 15c3-1
of the SEC and Rule 15c3-1.15c3-1
of the SEC.GS&Co. had regulatory net capital, as defined by$19.96$21.85 billion as of June 20212022 and $22.38$22.18 billion as of December 2020,2021, which exceeded the amount required by $15.76$16.86 billion as of June 20212022 and $18.45$17.74 billion as of December 2020.2021. In addition to its alternative minimum net capital requirements, GS&Co. is also required to hold tentative net capital in excess of $1$5 billion and net capital in excess of $500 million$1 billion in accordance with the market and credit risk standards of Appendix E of$5$6 billion. As of both June 20212022 and December 2020,2021, GS&Co. had tentative net capital and net capital in excess of both the minimum and the notification requirements.
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 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 Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). predominantly aligned with the E.U. capital framework prescribed in the amended E.U. Capital Requirements Directive (CRD) and the E.U. Capital Requirements Regulation (CRR). These capital regulations are largely based on the Basel Committee on Banking Supervision’s (Basel Committee) capital framework for strengthening international capital standards (Basel III).
GSI is subject to the U.K. capital framework, which is
The table below presents GSI’s risk-based capital requirements.
| As of | As of | |||||||||||||||
June 2021 | | December 2020 | | June 2022 | | December 2021 | | |||||||||
Risk-based capital requirements | ||||||||||||||||
CET1 capital ratio | 8.1% | 8.1% | 8.4% | 8.1% | ||||||||||||
Tier 1 capital ratio | 10.0% | 10.0% | 10.4% | 9.9% | ||||||||||||
Total capital ratio | 12.5% | 12.5% | 13.0% | 12.4% | ||||||||||||
In the table above, the risk-based capital requirements incorporate capital guidance received from the PRA and could change in the future.
| Goldman Sachs June 2022 Form 10-Q | 132 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents information about GSI’s risk-based capital ratios.
| As of | As of | |||||||||||||||
$ in millions | June 2021 | | December 2020 | | June 2022 | | December 2021 | | ||||||||
Risk-based capital and risk-weighted assets | ||||||||||||||||
CET1 capital | $ 27,724 | $ 26,962 | $ 30,465 | $ 28,810 | ||||||||||||
Tier 1 capital | $ 36,024 | $ 35,262 | $ 38,765 | $ 37,110 | ||||||||||||
Tier 2 capital | $ 5,377 | $ 5,377 | $ 5,377 | $ 5,377 | ||||||||||||
Total capital | $ 41,401 | $ 40,639 | $ 44,142 | $ 42,487 | ||||||||||||
RWAs | $261,344 | $252,355 | $273,809 | $269,762 | ||||||||||||
Risk-based capital ratios | ||||||||||||||||
CET1 capital ratio | 10.6% | 10.7% | 11.1% | 10.7% | ||||||||||||
Tier 1 capital ratio | 13.8% | 14.0% | 14.2% | 13.8% | ||||||||||||
Total capital ratio | 15.8% | 16.1% | 16.1% | 15.7% | ||||||||||||
In the table above, CET1the risk-based capital Tier 1 capital and Total capitalratios as of June 2021 include GSI’s2022 reflected profits after foreseeable charges for the three months ended June 2021 (which will be finalized uponthat are still subject to verification by GSI’s external auditors and approval by the PRA for inclusion in risk-based capital).capital. These profits contributed approximately 1728 basis points to the risk-basedCET1 capital ratios.ratio as of June 2022.
GSI will becomeis also subject to aPRA-requiredthe leverage ratio that is expected to become effective in January 2022 and is similar toframework established by the E.U. capital framework’sPRA. This framework sets a minimum 3% leverage ratio requirement.requirement at 3.25% that will apply to GSI from January 1, 2023. GSI had a leverage ratio of 5.1% as of June 2022 and 4.2% as of June 2021 and 4.7% as of December 2020. Tier 1 capital2021. The leverage ratio as of June 2021 included GSI’s2022 reflected profits after foreseeable charges for the three months ended June 2021 (which will be finalized uponthat are still subject to verification by GSI’s external auditors and approval by the PRA for inclusion in risk-based capital).capital. These profits contributed approximately 510 basis points to the leverage ratio. This leverage ratio as of June 2022.
GSI is based on our current interpretationa registered swap dealer with the CFTC and understandinga registered security-based swap dealer with the SEC. As of this ruleboth June 2022 and may evolve as we discuss the interpretationDecember 2021, GSI was subject to and application of the U.K. leverage ratio frameworkin compliance with GSI’s regulators.applicable capital requirements for swap dealers and security-based swap dealers.
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 2019 and will becomebecame fully effective beginning in January 2022. As of both June 20212022 and December 2020,2021, GSI was in compliance with this requirement.
GSJCL, our Japanese broker-dealer, is regulated by Japan’s Financial Services Agency. GSJCL and certain other20212022 and December 2020,2021, these subsidiaries were in compliance with their local capital requirements.
non-U.S.
subsidiaries are also subject to capital requirements promulgated by authorities of the countries in which they operate. As of both June 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 20202021
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.
On January 1, 2022, the publication of all EUR, CHF, JPY and GBP LIBOR
(non-USD
LIBOR) settings along with certain USD LIBOR settings ceased. The publication of the most commonly used USD LIBOR settings will cease after June 2023. The FCA has allowed the publication and use of synthetic rates for certain GBP and JPY LIBOR settings in legacy GBP or JPY LIBOR-based derivative contracts through December 2022. The U.S. federal banking agencies’ guidance strongly encourages banking organizations to cease using USD LIBOR.The International Swaps and Derivatives Association (ISDA) 2020 IBOR Fallbacks Protocol (IBOR Protocol) has provided derivatives market participants with amended fallbacks for legacy and new derivative contracts to mitigate legal or economic uncertainty. Both counterparties have to adhere to the IBOR Protocol or engage in bilateral amendments for the terms to be effective for derivative contracts. ISDA has confirmed that the FCA’s formal announcement to cease both non-USD and USD LIBOR settings fixed the spread adjustment for all LIBOR rates and as a result fallbacks applied automatically for non-USD LIBOR settings following December 31, 2021 and will apply automatically for USD LIBOR settings following June 30, 2023. The Adjustable Interest Rate (LIBOR) Act, that was enacted in March 2022, provides a statutory framework to replace USD LIBOR with a benchmark rate based on the Secured Overnight Financing Rate (SOFR) for contracts governed by U.S. law that have no fallbacks or fallbacks that would require the use of a poll or LIBOR-based rate. Under the LIBOR Act, the FRB must adopt rules to identify the applicable
SOFR-based
replacement rate by September 11, 2022. In July 2022, the FRB released proposed rules, which would identify different SOFR-based replacement rates for derivative contracts, for cash instruments such as floating-rate notes and preferred stock, for consumer contracts and for certain government-sponsored enterprise contracts.| Goldman Sachs June |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
We have a program in place that focuses on achievingfacilitated an orderly transition from IBORsprogram. As part of this transition, we continueprogram as it relates to actively engage with our regulators and clients, as well as participate in central bank and sector working groups. The majority of our LIBORUSD LIBOR.
non-USD
LIBORs to alternative risk-free reference rates and synthetic rates for us and our clients, and continue to make progress on our transition Our risk exposure is to USD LIBOR which is primarily in connection with our derivative contracts and, to a lesser extent, our unsecured debt, preferred stock and loan portfolio. Fornon-USDLIBOR, substantiallyAs of June 2022, the notional amount of our USD LIBOR-based derivative contracts was approximately $9 trillion, of which approximately $6 trillion will mature after June 2023 based on their contractual terms. Substantially all of our risk exposure is in connection with derivative contracts. Oursuch derivative contracts are primarily with counterparties under bilateral agreements which adheresubject to the IBOR Protocol, or with central clearing counterparties or exchanges which have incorporated fallbacks consistent with the IBOR Protocol in their rule booksrulebooks and have announced that they plan to convert allUSD LIBOR contracts to alternative risk-free reference rates beforerates. Our benchmark unsecured debt and preferred stock with USD LIBOR cessation.exposure was approximately $32.0 billion as of June 2022, of which $29.4 billion will contractually mature after June 2023 or is perpetual and has no stated maturity date. We continue to monitor the potentialindustry and legislative developments as they relate to unsecured debt and preferred stock and will take actions designed to facilitate an orderly transition. WeIn addition, we are also engagedengaging with our clients in order to remediate our loan agreements through bilateral amendments.
We have also issued debt and deposits linked to SOFR and Sterling Overnight Index Average (SONIA) and executed SOFR- and SONIA-based derivative contracts to make markets and facilitate client activities. When appropriate, we continue to execute transactions in the market to reduce our USD LIBOR exposures arising from hedges to our fixed-rate debt issuances and replace them with alternative risk-free reference rate exposures. See “Regulatory and Other Matters –— Other Matters” in Part II, Item 7 of the 20202021
Form 10-K
for further information about our transition program.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; and 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.notes.
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.Off-Balance Sheet Arrangement | Disclosure in Form 10-Q | |||
Variable interests and other obligations, including contingent obligations, arising from variable interests in nonconsolidated variable interest entities (VIEs) | See Note 17 to the consolidated financial statements. | |||
Guarantees, | See Note 18 to the consolidated financial statements. | |||
Derivatives | See “Risk Management — Credit Risk Management — Credit Exposures — OTC Derivatives” and Notes 4, 5, 7 and 18 to the consolidated financial statements. | |||
| As of | ||||||||
$ in millions | June 2021 | | December 2020 | | ||||
Time deposits | $ 22,111 | $ 26,433 | ||||||
Financings and borrowings: | ||||||||
Secured long-term | $ 12,185 | $ 12,537 | ||||||
Unsecured long-term | $238,930 | $213,481 | ||||||
Interest payments | $ 45,536 | $ 44,073 | ||||||
Operating lease payments | $ 3,075 | $ 3,268 | ||||||
| Goldman Sachs June |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
As of June 2021 | ||||||||||||||||
$ in millions | Remainder of 2021 | 2022 - 2023 | 2024 - 2025 | 2026 - Thereafter | ||||||||||||
Time deposits | $ – | $12,089 | $ 6,606 | $ 3,416 | ||||||||||||
Financings and borrowings: | ||||||||||||||||
Secured long-term | $ – | $ 6,405 | $ 2,531 | $ 3,249 | ||||||||||||
Unsecured long-term | $ – | $52,149 | $57,395 | $129,386 | ||||||||||||
Interest payments | $2,650 | $10,271 | $ 7,829 | $ 24,786 | ||||||||||||
Operating lease payments | $ 162 | $ 605 | $ 501 | $ 1,807 | ||||||||||||
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” andManagement,” “Model Risk Management” and “Other Risk Management,” as well as “Risk Factors” in Part I, Item 1A of the 20202021
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 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 chief legal officer, and on other matters impacting our reputation from the chair of our Firmwide Client and Business Standards Committee and our Firmwide Reputational Risk Committee. The chief risk officer reports to our chief executive officer and to the Risk Committee of the Board. As part of the review of the firmwide risk portfolio, the chief risk officer regularly advises the Risk Committee of the Board of relevant risk metrics and material exposures, including risk limits and thresholds established in our risk appetite statement.
The implementation of our risk governance structure and core risk management processes areis 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 Corporate and Workplace Solutions, are considered our first line of defense. They are accountable for the outcomes of our risk-generating activities, as well as for assessing and managing those risks within our risk appetite.
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, Legal, Risk and Tax.
Internal Audit is considered our third line of defense, and our director of Internal Audit 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.
| 135 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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“Capital Management and Regulatory Capital — Equity Capital Management” for further information.
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.
| Goldman Sachs June 2022 Form 10-Q | 136 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 performance review process, we assess reputational excellence, including how an employee exercises good risk management and reputational judgment, and adheres to our code of conduct and compliance policies. Our review and reward processes are designed to communicate and reinforce to our professionals the link between behavior and how people are recognized, the need to focus on our clients and our reputation, and the need to always act in accordance with our highest standards.
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,
councils 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 that they oversee.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.
| 137 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Firmwide Enterprise Risk Committee.
The Firmwide Enterprise Risk Committee is responsible for overseeing all of our financial and nonfinancial risks. As part of such oversight, the committee is responsible for the ongoing review, approval and monitoring of our enterprise risk management framework, as well as our risk limits framework. This committee isfinancialoperating 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 or councils that report to the Firmwide Enterprise Risk Committee:
co-chaired
by our president and chief Firmwide Risk Council.
co-chaired
by the chairs of the Firmwide Enterprise Risk Committee.Firmwide New Activity Committee.
co-chaired
by Firmwide Operational Risk and Resilience Committee.
co-chaired
by our chief administrative officer and 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 theour 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.
| Goldman Sachs June 2022 Form 10-Q | 138 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 co-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 co-head
of our Asset Management Division, aco-head
of our Global Markets Division and Firmwide Capital Committee.
co-chaired
by co-head
of Firmwide Commitments Committee.
co-chaired
by co-chairman
of our Global Financial Institutions Group and aco-head
of our Global Investment Grade Capital Markets and Risk Management Group in our Investment Banking Division, who are appointed as chairs by the chair of the Firmwide Client and Business Standards Committee.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.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.
| 139 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 resale agreements, and that this cash would allow us to meet immediate obligations without needing to sell other assets or depend on additional funding from credit-sensitive markets.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
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.
| Goldman Sachs June 2022 Form 10-Q | 140 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Subsidiary Funding Policies
The majority of our unsecured funding is raised by Group Inc., which provides the necessary funds to Funding IHC and other subsidiaries, some of which are regulated, to meet their asset financing, liquidity and capital requirements. In addition, Group Inc. provides its regulated subsidiaries with the necessary capital to meet their regulatory requirements. The benefits of this approach to subsidiary funding are enhanced control and greater flexibility to meet the funding requirements of our subsidiaries. Funding is also raised at the subsidiary level through a variety of products, including deposits, secured funding and unsecured borrowings.
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 June 2022, Group Inc. had $38.00 billion of equity and subordinated indebtedness invested in GS&Co., its principal U.S. registered broker-dealer; $47.34 billion invested in GSI, a regulated U.K. broker-dealer; $2.62 billion invested in GSJCL, a regulated Japanese broker-dealer; $48.96 billion invested in GS Bank USA, a regulated New York State-chartered bank; and $4.35 billion invested in GSIB, a regulated U.K. bank. Group Inc. also provides financing, directly or indirectly, in the form of: $113.94 billion of unsubordinated loans (including secured loans of $55.47 billion) and $31.93 billion of collateral and cash deposits to these entities as of June 2022. In addition, as of June 2022, Group Inc. had significant amounts of capital invested in and loans to its other regulated subsidiaries.
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.
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 include 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.
| 141 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 and contingent outflows arising from both our
on-
andoff-balance
sheet arrangements. Contractual outflows include, among other things, upcoming maturities of unsecured debt, term deposits and secured funding. Contingent outflows include, among other things, 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 andOTC-cleared
derivatives, draws on unfunded commitments and withdrawals of deposits that have no contractual maturity. See notes to the consolidated financial statements for further information about contractual outflows, including Note 11 for collateralized financings, Note 13 for deposits, Note 14 for unsecured long-term borrowings and Note 15 for operating lease payments, and“Off-Balance
Sheet Arrangements” for further information about our various types ofoff-balance
sheet arrangements.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.
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 June 2022 and December 2021 was appropriate. We strictly limit our GCLA to a narrowly defined list of securities and cash because they are highly liquid, even in a difficult funding environment. We do not include other potential sources of excess liquidity in our GCLA, such as less liquid unencumbered securities or committed credit facilities.
| Goldman Sachs June 2022 Form 10-Q | 142 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents information about our GCLA.
Average for the Three Months Ended | ||||||||
$ in millions | June 2022 | | March 2022 | | ||||
Denomination | ||||||||
U.S. dollar | $270,121 | $246,642 | ||||||
Non-U.S. dollar | 121,146 | 128,215 | ||||||
Total | $391,267 | $374,857 | ||||||
Asset Class | ||||||||
Overnight cash deposits | $226,414 | $211,593 | ||||||
U.S. government obligations | 120,355 | 112,847 | ||||||
U.S. agency obligations | 8,483 | 10,388 | ||||||
Non-U.S. government obligations | 36,015 | 40,029 | ||||||
Total | $391,267 | $374,857 | ||||||
Entity Type | ||||||||
Group Inc. and Funding IHC | $ 63,070 | $ 61,523 | ||||||
Major broker-dealer subsidiaries | 114,507 | 111,090 | ||||||
Major bank subsidiaries | 213,690 | 202,244 | ||||||
Total | $391,267 | $374,857 | ||||||
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 $279.07 billion for the three months ended June 2022 and $280.59 billion for the three months ended March 2022. We do not consider these assets liquid enough to be eligible for our GCLA.
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.
Average for the Three Months Ended | ||||||||
$ in millions | June 2022 | | March 2022 | | ||||
Total HQLA | $380,531 | $365,250 | ||||||
Eligible HQLA | $261,718 | $255,055 | ||||||
Net cash outflows | $209,577 | $202,714 | ||||||
LCR | 125% | 126% | ||||||
As a BHC, we are subject to a net stable funding ratio (NSFR) requirement established by the U.S. federal bank regulatory agencies, which requires large U.S. 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 NSFR as of June 2022 exceeded the minimum requirement.| 143 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The following provides information about our subsidiary liquidity regulatory requirements:
GS Bank USA.
GSI and GSIB.
GSBE.
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 ouroperations and the cost and availability of debt financing is influenced by our credit ratings. Credit ratings are also important when we are competing in certain markets, such as OTC derivatives, and when we seek to engage in longer-term transactions. See “Risk Factors” in Part I, Item 1A of the 2021
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.
As of June 2022 | ||||||||||||||||||||
DBRS | Fitch | Moody’s | R&I | S&P | ||||||||||||||||
Short-term debt | R-1 (middle | ) | F1 | P-1 | a-1 | A-2 | ||||||||||||||
Long-term debt | A (high | ) | A | A2 | A | BBB+ | ||||||||||||||
Subordinated debt | A | BBB+ | Baa2 | A- | BBB | |||||||||||||||
Trust preferred | A | BBB- | Baa3 | N/A | BB+ | |||||||||||||||
Preferred stock | BBB (high | ) | BBB- | Ba1 | N/A | BB+ | ||||||||||||||
Ratings outlook | Stable | Stable | Stable | Stable | Stable | |||||||||||||||
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.
The table below presents the unsecured credit ratings and outlook of GS Bank USA, GSIB, GSBE, GS&Co. and GSI.
As of June 2022 | ||||||||||||
Fitch | Moody’s | S&P | ||||||||||
GS Bank USA | ||||||||||||
Short-term debt | F1 | P-1 | A-1 | |||||||||
Long-term debt | A+ | A1 | A+ | |||||||||
Short-term bank deposits | F1+ | P-1 | N/A | |||||||||
Long-term bank deposits | AA- | A1 | N/A | |||||||||
Ratings outlook | Stable | Stable | Stable | |||||||||
GSIB | ||||||||||||
Short-term debt | F1 | P-1 | A-1 | |||||||||
Long-term debt | A+ | A1 | A+ | |||||||||
Short-term bank deposits | F1 | P-1 | N/A | |||||||||
Long-term bank deposits | A+ | A1 | N/A | |||||||||
Ratings outlook | Stable | Stable | Stable | |||||||||
GSBE | ||||||||||||
Short-term debt | F1 | P-1 | A-1 | |||||||||
Long-term debt | A+ | A1 | A+ | |||||||||
Short-term bank deposits | N/A | P-1 | N/A | |||||||||
Long-term bank deposits | N/A | A1 | N/A | |||||||||
Ratings outlook | Stable | Stable | Stable | |||||||||
GS&Co. | ||||||||||||
Short-term debt | F1 | N/A | A-1 | |||||||||
Long-term debt | A+ | N/A | A+ | |||||||||
Ratings outlook | Stable | N/A | Stable | |||||||||
GSI | ||||||||||||
Short-term debt | F1 | P-1 | A-1 | |||||||||
Long-term debt | A+ | A1 | A+ | |||||||||
Ratings outlook | Stable | Stable | Stable | |||||||||
| Goldman Sachs June 2022 Form 10-Q | 144 |
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.
Six Months Ended June 2022.
Our cash and cash equivalents increased by $27.57 billion to $288.61 billion at the end of the second quarter of 2022, due to net cash provided by financing and operating activities, partially offset by net cash used for investing activities. The net cash provided by financing activities primarily reflected cash inflows from deposits (reflecting increases in transaction banking, brokered certificates of deposits and deposit sweep program balances, and a decrease in private bank deposits) and net issuance of unsecured long-term borrowings. The net cash provided by operating activities primarily reflected cash inflows from trading liabilities and customer and other receivables and payables, net (reflecting both an increase in customer and other payables and in customer and other receivables), partially offset by cash outflows from collateralized transactions (reflecting an increase in collateralized agreements and a decrease in collateralized financings) and trading assets. The net cash used for investing activities primarily reflected purchases of investments (primarily due to an increase in U.S. government obligations accounted for asand an increase in net lending activities (reflecting increases across the portfolio).
held-to-maturity)
Six Months Ended June 2021.
Our cash and cash equivalents increased by $84.45 billion to $240.29 billion at the end of the second quarter of 2021, due to net cash provided by financing and operating activities, partially offset by net cash used for investing activities. The net cash provided by financing activities primarily reflected an increase in net deposits, (principally reflecting increases in institutional, transaction banking, consumer and deposit sweep program deposits) and net issuance of unsecured long-term borrowings. The net cash provided by operating activities primarily reflected net earnings, an increase in trading liabilities and a decrease in trading assets, partially offset by an increase in collateralized transactions (an increase in collateralized agreements, partially offset by an increase in collateralized financings). The net cash used for investing activities primarily reflected purchases of investments and an increase in net lending activities, partially offset by sales and paydowns of investments.
| 145 | Goldman Sachs June 2022 Form 10-Q |
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.
Value-at-Risk
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.| Goldman Sachs June 2022 Form 10-Q | 146 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
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, if warranted.
| 147 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
| Three Months Ended | Six Months Ended June | |||||||||||||||||||||
$ in millions | June 2022 | | March 2022 | | | June 2021 | | 2022 | 2021 | |||||||||||||
Categories | ||||||||||||||||||||||
Interest rates | $ 104 | $ 74 | $ 64 | $ 89 | $ 61 | |||||||||||||||||
Equity prices | 36 | 33 | 48 | 34 | 50 | |||||||||||||||||
Currency rates | 23 | 25 | 13 | 24 | 13 | |||||||||||||||||
Commodity prices | 63 | 49 | 22 | 56 | 22 | |||||||||||||||||
Diversification effect | (102 | ) | (83 | ) | (57 | ) | (92 | ) | (56 | ) | ||||||||||||
Total | $ 124 | $ 98 | $ 90 | $111 | $ 90 | |||||||||||||||||
Our average daily VaR increased to $124 million for the three months ended June 2022 from $98 million for the three months ended March 2022, primarily due to higher levels of volatility. The total increase of $26 million was primarily driven by increases in the interest rates and commodity prices categories, partially offset by an increase in the diversification effect.
Our average daily VaR increased to $124 million for the three months ended June 2022 from $90 million for the three months ended June 2021, primarily due to higher levels of volatility. The total increase of $34 million was driven by increases in the commodity prices, interest rates and currency rates categories, partially offset by an increase in the diversification effect and a decrease in the equity prices category.
Our average daily VaR increased to $111 million for the six months ended June 2022 from $90 million for the six months ended June 2021, primarily due to higher levels of volatility. The total increase of $21 million was driven by increases in the commodity prices, interest rates and currency rates categories, partially offset by an increase in the diversification effect and a decrease in the equity prices category.
The table below presents our
period-end
VaR.| As of | ||||||||||||
$ in millions | June 2022 | | March 2022 | | | June 2021 | | |||||
Categories | ||||||||||||
Interest rates | $ 134 | $106 | $ 74 | |||||||||
Equity prices | 37 | 33 | 41 | |||||||||
Currency rates | 20 | 26 | 16 | |||||||||
Commodity prices | 59 | 60 | 25 | |||||||||
Diversification effect | (100 | ) | (98 | ) | (61 | ) | ||||||
Total | $ 150 | $127 | $ 95 | |||||||||
Our
period-end
VaR increased to $150 million as of June 2022 from $127 million as of March 2022, primarily due to higher levels of volatility. The total increase of $23 million was primarily driven by an increase in the interest rates category, partially offset by a decrease in the currency rates category.Our
period-end
VaR increased to $150 million as of June 2022 from $95 million as of June 2021, primarily due to higher levels of volatility. The total increase of $55 million was primarily driven by increases in the interest rates and commodity prices categories, partially offset by an increase in the diversification effect.During the six months ended June 2022, the firmwide VaR risk limit was exceeded on six occasions (all of which occurred during March 2022) primarily due to higher levels of volatility generally resulting from broad macroeconomic and geopolitical concerns. These limit breaches were resolved by temporary increases in the firmwide VaR risk limit and subsequent risk reductions. During this period, the firmwide VaR risk limit was also permanently increased due to higher levels of volatility. During 2021, the firmwide VaR risk limit was not exceeded and there were no permanent or temporary changes to the firmwide VaR risk limit.
The table below presents our high and low VaR.
| Three Months Ended | ||||||||||||||||||||||||||||||||
June 2022 | March 2022 | June 2021 | ||||||||||||||||||||||||||||||
$ in millions | High | Low | High | Low | High | Low | ||||||||||||||||||||||||||
Categories | ||||||||||||||||||||||||||||||||
Interest rates | $134 | $ 84 | $106 | $57 | $ 74 | $58 | ||||||||||||||||||||||||||
Equity prices | $ 48 | $ 31 | $ 45 | $27 | $ 57 | $37 | ||||||||||||||||||||||||||
Currency rates | $ 31 | $ 16 | $ 36 | $19 | $ 17 | $10 | ||||||||||||||||||||||||||
Commodity prices | $ 74 | $ 51 | $ 82 | $30 | $ 32 | $15 | ||||||||||||||||||||||||||
Firmwide | ||||||||||||||||||||||||||||||||
VaR | $150 | $108 | $129 | $76 | $101 | $81 | ||||||||||||||||||||||||||
The chart below presents our daily VaR for the six months ended June 2022.
| Goldman Sachs June 2022 Form 10-Q | 148 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents, by number of business days, the frequency distribution of our daily net revenues for positions included in VaR.
Three Months Ended June | Six Months Ended June | |||||||||||||||||||
$ in millions | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
>$100 | 31 | 8 | 63 | 34 | ||||||||||||||||
$75 - $100 | 5 | 13 | 13 | 28 | ||||||||||||||||
$50 - $75 | 8 | 10 | 13 | 19 | ||||||||||||||||
$25 - $50 | 5 | 13 | 11 | 16 | ||||||||||||||||
$0 - $25 | 7 | 14 | 12 | 20 | ||||||||||||||||
$(25) - $0 | 3 | 5 | 4 | 7 | ||||||||||||||||
$(50) - $(25) | 1 | – | 4 | – | ||||||||||||||||
$(75) - $(50) | 1 | – | 1 | – | ||||||||||||||||
$(100) - $(75) | 1 | – | 1 | – | ||||||||||||||||
<$(100) | – | – | 2 | – | ||||||||||||||||
Total | 62 | 63 | 124 | 124 | ||||||||||||||||
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 three months ended June 2022, the three months ended June 2021 and the six months ended June 2021. There were two VaR exceptions during the six months ended June 2022.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.
| As of | ||||||||||||
$ in millions | June 2022 | March 2022 | June 2021 | |||||||||
Equity | $1,563 | $1,813 | $2,096 | |||||||||
Debt | 2,107 | 2,201 | 2,429 | |||||||||
Total | $3,670 | $4,014 | $4,525 | |||||||||
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 both June 2022 and March 2022. In addition, the estimated sensitivity to a one basis point increase in our own credit spreads on financial liabilities for which the fair value option was elected was a gain of $35 million as of June 2022 and $39 million as of March 2022. However, the actual net impact of a change in our own credit spreads is also affected by the liquidity, duration and convexity (as the sensitivity is not linear to changes in yields) of those financial liabilities for which the fair value option was elected, as well as the relative performance of any hedges undertaken.
Interest Rate Sensitivity.
Loans accounted for at amortized cost were $159.40 billion as of June 2022 and $148.17 billion as of March 2022, substantially all of which had floating interest rates. The estimated sensitivity to a 100 basis point increase in interest rates on such loans was $1.33 billion as of June 2022 and $1.20 billion as of March 2022 of additional interest income over a twelve-month period, which does not take into account the potential impact of an increase in costs to fund such loans. See Note 9 to the consolidated financial statements for further information about loans accounted for at amortized cost.
| 149 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Other Market Risk Considerations
We make investments in securities that are accounted for asor under the equity method which are included in investments in the consolidated balance sheets. See Note 8 to the consolidated financial statements for further information.
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.
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.
Assets or Liabilities | Market Risk Measures | |
Collateralized agreements, at fair value | VaR | |
Customer and other receivables, at fair value | 10% Sensitivity Measures | |
Trading assets | VaR Credit Spread Sensitivity | |
Investments, at fair value | VaR 10% Sensitivity Measures | |
Loans | VaR 10% Sensitivity Measures Interest Rate Sensitivity | |
Deposits, at fair value | VaR Credit Spread Sensitivity | |
Collateralized financings, at fair value | VaR | |
Trading liabilities | VaR Credit Spread Sensitivity | |
Unsecured borrowings, at fair value | VaR Credit Spread Sensitivity |
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. In addition, we hold other positions that give rise to credit risk (e.g., bonds and secondary bank loans). These credit risks are captured as a component of market risk measures, which are monitored and managed by Market Risk. We also enter into derivatives to manage market risk exposures. Such derivatives also give rise to credit risk, which is monitored and managed by Credit Risk.
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 analyses, which incorporate initial and ongoing evaluations of the capacity and willingness of a counterparty to meet its financial obligations. For substantially all of our credit exposures, the core of our process is an annual counterparty credit evaluation or more frequently if deemed necessary as a result of events or changes in circumstances. We determine an internal credit rating for the counterparty by considering the results of the credit evaluations and assumptions with respect to the nature of and outlook for the counterparty’s industry and the economic environment. The internal credit rating does not take into consideration collateral received or other credit support arrangements. 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.
| Goldman Sachs June 2022 Form 10-Q | 150 |
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.
| 151 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Credit Exposures
As of June 2022, our aggregate credit exposure increased as compared with December 2021, primarily reflecting increases in cash deposits with central banks and OTC derivatives. The percentage of our credit exposures arising from
non-investment-grade
counterparties (based on our internally determined public rating agency equivalents) decreased slightly compared with December 2021, primarily reflecting an increase in investment-grade credit exposure related to cash deposits with central banks. Our credit exposures are described further below.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 internally determined public rating agency equivalents.
| As of | ||||||||
$ in millions | June 2022 | | December 2021 | | ||||
Cash and Cash Equivalents | $261,750 | $236,168 | ||||||
Industry | ||||||||
Financial Institutions | 6% | 5% | ||||||
Sovereign | 94% | 95% | ||||||
Total | 100% | 100% | ||||||
Region | ||||||||
Americas | 63% | 55% | ||||||
EMEA | 31% | 36% | ||||||
Asia | 6% | 9% | ||||||
Total | 100% | 100% | ||||||
Credit Quality (Credit Rating Equivalent) | ||||||||
AAA | 68% | 64% | ||||||
AA | 23% | 24% | ||||||
A | 8% | 11% | ||||||
BBB | 1% | 1% | ||||||
Total | 100% | 100% | ||||||
The table above excludes cash segregated for regulatory and other purposes of $26.86 billion as of June 2022 and $24.87 billion as of December 2021.
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.
| As of | ||||||||
$ in millions | June 2022 | | December 2021 | | ||||
OTC derivative assets | $ 70,112 | $ 58,637 | ||||||
Collateral (not netted under U.S. GAAP) | (18,372 | ) | (17,245 | ) | ||||
Net credit exposure | $ 51,740 | $ 41,392 | ||||||
Industry | ||||||||
Consumer & Retail | 1% | 2% | ||||||
Diversified Industrials | 7% | 10% | ||||||
Financial Institutions | 16% | 15% | ||||||
Funds | 18% | 13% | ||||||
Healthcare | 1% | 1% | ||||||
Municipalities & Nonprofit | 3% | 5% | ||||||
Natural Resources & Utilities | 42% | 33% | ||||||
Sovereign | 6% | 8% | ||||||
Technology, Media & Telecommunications | 3% | 8% | ||||||
Other (including Special Purpose Vehicles) | 3% | 5% | ||||||
Total | 100% | 100% | ||||||
Region | ||||||||
Americas | 48% | 53% | ||||||
EMEA | 42% | 37% | ||||||
Asia | 10% | 10% | ||||||
Total | 100% | 100% | ||||||
Our credit exposure (before any potential recoveries) to OTC derivative counterparties that defaulted during the six months ended June 2022 remained low, representing less than 2% of our total credit exposure from OTC derivatives.
In the table above:
OTC derivative assets, included in the consolidated balance sheets, are reported on abasis (i.e., the net receivable for a given counterparty) when a legal right of setoff exists under an enforceable netting agreement (counterparty netting) and are accounted for at fair value, net of cash collateral received under enforceable credit support agreements (cash collateral netting).
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.| Goldman Sachs June 2022 Form 10-Q | 152 |
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 millions | | Investment- Grade | | | Non-Investment- Grade / Unrated | | Total | |||||
As of June 2022 | ||||||||||||
Less than 1 year | $ 40,480 | $ 14,922 | $ 55,402 | |||||||||
1 - 5 years | 27,523 | 11,174 | 38,697 | |||||||||
Greater than 5 years | 54,924 | 5,379 | 60,303 | |||||||||
Total | 122,927 | 31,475 | 154,402 | |||||||||
Netting | (90,514 | ) | (12,148 | ) | (102,662 | ) | ||||||
Net credit exposure | $ 32,413 | $ 19,327 | $ 51,740 | |||||||||
As of December 2021 | ||||||||||||
Less than 1 year | $ 27,668 | $ | $ | |||||||||
1 - 5 years | 21,746 | 9,515 | 31,261 | |||||||||
Greater than 5 years | 64,670 | 6,590 | 71,260 | |||||||||
Total | 114,084 | 27,308 | 141,392 | |||||||||
Netting | (89,244 | ) | (10,756 | ) | (100,000 | ) | ||||||
Net credit exposure | $ 24,840 | $ | $ | |||||||||
In the table above:
Tenor is based on remaining contractual maturity.
Netting includes counterparty netting across tenor categories and collateral that we consider when determining credit risk (including collateral that is not eligible for netting under U.S. GAAP). Counterparty netting within the same tenor category is included within such tenor category.
The tables below present the distribution of our net credit exposure from OTC derivatives by tenor and internally determined public rating agency equivalents.
| Investment-Grade | ||||||||||||||||||||
$ in millions | AAA | AA | A | BBB | Total | |||||||||||||||
As of June 2022 | ||||||||||||||||||||
Less than 1 year | $ 1,136 | $ 5,130 | $ 17,346 | $ 16,868 | $ 40,480 | |||||||||||||||
1 - 5 years | 1,417 | 5,354 | 10,705 | 10,047 | 27,523 | |||||||||||||||
Greater than 5 years | 7,064 | 12,563 | 18,443 | 16,854 | 54,924 | |||||||||||||||
Total | 9,617 | 23,047 | 46,494 | 43,769 | 122,927 | |||||||||||||||
Netting | (6,344 | ) | (17,855 | ) | (36,277 | ) | (30,038 | ) | (90,514 | ) | ||||||||||
Net credit exposure | $ 3,273 | $ 5,192 | $ 10,217 | $ 13,731 | $ 32,413 | |||||||||||||||
As of December 2021 | ||||||||||||||||||||
Less than 1 year | $ | $ | $ | $ | $ 27,668 | |||||||||||||||
1 - 5 years | 1,150 | 3,071 | 8,298 | 9,227 | 21,746 | |||||||||||||||
Greater than 5 years | 13,777 | 5,421 | 23,867 | 21,605 | 64,670 | |||||||||||||||
Total | 15,944 | 13,418 | 44,646 | 40,076 | 114,084 | |||||||||||||||
Netting | (13,535 | ) | (9,501 | ) | (36,005 | ) | (30,203 | ) | (89,244 | ) | ||||||||||
Net credit exposure | $ | $ | $ | $ | $ 24,840 | |||||||||||||||
Non-Investment-Grade / Unrated | ||||||||||||
$ in millions | BB or lower | Unrated | Total | |||||||||
As of June 2022 | ||||||||||||
Less than 1 year | $ 13,982 | $ | $ 14,922 | |||||||||
1 - 5 years | 10,786 | 388 | 11,174 | |||||||||
Greater than 5 years | 5,278 | 101 | 5,379 | |||||||||
Total | 30,046 | 1,429 | 31,475 | |||||||||
Netting | (12,047 | ) | (101 | ) | (12,148 | ) | ||||||
Net credit exposure | $ 17,999 | $ 1,328 | $ 19,327 | |||||||||
As of December 2021 | ||||||||||||
Less than 1 year | $ | $ | $ 11,203 | |||||||||
1 - 5 years | 9,210 | 305 | 9,515 | |||||||||
Greater than 5 years | 6,320 | 270 | 6,590 | |||||||||
Total | 25,976 | 1,332 | 27,308 | |||||||||
Netting | (10,683 | ) | (73 | ) | (10,756 | ) | ||||||
Net credit exposure | $ | $ | $ 16,552 | |||||||||
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.
$ in millions | Loans | | Lending Commitments | | Total | |||||||
As of June 2022 | ||||||||||||
Corporate | $ 61,546 | $151,059 | $212,605 | |||||||||
Wealth management | 48,279 | 4,424 | 52,703 | |||||||||
Commercial real estate | 28,178 | 4,229 | 32,407 | |||||||||
Residential real estate | 16,955 | 3,365 | 20,320 | |||||||||
Consumer: | ||||||||||||
Installment | 4,582 | 19 | 4,601 | |||||||||
Credit cards | 11,844 | 57,184 | 69,028 | |||||||||
Other | 9,116 | 5,339 | 14,455 | |||||||||
Total | $180,500 | $225,619 | $406,119 | |||||||||
Allowance for loan losses | $ | ) | $ | ) | $ | ) | ||||||
As of December 2021 | ||||||||||||
Corporate | $ 55,927 | $155,930 | $211,857 | |||||||||
Wealth management | 43,998 | 4,094 | 48,092 | |||||||||
Commercial real estate | 25,883 | 5,813 | 31,696 | |||||||||
Residential real estate | 15,913 | 3,396 | 19,309 | |||||||||
Consumer: | ||||||||||||
Installment | 3,672 | 9 | 3,681 | |||||||||
Credit cards | 8,212 | 35,932 | 44,144 | |||||||||
Other | 8,530 | 6,378 | 14,908 | |||||||||
Total | $162,135 | $211,552 | $373,687 | |||||||||
Allowance for loan losses | $ | ) | $ (776 | ) | $ | ) | ||||||
See Note 9 to the consolidated financial statements for information about net charge-offs on wholesale and consumer loans, as well as past due and nonaccrual loans accounted for at amortized cost.
Corporate.
Corporate loans and lending commitments include term loans, revolving lines of credit, letter of credit facilities and bridge loans, and are principally used for operating and general corporate purposes, or in connection with acquisitions. Corporate loans may be secured or unsecured, depending on the loan purpose, the risk profile of the borrower and other factors.
| 153 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents our credit exposure from corporate loans and lending commitments, and the concentration by industry, region, internally determined public rating agency equivalents and other credit metrics.
$ in millions | Loans | | Lending Commitments | | Total | |||||||
As of June 2022 | ||||||||||||
Corporate | $61,546 | $151,059 | $212,605 | |||||||||
Industry | ||||||||||||
Consumer & Retail | 7% | 13% | 11% | |||||||||
Diversified Industrials | 13% | 18% | 16% | |||||||||
Financial Institutions | 7% | 9% | 9% | |||||||||
Funds | 20% | 5% | 9% | |||||||||
Healthcare | 7% | 9% | 9% | |||||||||
Natural Resources & Utilities | 8% | 17% | 14% | |||||||||
Real Estate | 8% | 5% | 6% | |||||||||
Technology, Media & Telecommunications | 18% | 21% | 20% | |||||||||
Other (including Special Purpose Vehicles) | 12% | 3% | 6% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Region | ||||||||||||
Americas | 59% | 76% | 72% | |||||||||
EMEA | 33% | 21% | 24% | |||||||||
Asia | 8% | 3% | 4% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
AAA | – | 1% | 1% | |||||||||
AA | 1% | 5% | 4% | |||||||||
A | 6% | 17% | 14% | |||||||||
BBB | 23% | 36% | 32% | |||||||||
BB or lower | 70% | 41% | 49% | |||||||||
Total | 100% | 100% | 100% | |||||||||
As of December 2021 | ||||||||||||
Corporate | $55,927 | $155,930 | $211,857 | |||||||||
Industry | ||||||||||||
Consumer & Retail | 8% | 13% | 12% | |||||||||
Diversified Industrials | 13% | 16% | 15% | |||||||||
Financial Institutions | 8% | 7% | 7% | |||||||||
Funds | 21% | 4% | 8% | |||||||||
Healthcare | 7% | 9% | 9% | |||||||||
Natural Resources & Utilities | 9% | 17% | 14% | |||||||||
Real Estate | 8% | 5% | 6% | |||||||||
Technology, Media & Telecommunications | 18% | 24% | 23% | |||||||||
Other (including Special Purpose Vehicles) | 8% | 5% | 6% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Region | ||||||||||||
Americas | 54% | 76% | 70% | |||||||||
EMEA | 38% | 21% | 26% | |||||||||
Asia | 8% | 3% | 4% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
AAA | – | 1% | 1% | |||||||||
AA | 1% | 5% | 3% | |||||||||
A | 5% | 16% | 13% | |||||||||
BBB | 22% | 38% | 34% | |||||||||
BB or lower | 72% | 40% | 49% | |||||||||
Total | 100% | 100% | 100% | |||||||||
In the table above, credit exposure excludes $3.72 billion as of June 2022 and $4.14 billion as of December 2021 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 private bank clients, including wealth management and other clients. These loans are used to finance investments in both financial and nonfinancial assets, bridge cash flow timing gaps or provide liquidity for other needs. Substantially all of such loans are secured by securities, residential real estate, commercial real estate or other assets.
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 millions | Loans | | Lending Commitments | | Total | |||||||
As of June 2022 | ||||||||||||
Wealth Management | $48,279 | $4,424 | $52,703 | |||||||||
Region | ||||||||||||
Americas | 89% | 97% | 90% | |||||||||
EMEA | 9% | 3% | 9% | |||||||||
Asia | 2% | – | 1% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 69% | 70% | 69% | |||||||||
Non-investment-grade | 15% | 17% | 15% | |||||||||
Other metrics/unrated | 16% | 13% | 16% | |||||||||
Total | 100% | 100% | 100% | |||||||||
As of December 2021 | ||||||||||||
Wealth Management | $43,998 | $4,094 | $48,092 | |||||||||
Region | ||||||||||||
Americas | 87% | 98% | 88% | |||||||||
EMEA | 10% | 2% | 9% | |||||||||
Asia | 3% | – | 3% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 72% | 67% | 71% | |||||||||
Non-investment-grade | 13% | 19% | 14% | |||||||||
Other metrics/unrated | 15% | 14% | 15% | |||||||||
Total | 100% | 100% | 100% | |||||||||
In the table above, other metrics/unrated loans primarily include loans backed by residential real estate. Our risk assessment process for such loans includes reviewing certain key metrics, such asratio and delinquency status.
loan-to-value
| Goldman Sachs June 2022 Form 10-Q | 154 |
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 industrial properties. Commercial real estate loans and lending commitments also includes loans and lending commitments extended to clients who warehouse assets that are directly or indirectly backed by commercial real estate. In addition, commercial real estate includes loans purchased by us.
The table below presents our credit exposure from commercial real estate loans and lending commitments, and the concentration by region, internally determined public rating agency equivalents and other credit metrics.
$ in millions | Loans | | Lending Commitments | | Total | |||||||
As of June 2022 | ||||||||||||
Commercial Real Estate | $28,178 | $4,229 | $32,407 | |||||||||
Region | ||||||||||||
Americas | 80% | 68% | 78% | |||||||||
EMEA | 14% | 18% | 15% | |||||||||
Asia | 6% | 14% | 7% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 16% | 8% | 15% | |||||||||
Non-investment-grade | 83% | 92% | 84% | |||||||||
Other metrics/unrated | 1% | – | 1% | |||||||||
Total | 100% | 100% | 100% | |||||||||
As of December 2021 | ||||||||||||
Commercial Real Estate | $25,883 | $5,813 | $31,696 | |||||||||
Region | ||||||||||||
Americas | 80% | 75% | 79% | |||||||||
EMEA | 15% | 11% | 14% | |||||||||
Asia | 5% | 14% | 7% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 15% | 10% | 14% | |||||||||
Non-investment-grade | 83% | 90% | 85% | |||||||||
Other metrics/unrated | 2% | – | 1% | |||||||||
Total | 100% | 100% | 100% | |||||||||
In the table above, credit exposure includes loans and lending commitments of $10.92 billion as of June 2022 and $11.65 billion as of December 2021 which are extended to clients who warehouse assets that are directly or indirectly backed by commercial real estate.
In addition, we also have credit exposure to certain commercial real estate loans held for securitization of $206 million as of June 2022 and $922 million as of December 2021. Such loans are included in trading assets in our consolidated balance sheets.
Residential Real Estate.
Residential real estate loans and lending commitments are extended to clients (other than those extended to private bank clients) who warehouse assets that are directly or indirectly secured by residential real estate and also includes loans purchased by us.
The table below presents our credit exposure from residential real estate loans and lending commitments, and the concentration by region, internally determined public rating agency equivalents and other credit metrics.
$ in millions | Loans | | Lending Commitments | | Total | |||||||
As of June 2022 | ||||||||||||
Residential Real Estate | $16,955 | $3,365 | $20,320 | |||||||||
Region | ||||||||||||
Americas | 94% | 99% | 94% | |||||||||
EMEA | 5% | 1% | 5% | |||||||||
Asia | 1% | – | 1% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 9% | 2% | 8% | |||||||||
Non-investment-grade | 82% | 97% | 85% | |||||||||
Other metrics/unrated | 9% | 1% | 7% | |||||||||
Total | 100% | 100% | 100% | |||||||||
As of December 2021 | ||||||||||||
Residential Real Estate | $15,913 | $3,396 | $19,309 | |||||||||
Region | ||||||||||||
Americas | 95% | 79% | 92% | |||||||||
EMEA | 2% | 19% | 5% | |||||||||
Asia | 3% | 2% | 3% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 7% | 24% | 10% | |||||||||
Non-investment-grade | 87% | 74% | 84% | |||||||||
Other metrics/unrated | 6% | 2% | 6% | |||||||||
Total | 100% | 100% | 100% | |||||||||
In the table above:
Credit exposure includes loans and lending commitments of $18.30 billion as of June 2022 and $16.89 billion as of December 2021 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 asratio, delinquency status, collateral values, expected cash flows and other risk factors.
loan-to-value
In addition, we also have exposure to residential real estate loans held for securitization of $9.67 billion as of June 2022 and $11.57 billion as of December 2021. Such loans are included in trading assets in our consolidated balance sheets.
| 155 | Goldman Sachs June 2022 Form 10-Q |
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 funded loans, and the concentration by the ten most concentrated U.S. states.
| As of | ||||||||
$ in millions | June 2022 | | December 2021 | | ||||
Installment | $ 4,582 | $3,672 | ||||||
California | 11% | 11% | ||||||
Texas | 9% | 9% | ||||||
Florida | 8% | 7% | ||||||
New York | 7% | 7% | ||||||
Illinois | 4% | 4% | ||||||
New Jersey | 4% | 4% | ||||||
Pennsylvania | 4% | 4% | ||||||
Georgia | 3% | 3% | ||||||
Ohio | 3% | 3% | ||||||
Virginia | 3% | 3% | ||||||
Other | 44% | 45% | ||||||
Total | 100% | 100% | ||||||
Credit Cards | $11,844 | $8,212 | ||||||
California | 18% | 18% | ||||||
Texas | 9% | 9% | ||||||
New York | 8% | 8% | ||||||
Florida | 8% | 8% | ||||||
New Jersey | 4% | 4% | ||||||
Illinois | 4% | 4% | ||||||
Pennsylvania | 3% | 3% | ||||||
Georgia | 3% | 3% | ||||||
Ohio | 3% | 3% | ||||||
Virginia | 2% | 2% | ||||||
Other | 38% | 38% | ||||||
Total | 100% | 100% | ||||||
See Note 9 to the consolidated financial statements for further information about the credit quality indicators of installment and credit card loans.
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, and other assets. 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 millions | Loans | | Lending Commitments | | Total | |||||||
As of June 2022 | ||||||||||||
Other | $9,116 | $5,339 | $14,455 | |||||||||
Region | ||||||||||||
Americas | 88% | 100% | 92% | |||||||||
EMEA | 11% | – | 7% | |||||||||
Asia | 1% | – | 1% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 42% | 86% | 58% | |||||||||
Non-investment-grade | 45% | 13% | 34% | |||||||||
Other metrics/unrated | 13% | 1% | 8% | |||||||||
Total | 100% | 100% | 100% | |||||||||
As of December 2021 | ||||||||||||
Other | $8,530 | $6,378 | $14,908 | |||||||||
Region | ||||||||||||
Americas | 84% | 98% | 90% | |||||||||
EMEA | 15% | – | 9% | |||||||||
Asia | 1% | 2% | 1% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 34% | 90% | 58% | |||||||||
Non-investment-grade | 37% | 9% | 25% | |||||||||
Other metrics/unrated | 29% | 1% | 17% | |||||||||
Total | 100% | 100% | 100% | |||||||||
In the table above:
Credit exposure includes loans and lending commitments extended to clients who warehouse assets of $11.81 billion as of June 2022 and $11.09 billion as of December 2021.
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 $1.22 billion as of June 2022 and $467 million as of December 2021. 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.
| Goldman Sachs June 2022 Form 10-Q | 156 |
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 for these transactions primarily includes U.S. and
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 internally determined public rating agency equivalents.
| As of | ||||||||
$ in millions | | June 2022 | | | December 2021 | | ||
Securities Financing Transactions | $36,953 | $34,505 | ||||||
Industry | ||||||||
Financial Institutions | 33% | 34% | ||||||
Funds | 28% | 23% | ||||||
Municipalities & Nonprofit | 6% | 5% | ||||||
Sovereign | 32% | 35% | ||||||
Other (including Special Purpose Vehicles) | 1% | 3% | ||||||
Total | 100% | 100% | ||||||
Region | ||||||||
Americas | 39% | 36% | ||||||
EMEA | 38% | 44% | ||||||
Asia | 23% | 20% | ||||||
Total | 100% | 100% | ||||||
Credit Quality (Credit Rating Equivalent) | ||||||||
AAA | 13% | 19% | ||||||
AA | 31% | 28% | ||||||
A | 34% | 33% | ||||||
BBB | 9% | 9% | ||||||
BB or lower | 12% | 11% | ||||||
Unrated | 1% | – | ||||||
Total | 100% | 100% | ||||||
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 internally determined public rating agency equivalents.
| As of | ||||||||
$ in millions | June 2022 | | December 2021 | | ||||
Other Credit Exposures | $66,350 | $61,187 | ||||||
Industry | ||||||||
Financial Institutions | 74% | 86% | ||||||
Funds | 16% | 9% | ||||||
Other (including Special Purpose Vehicles) | 10% | 5% | ||||||
Total | 100% | 100% | ||||||
Region | ||||||||
Americas | 45% | 50% | ||||||
EMEA | 47% | 43% | ||||||
Asia | 8% | 7% | �� | |||||
Total | 100% | 100% | ||||||
Credit Quality (Credit Rating Equivalent) | ||||||||
AAA | 4% | 4% | ||||||
AA | 46% | 47% | ||||||
A | 28% | 29% | ||||||
BBB | 9% | 6% | ||||||
BB or lower | 11% | 13% | ||||||
Unrated | 2% | 1% | ||||||
Total | 100% | 100% | ||||||
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 given recent events and broad market concerns. Credit exposure represents the potential for loss due to the default or deterioration in credit quality of a counterparty or borrower. Market exposure represents the potential for loss in value of our long and short positions due to changes in market prices.
| 157 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Country Exposures.
The Russian invasion of Ukraine has negatively affected the global economy and has resulted in significant disruptions in financial markets and increased macroeconomic uncertainty. Governments around the world have responded to Russia’s invasion by imposing economic sanctions and export controls on specific industry sectors, companies and individuals in Russia. Retaliatory restrictions against investors,
non-Russian
owned businesses and other sovereign states have been implemented by Russia. Businesses in the U.S. and globally have experienced shortages in materials and increased costs for transportation, energy and raw materials due, in part, to the negative effects of the war on the global economy. The escalation or continuation of the war between Russia and Ukraine presents heightened risks relating to cyber attacks, the frequency and volume of failures to settle securities transactions, supply chain disruptions, and inflation, as well as the potential for increased volatility in commodity, currency and other financial markets. Complying with economic sanctions and restrictions imposed by governments has resulted in increased operational risk. The extent and duration of the war, sanctions and resulting market disruptions, as well as the potential adverse consequences for our business, liquidity and results of operations, are difficult to predict.Our senior management, risk committees and the Board receive regular briefings from our independent risk oversight and control functions, including our chief risk officer, on Russian and Ukrainian exposures, as well as other relevant risk metrics. We are focused on closing our positions and reducing our exposure, and we continue to wind down our operations in Russia. The overall direct financial impact to our net revenues for the first half of 2022 from Russian and Ukrainian counterparties, borrowers, issuers and related instruments was not material. We have established a firmwide working group to identify and assess the operational risk associated with complying with economic sanctions and restrictions as a result of this invasion. In addition, to mitigate the risk of increased cyber attacks, we liaise with government agencies in order to update our monitoring processes with the latest information.
Our total credit exposure to Russia as of June 2022 was $225 million, substantially all of which was to
non-sovereign
counterparties. Such exposure consisted of $15 million related to OTC derivatives and $210 million related to deposits and other receivables. In addition, our total market exposure relating to Russian issuers as of June 2022 was not material.Our total credit exposure to Ukrainian counterparties or borrowers and our total market exposure relating to Ukrainian issuers was not material as of June 2022.
High external funding needs and inconsistent monetary policy have led to significant depreciation of the Turkish Lira, prompting concerns about foreign exchange reserves and economic instability. As of June 2022, our total credit exposure to Turkey was $2.35 billion, which was to
non-sovereign
counterparties or borrowers. Such exposure consisted of $1.16 billion related to OTC derivatives, $171 million related to loans and lending commitments and $1.02 billion related to secured receivables. After taking into consideration the benefit of Turkish corporate and sovereign collateral, and other risk mitigants provided by Turkish counterparties, our net credit exposure was $841 million. In addition, our total market exposure relating to Turkish issuers as of June 2022 was $(433) million, primarily to sovereign issuers. Such exposure consisted of $(48) million related to debt, $(458) million related to credit derivatives and $73 million related to equities.Liquidity pressures prompted the Argentine government to default and restructure local and foreign obligations in 2020. Economic challenges persist despite a renewed agreement with the International Monetary Fund. As of June 2022, our total credit exposure to Argentina was $95 million, which was to
non-sovereign
counterparties or borrowers, and was primarily related to loans and lending commitments. In addition, our total market exposure relating to Argentinian issuers as of June 2022 was $131 million, primarily to sovereign issuers. Such exposure consisted of $88 million related to debt, $13 million related to credit derivatives and $30 million related to equities.In addition, economic and/or political uncertainties in Lebanon, Zambia, Venezuela, Ethiopia and Sri Lanka have led to concerns about their financial stability. Our credit exposure to counterparties or borrowers and our market exposure to issuers relating to each of these countries was not material as of June 2022.
| Goldman Sachs June 2022 Form 10-Q | 158 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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’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.
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:
Execution, delivery and process management;
Business disruption and system failures;
Employment practices and workplace safety;
Clients, products and business practices;
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 combinebasis, including escalating operational risks and risk events to senior management.
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 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, analyze, aggregate and report 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.
| 159 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
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 I, Item 1A of the 2021
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 I, Item 1A of the 2021
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 business continuity planning (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 andincorporating new information, techniques and technologies as and when they become available, and our resilience recovery plans incorporate and test specific and measurable recovery time objectives in accordance with local market best practices and regulatory requirements, and under specific scenarios. See “Business — Business Continuity and Information Security” in Part I, Item 1 of the 2021
up-to-date,
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.
| Goldman Sachs June 2022 Form 10-Q | 160 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
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.
Other Risk Management
In addition to the areas of risks discussed above, we also manage other risks, including capital, climate, compliance and conflicts. These areas of risks are discussed below.
Capital Risk Management
Capital risk is the risk that our capital is insufficient to support our business activities under normal and stressed market conditions or we face capital reductions or RWA increases, including from new or revised rules or changes in interpretations of existing rules, and are therefore unable to meet our internal capital targets or external regulatory capital requirements. Capital adequacy is of critical importance to us. Accordingly, we have in place a comprehensive capital management policy that provides a framework, defines objectives and establishes guidelines to maintain an appropriate level and composition of capital in bothand stressed conditions. Our capital management framework is designed to provide us with the information needed to identify and comprehensively manage risk, and develop and apply projected stress scenarios that capture idiosyncratic vulnerabilities with a goal of holding sufficient capital to remain adequately capitalized even after experiencing a severe stress event. See “Capital Management and Regulatory Capital” for further information about our capital management process.
business-as-usual
We have established a comprehensive governance structure to manage and oversee ourcapital management activities and to ensure compliance with capital rules and related policies. Our capital management activities are overseen by the Board and its committees. The Board is responsible for approving our annual capital plan and the Risk Committee of the Board approves our capital management policy, which details the risk committees and members of senior management who are responsible for the ongoing monitoring of our capital adequacy and evaluation of current and future regulatory capital requirements, the review of the results of our capital planning and stress tests processes, and the results of our capital models. In addition, our risk committees and senior management are responsible for the review of our contingency capital plan, key capital adequacy metrics, including regulatory capital ratios, and capital plan metrics, such as the payout ratio, as well as monitoring capital targets and potential breaches of capital requirements.
day-to-day
Our process for managing capital risk also includes independent review functions in Risk that, among other things, assess regulatory capital policies and related interpretations, escalate certain interpretations to senior management and/or the appropriate risk committee, and perform calculation testing to corroborate alignment with applicable capital rules.
| 161 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Climate Risk Management
We categorize climate risk into physical risk and transition risk. Physical risk is the risk that asset values may decline or operations may be disrupted as a result of changes in the climate, while transition risk is the risk that asset values may decline because of changes in climate policies or changes in the underlying economy due to decarbonization.
As a global financial institution, climate-related risks manifest in different ways across our businesses and we have continued to make significant enhancements to our climate risk management framework, including steps to further integrate climate into our broader risk management processes. We have integrated oversight of climate-related risks into our risk management governance structure, from senior management to our Board and its committees, including the Risk and Public Responsibilities Committees. The Risk Committee of the Board oversees firmwide financial and nonfinancial risks, which include climate risk, and, as part of its oversight, receives updates on our risk management approach to climate risk, including our approaches towards scenario analysis and integration into existing risk management processes. The Public Responsibilities Committee of the Board assists the Board in its oversight of our firmwide sustainability strategy and sustainability issues affecting us, including with respect to climate change. As part of its oversight, the Public Responsibilities Committee receives periodic updates on our sustainability strategy, and also periodically reviews our governance and related policies and processes for sustainability and climate change-related risks. Senior management within Risk is responsible for the development of our climate risk program.
We have begun incorporating climate risk into our credit evaluation and underwriting processes for select industries. Climate risk factors are now evaluated as part of transaction due diligence for select loan commitments.
See “Business — Sustainability” in Part I, Item 1 and “Risk Factors” in Part I, Item 1A of the 2021
Form 10-K
for information about our sustainability initiatives, including in relation to climate transition.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 majority of our unsecured funding is raised by Group Inc., which provides the necessary funds to Funding IHC and other subsidiaries, some of which are regulated, to meet their asset financing, liquidity and capital requirements. In addition, Group Inc. provides its regulated subsidiaries with the necessary capital to meet their regulatory requirements. The benefits of this approach to subsidiary funding are enhanced control and greater flexibility to meet the funding requirements of our subsidiaries. Funding is also raised at the subsidiary level through a variety of products, including deposits, secured funding and unsecured borrowings.
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 June 2022, Group Inc. had $38.00 billion of equity and subordinated indebtedness invested in GS&Co., its principal U.S. registered broker-dealer; $47.34 billion invested in GSI, a regulated U.K. broker-dealer; $2.62 billion invested in GSJCL, a regulated Japanese broker-dealer; $48.96 billion invested in GS Bank USA, a regulated New York State-chartered bank; and $4.35 billion invested in GSIB, a regulated U.K. bank. Group Inc. also provides financing, directly or indirectly, in the form of: $113.94 billion of unsubordinated loans (including secured loans of $55.47 billion) and $31.93 billion of collateral and cash deposits to these entities as of June 2022. In addition, as of June 2022, Group Inc. had significant amounts of capital invested in and loans to its other regulated subsidiaries.
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.
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 include 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.
| 141 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 and contingent outflows arising from both our
on-
andoff-balance
sheet arrangements. Contractual outflows include, among other things, upcoming maturities of unsecured debt, term deposits and secured funding. Contingent outflows include, among other things, 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 andOTC-cleared
derivatives, draws on unfunded commitments and withdrawals of deposits that have no contractual maturity. See notes to the consolidated financial statements for further information about contractual outflows, including Note 11 for collateralized financings, Note 13 for deposits, Note 14 for unsecured long-term borrowings and Note 15 for operating lease payments, and“Off-Balance
Sheet Arrangements” for further information about our various types ofoff-balance
sheet arrangements.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.
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 June 2022 and December 2021 was appropriate. We strictly limit our GCLA to a narrowly defined list of securities and cash because they are highly liquid, even in a difficult funding environment. We do not include other potential sources of excess liquidity in our GCLA, such as less liquid unencumbered securities or committed credit facilities.
| Goldman Sachs June 2022 Form 10-Q | 142 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents information about our GCLA.
Average for the Three Months Ended | ||||||||
$ in millions | June 2022 | | March 2022 | | ||||
Denomination | ||||||||
U.S. dollar | $270,121 | $246,642 | ||||||
Non-U.S. dollar | 121,146 | 128,215 | ||||||
Total | $391,267 | $374,857 | ||||||
Asset Class | ||||||||
Overnight cash deposits | $226,414 | $211,593 | ||||||
U.S. government obligations | 120,355 | 112,847 | ||||||
U.S. agency obligations | 8,483 | 10,388 | ||||||
Non-U.S. government obligations | 36,015 | 40,029 | ||||||
Total | $391,267 | $374,857 | ||||||
Entity Type | ||||||||
Group Inc. and Funding IHC | $ 63,070 | $ 61,523 | ||||||
Major broker-dealer subsidiaries | 114,507 | 111,090 | ||||||
Major bank subsidiaries | 213,690 | 202,244 | ||||||
Total | $391,267 | $374,857 | ||||||
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 $279.07 billion for the three months ended June 2022 and $280.59 billion for the three months ended March 2022. We do not consider these assets liquid enough to be eligible for our GCLA.
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.
Average for the Three Months Ended | ||||||||
$ in millions | June 2022 | | March 2022 | | ||||
Total HQLA | $380,531 | $365,250 | ||||||
Eligible HQLA | $261,718 | $255,055 | ||||||
Net cash outflows | $209,577 | $202,714 | ||||||
LCR | 125% | 126% | ||||||
As a BHC, we are subject to a net stable funding ratio (NSFR) requirement established by the U.S. federal bank regulatory agencies, which requires large U.S. 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 NSFR as of June 2022 exceeded the minimum requirement.| 143 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The following provides information about our subsidiary liquidity regulatory requirements:
GS Bank USA.
GSI and GSIB.
GSBE.
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 ouroperations and the cost and availability of debt financing is influenced by our credit ratings. Credit ratings are also important when we are competing in certain markets, such as OTC derivatives, and when we seek to engage in longer-term transactions. See “Risk Factors” in Part I, Item 1A of the 2021
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.
As of June 2022 | ||||||||||||||||||||
DBRS | Fitch | Moody’s | R&I | S&P | ||||||||||||||||
Short-term debt | R-1 (middle | ) | F1 | P-1 | a-1 | A-2 | ||||||||||||||
Long-term debt | A (high | ) | A | A2 | A | BBB+ | ||||||||||||||
Subordinated debt | A | BBB+ | Baa2 | A- | BBB | |||||||||||||||
Trust preferred | A | BBB- | Baa3 | N/A | BB+ | |||||||||||||||
Preferred stock | BBB (high | ) | BBB- | Ba1 | N/A | BB+ | ||||||||||||||
Ratings outlook | Stable | Stable | Stable | Stable | Stable | |||||||||||||||
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.
The table below presents the unsecured credit ratings and outlook of GS Bank USA, GSIB, GSBE, GS&Co. and GSI.
As of June 2022 | ||||||||||||
Fitch | Moody’s | S&P | ||||||||||
GS Bank USA | ||||||||||||
Short-term debt | F1 | P-1 | A-1 | |||||||||
Long-term debt | A+ | A1 | A+ | |||||||||
Short-term bank deposits | F1+ | P-1 | N/A | |||||||||
Long-term bank deposits | AA- | A1 | N/A | |||||||||
Ratings outlook | Stable | Stable | Stable | |||||||||
GSIB | ||||||||||||
Short-term debt | F1 | P-1 | A-1 | |||||||||
Long-term debt | A+ | A1 | A+ | |||||||||
Short-term bank deposits | F1 | P-1 | N/A | |||||||||
Long-term bank deposits | A+ | A1 | N/A | |||||||||
Ratings outlook | Stable | Stable | Stable | |||||||||
GSBE | ||||||||||||
Short-term debt | F1 | P-1 | A-1 | |||||||||
Long-term debt | A+ | A1 | A+ | |||||||||
Short-term bank deposits | N/A | P-1 | N/A | |||||||||
Long-term bank deposits | N/A | A1 | N/A | |||||||||
Ratings outlook | Stable | Stable | Stable | |||||||||
GS&Co. | ||||||||||||
Short-term debt | F1 | N/A | A-1 | |||||||||
Long-term debt | A+ | N/A | A+ | |||||||||
Ratings outlook | Stable | N/A | Stable | |||||||||
GSI | ||||||||||||
Short-term debt | F1 | P-1 | A-1 | |||||||||
Long-term debt | A+ | A1 | A+ | |||||||||
Ratings outlook | Stable | Stable | Stable | |||||||||
| Goldman Sachs June 2022 Form 10-Q | 144 |
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.
Six Months Ended June 2022.
Our cash and cash equivalents increased by $27.57 billion to $288.61 billion at the end of the second quarter of 2022, due to net cash provided by financing and operating activities, partially offset by net cash used for investing activities. The net cash provided by financing activities primarily reflected cash inflows from deposits (reflecting increases in transaction banking, brokered certificates of deposits and deposit sweep program balances, and a decrease in private bank deposits) and net issuance of unsecured long-term borrowings. The net cash provided by operating activities primarily reflected cash inflows from trading liabilities and customer and other receivables and payables, net (reflecting both an increase in customer and other payables and in customer and other receivables), partially offset by cash outflows from collateralized transactions (reflecting an increase in collateralized agreements and a decrease in collateralized financings) and trading assets. The net cash used for investing activities primarily reflected purchases of investments (primarily due to an increase in U.S. government obligations accounted for asand an increase in net lending activities (reflecting increases across the portfolio).
held-to-maturity)
Six Months Ended June 2021.
Our cash and cash equivalents increased by $84.45 billion to $240.29 billion at the end of the second quarter of 2021, due to net cash provided by financing and operating activities, partially offset by net cash used for investing activities. The net cash provided by financing activities primarily reflected an increase in net deposits, (principally reflecting increases in institutional, transaction banking, consumer and deposit sweep program deposits) and net issuance of unsecured long-term borrowings. The net cash provided by operating activities primarily reflected net earnings, an increase in trading liabilities and a decrease in trading assets, partially offset by an increase in collateralized transactions (an increase in collateralized agreements, partially offset by an increase in collateralized financings). The net cash used for investing activities primarily reflected purchases of investments and an increase in net lending activities, partially offset by sales and paydowns of investments.
| 145 | Goldman Sachs June 2022 Form 10-Q |
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 approach to dealing with them are fundamentalrevenue-producing units and reports 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. Thechief risk officer, has primary responsibility for identifying potential conflicts,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 complyingthe 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.
Value-at-Risk
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.| Goldman Sachs June 2022 Form 10-Q | 146 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
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 policiessovereign positions, as well as the corresponding debt, equity and procedures,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 sharedused 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, if warranted.
| 147 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
| Three Months Ended | Six Months Ended June | |||||||||||||||||||||
$ in millions | June 2022 | | March 2022 | | | June 2021 | | 2022 | 2021 | |||||||||||||
Categories | ||||||||||||||||||||||
Interest rates | $ 104 | $ 74 | $ 64 | $ 89 | $ 61 | |||||||||||||||||
Equity prices | 36 | 33 | 48 | 34 | 50 | |||||||||||||||||
Currency rates | 23 | 25 | 13 | 24 | 13 | |||||||||||||||||
Commodity prices | 63 | 49 | 22 | 56 | 22 | |||||||||||||||||
Diversification effect | (102 | ) | (83 | ) | (57 | ) | (92 | ) | (56 | ) | ||||||||||||
Total | $ 124 | $ 98 | $ 90 | $111 | $ 90 | |||||||||||||||||
Our average daily VaR increased to $124 million for the three months ended June 2022 from $98 million for the three months ended March 2022, primarily due to higher levels of volatility. The total increase of $26 million was primarily driven by increases in the interest rates and commodity prices categories, partially offset by an increase in the diversification effect.
Our average daily VaR increased to $124 million for the three months ended June 2022 from $90 million for the three months ended June 2021, primarily due to higher levels of volatility. The total increase of $34 million was driven by increases in the commodity prices, interest rates and currency rates categories, partially offset by an increase in the diversification effect and a decrease in the equity prices category.
Our average daily VaR increased to $111 million for the six months ended June 2022 from $90 million for the six months ended June 2021, primarily due to higher levels of volatility. The total increase of $21 million was driven by increases in the commodity prices, interest rates and currency rates categories, partially offset by an increase in the diversification effect and a decrease in the equity prices category.
The table below presents our
period-end
VaR.| As of | ||||||||||||
$ in millions | June 2022 | | March 2022 | | | June 2021 | | |||||
Categories | ||||||||||||
Interest rates | $ 134 | $106 | $ 74 | |||||||||
Equity prices | 37 | 33 | 41 | |||||||||
Currency rates | 20 | 26 | 16 | |||||||||
Commodity prices | 59 | 60 | 25 | |||||||||
Diversification effect | (100 | ) | (98 | ) | (61 | ) | ||||||
Total | $ 150 | $127 | $ 95 | |||||||||
Our
period-end
VaR increased to $150 million as of June 2022 from $127 million as of March 2022, primarily due to higher levels of volatility. The total increase of $23 million was primarily driven by an increase in the interest rates category, partially offset by a decrease in the currency rates category.Our
period-end
VaR increased to $150 million as of June 2022 from $95 million as of June 2021, primarily due to higher levels of volatility. The total increase of $55 million was primarily driven by increases in the interest rates and commodity prices categories, partially offset by an increase in the diversification effect.During the six months ended June 2022, the firmwide VaR risk limit was exceeded on six occasions (all of which occurred during March 2022) primarily due to higher levels of volatility generally resulting from broad macroeconomic and geopolitical concerns. These limit breaches were resolved by temporary increases in the firmwide VaR risk limit and subsequent risk reductions. During this period, the firmwide VaR risk limit was also permanently increased due to higher levels of volatility. During 2021, the firmwide VaR risk limit was not exceeded and there were no permanent or temporary changes to the firmwide VaR risk limit.
The table below presents our high and low VaR.
| Three Months Ended | ||||||||||||||||||||||||||||||||
June 2022 | March 2022 | June 2021 | ||||||||||||||||||||||||||||||
$ in millions | High | Low | High | Low | High | Low | ||||||||||||||||||||||||||
Categories | ||||||||||||||||||||||||||||||||
Interest rates | $134 | $ 84 | $106 | $57 | $ 74 | $58 | ||||||||||||||||||||||||||
Equity prices | $ 48 | $ 31 | $ 45 | $27 | $ 57 | $37 | ||||||||||||||||||||||||||
Currency rates | $ 31 | $ 16 | $ 36 | $19 | $ 17 | $10 | ||||||||||||||||||||||||||
Commodity prices | $ 74 | $ 51 | $ 82 | $30 | $ 32 | $15 | ||||||||||||||||||||||||||
Firmwide | ||||||||||||||||||||||||||||||||
VaR | $150 | $108 | $129 | $76 | $101 | $81 | ||||||||||||||||||||||||||
The chart below presents our daily VaR for the six months ended June 2022.
| Goldman Sachs June 2022 Form 10-Q | 148 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents, by number of business days, the frequency distribution of our daily net revenues for positions included in VaR.
Three Months Ended June | Six Months Ended June | |||||||||||||||||||
$ in millions | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
>$100 | 31 | 8 | 63 | 34 | ||||||||||||||||
$75 - $100 | 5 | 13 | 13 | 28 | ||||||||||||||||
$50 - $75 | 8 | 10 | 13 | 19 | ||||||||||||||||
$25 - $50 | 5 | 13 | 11 | 16 | ||||||||||||||||
$0 - $25 | 7 | 14 | 12 | 20 | ||||||||||||||||
$(25) - $0 | 3 | 5 | 4 | 7 | ||||||||||||||||
$(50) - $(25) | 1 | – | 4 | – | ||||||||||||||||
$(75) - $(50) | 1 | – | 1 | – | ||||||||||||||||
$(100) - $(75) | 1 | – | 1 | – | ||||||||||||||||
<$(100) | – | – | 2 | – | ||||||||||||||||
Total | 62 | 63 | 124 | 124 | ||||||||||||||||
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 three months ended June 2022, the three months ended June 2021 and the six months ended June 2021. There were two VaR exceptions during the six months ended June 2022.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.
| As of | ||||||||||||
$ in millions | June 2022 | March 2022 | June 2021 | |||||||||
Equity | $1,563 | $1,813 | $2,096 | |||||||||
Debt | 2,107 | 2,201 | 2,429 | |||||||||
Total | $3,670 | $4,014 | $4,525 | |||||||||
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 both June 2022 and March 2022. In addition, the estimated sensitivity to a one basis point increase in our own credit spreads on financial liabilities for which the fair value option was elected was a gain of $35 million as of June 2022 and $39 million as of March 2022. However, the actual net impact of a change in our own credit spreads is also affected by the liquidity, duration and convexity (as the sensitivity is not linear to changes in yields) of those financial liabilities for which the fair value option was elected, as well as the relative performance of any hedges undertaken.
Interest Rate Sensitivity.
Loans accounted for at amortized cost were $159.40 billion as of June 2022 and $148.17 billion as of March 2022, substantially all of which had floating interest rates. The estimated sensitivity to a 100 basis point increase in interest rates on such loans was $1.33 billion as of June 2022 and $1.20 billion as of March 2022 of additional interest income over a twelve-month period, which does not take into account the potential impact of an increase in costs to fund such loans. See Note 9 to the consolidated financial statements for further information about loans accounted for at amortized cost.
| 149 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Other Market Risk Considerations
We make investments in securities that are accounted for asor under the equity method which are included in investments in the consolidated balance sheets. See Note 8 to the consolidated financial statements for further information.
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.
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.
Assets or Liabilities | Market Risk Measures | |
Collateralized agreements, at fair value | VaR | |
Customer and other receivables, at fair value | 10% Sensitivity Measures | |
Trading assets | VaR Credit Spread Sensitivity | |
Investments, at fair value | VaR 10% Sensitivity Measures | |
Loans | VaR 10% Sensitivity Measures Interest Rate Sensitivity | |
Deposits, at fair value | VaR Credit Spread Sensitivity | |
Collateralized financings, at fair value | VaR | |
Trading liabilities | VaR Credit Spread Sensitivity | |
Unsecured borrowings, at fair value | VaR Credit Spread Sensitivity |
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. In addition, we hold other positions that give rise to credit risk (e.g., bonds and secondary bank loans). These credit risks are captured as a component of market risk measures, which are monitored and managed by Market Risk. We also enter into derivatives to manage market risk exposures. Such derivatives also give rise to credit risk, which is monitored and managed by Credit Risk.
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 analyses, which incorporate initial and ongoing evaluations of the capacity and willingness of a counterparty to meet its financial obligations. For substantially all of our employees.credit exposures, the core of our process is an annual counterparty credit evaluation or more frequently if deemed necessary as a result of events or changes in circumstances. We determine an internal credit rating for the counterparty by considering the results of the credit evaluations and assumptions with respect to the nature of and outlook for the counterparty’s industry and the economic environment. The internal credit rating does not take into consideration collateral received or other credit support arrangements. 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.
| Goldman Sachs June 2022 Form 10-Q | 150 |
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.
| 151 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Credit Exposures
As of June 2022, our aggregate credit exposure increased as compared with December 2021, primarily reflecting increases in cash deposits with central banks and OTC derivatives. The percentage of our credit exposures arising from
non-investment-grade
counterparties (based on our internally determined public rating agency equivalents) decreased slightly compared with December 2021, primarily reflecting an increase in investment-grade credit exposure related to cash deposits with central banks. Our credit exposures are described further below.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 internally determined public rating agency equivalents.
| As of | ||||||||
$ in millions | June 2022 | | December 2021 | | ||||
Cash and Cash Equivalents | $261,750 | $236,168 | ||||||
Industry | ||||||||
Financial Institutions | 6% | 5% | ||||||
Sovereign | 94% | 95% | ||||||
Total | 100% | 100% | ||||||
Region | ||||||||
Americas | 63% | 55% | ||||||
EMEA | 31% | 36% | ||||||
Asia | 6% | 9% | ||||||
Total | 100% | 100% | ||||||
Credit Quality (Credit Rating Equivalent) | ||||||||
AAA | 68% | 64% | ||||||
AA | 23% | 24% | ||||||
A | 8% | 11% | ||||||
BBB | 1% | 1% | ||||||
Total | 100% | 100% | ||||||
The table above excludes cash segregated for regulatory and other purposes of $26.86 billion as of June 2022 and $24.87 billion as of December 2021.
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.
| As of | ||||||||
$ in millions | June 2022 | | December 2021 | | ||||
OTC derivative assets | $ 70,112 | $ 58,637 | ||||||
Collateral (not netted under U.S. GAAP) | (18,372 | ) | (17,245 | ) | ||||
Net credit exposure | $ 51,740 | $ 41,392 | ||||||
Industry | ||||||||
Consumer & Retail | 1% | 2% | ||||||
Diversified Industrials | 7% | 10% | ||||||
Financial Institutions | 16% | 15% | ||||||
Funds | 18% | 13% | ||||||
Healthcare | 1% | 1% | ||||||
Municipalities & Nonprofit | 3% | 5% | ||||||
Natural Resources & Utilities | 42% | 33% | ||||||
Sovereign | 6% | 8% | ||||||
Technology, Media & Telecommunications | 3% | 8% | ||||||
Other (including Special Purpose Vehicles) | 3% | 5% | ||||||
Total | 100% | 100% | ||||||
Region | ||||||||
Americas | 48% | 53% | ||||||
EMEA | 42% | 37% | ||||||
Asia | 10% | 10% | ||||||
Total | 100% | 100% | ||||||
Our credit exposure (before any potential recoveries) to OTC derivative counterparties that defaulted during the six months ended June 2022 remained low, representing less than 2% of our total credit exposure from OTC derivatives.
In the table above:
OTC derivative assets, included in the consolidated balance sheets, are reported on abasis (i.e., the net receivable for a given counterparty) when a legal right of setoff exists under an enforceable netting agreement (counterparty netting) and are accounted for at fair value, net of cash collateral received under enforceable credit support agreements (cash collateral netting).
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.| Goldman Sachs June 2022 Form 10-Q | 152 |
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 millions | | Investment- Grade | | | Non-Investment- Grade / Unrated | | Total | |||||
As of June 2022 | ||||||||||||
Less than 1 year | $ 40,480 | $ 14,922 | $ 55,402 | |||||||||
1 - 5 years | 27,523 | 11,174 | 38,697 | |||||||||
Greater than 5 years | 54,924 | 5,379 | 60,303 | |||||||||
Total | 122,927 | 31,475 | 154,402 | |||||||||
Netting | (90,514 | ) | (12,148 | ) | (102,662 | ) | ||||||
Net credit exposure | $ 32,413 | $ 19,327 | $ 51,740 | |||||||||
As of December 2021 | ||||||||||||
Less than 1 year | $ 27,668 | $ | $ | |||||||||
1 - 5 years | 21,746 | 9,515 | 31,261 | |||||||||
Greater than 5 years | 64,670 | 6,590 | 71,260 | |||||||||
Total | 114,084 | 27,308 | 141,392 | |||||||||
Netting | (89,244 | ) | (10,756 | ) | (100,000 | ) | ||||||
Net credit exposure | $ 24,840 | $ | $ | |||||||||
In the table above:
Tenor is based on remaining contractual maturity.
Netting includes counterparty netting across tenor categories and collateral that we consider when determining credit risk (including collateral that is not eligible for netting under U.S. GAAP). Counterparty netting within the same tenor category is included within such tenor category.
The tables below present the distribution of our net credit exposure from OTC derivatives by tenor and internally determined public rating agency equivalents.
| Investment-Grade | ||||||||||||||||||||
$ in millions | AAA | AA | A | BBB | Total | |||||||||||||||
As of June 2022 | ||||||||||||||||||||
Less than 1 year | $ 1,136 | $ 5,130 | $ 17,346 | $ 16,868 | $ 40,480 | |||||||||||||||
1 - 5 years | 1,417 | 5,354 | 10,705 | 10,047 | 27,523 | |||||||||||||||
Greater than 5 years | 7,064 | 12,563 | 18,443 | 16,854 | 54,924 | |||||||||||||||
Total | 9,617 | 23,047 | 46,494 | 43,769 | 122,927 | |||||||||||||||
Netting | (6,344 | ) | (17,855 | ) | (36,277 | ) | (30,038 | ) | (90,514 | ) | ||||||||||
Net credit exposure | $ 3,273 | $ 5,192 | $ 10,217 | $ 13,731 | $ 32,413 | |||||||||||||||
As of December 2021 | ||||||||||||||||||||
Less than 1 year | $ | $ | $ | $ | $ 27,668 | |||||||||||||||
1 - 5 years | 1,150 | 3,071 | 8,298 | 9,227 | 21,746 | |||||||||||||||
Greater than 5 years | 13,777 | 5,421 | 23,867 | 21,605 | 64,670 | |||||||||||||||
Total | 15,944 | 13,418 | 44,646 | 40,076 | 114,084 | |||||||||||||||
Netting | (13,535 | ) | (9,501 | ) | (36,005 | ) | (30,203 | ) | (89,244 | ) | ||||||||||
Net credit exposure | $ | $ | $ | $ | $ 24,840 | |||||||||||||||
Non-Investment-Grade / Unrated | ||||||||||||
$ in millions | BB or lower | Unrated | Total | |||||||||
As of June 2022 | ||||||||||||
Less than 1 year | $ 13,982 | $ | $ 14,922 | |||||||||
1 - 5 years | 10,786 | 388 | 11,174 | |||||||||
Greater than 5 years | 5,278 | 101 | 5,379 | |||||||||
Total | 30,046 | 1,429 | 31,475 | |||||||||
Netting | (12,047 | ) | (101 | ) | (12,148 | ) | ||||||
Net credit exposure | $ 17,999 | $ 1,328 | $ 19,327 | |||||||||
As of December 2021 | ||||||||||||
Less than 1 year | $ | $ | $ 11,203 | |||||||||
1 - 5 years | 9,210 | 305 | 9,515 | |||||||||
Greater than 5 years | 6,320 | 270 | 6,590 | |||||||||
Total | 25,976 | 1,332 | 27,308 | |||||||||
Netting | (10,683 | ) | (73 | ) | (10,756 | ) | ||||||
Net credit exposure | $ | $ | $ 16,552 | |||||||||
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.
$ in millions | Loans | | Lending Commitments | | Total | |||||||
As of June 2022 | ||||||||||||
Corporate | $ 61,546 | $151,059 | $212,605 | |||||||||
Wealth management | 48,279 | 4,424 | 52,703 | |||||||||
Commercial real estate | 28,178 | 4,229 | 32,407 | |||||||||
Residential real estate | 16,955 | 3,365 | 20,320 | |||||||||
Consumer: | ||||||||||||
Installment | 4,582 | 19 | 4,601 | |||||||||
Credit cards | 11,844 | 57,184 | 69,028 | |||||||||
Other | 9,116 | 5,339 | 14,455 | |||||||||
Total | $180,500 | $225,619 | $406,119 | |||||||||
Allowance for loan losses | $ | ) | $ | ) | $ | ) | ||||||
As of December 2021 | ||||||||||||
Corporate | $ 55,927 | $155,930 | $211,857 | |||||||||
Wealth management | 43,998 | 4,094 | 48,092 | |||||||||
Commercial real estate | 25,883 | 5,813 | 31,696 | |||||||||
Residential real estate | 15,913 | 3,396 | 19,309 | |||||||||
Consumer: | ||||||||||||
Installment | 3,672 | 9 | 3,681 | |||||||||
Credit cards | 8,212 | 35,932 | 44,144 | |||||||||
Other | 8,530 | 6,378 | 14,908 | |||||||||
Total | $162,135 | $211,552 | $373,687 | |||||||||
Allowance for loan losses | $ | ) | $ (776 | ) | $ | ) | ||||||
See Note 9 to the consolidated financial statements for information about net charge-offs on wholesale and consumer loans, as well as past due and nonaccrual loans accounted for at amortized cost.
Corporate.
Corporate loans and lending commitments include term loans, revolving lines of credit, letter of credit facilities and bridge loans, and are principally used for operating and general corporate purposes, or in connection with acquisitions. Corporate loans may be secured or unsecured, depending on the loan purpose, the risk profile of the borrower and other factors.
| 153 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents our credit exposure from corporate loans and lending commitments, and the concentration by industry, region, internally determined public rating agency equivalents and other credit metrics.
$ in millions | Loans | | Lending Commitments | | Total | |||||||
As of June 2022 | ||||||||||||
Corporate | $61,546 | $151,059 | $212,605 | |||||||||
Industry | ||||||||||||
Consumer & Retail | 7% | 13% | 11% | |||||||||
Diversified Industrials | 13% | 18% | 16% | |||||||||
Financial Institutions | 7% | 9% | 9% | |||||||||
Funds | 20% | 5% | 9% | |||||||||
Healthcare | 7% | 9% | 9% | |||||||||
Natural Resources & Utilities | 8% | 17% | 14% | |||||||||
Real Estate | 8% | 5% | 6% | |||||||||
Technology, Media & Telecommunications | 18% | 21% | 20% | |||||||||
Other (including Special Purpose Vehicles) | 12% | 3% | 6% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Region | ||||||||||||
Americas | 59% | 76% | 72% | |||||||||
EMEA | 33% | 21% | 24% | |||||||||
Asia | 8% | 3% | 4% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
AAA | – | 1% | 1% | |||||||||
AA | 1% | 5% | 4% | |||||||||
A | 6% | 17% | 14% | |||||||||
BBB | 23% | 36% | 32% | |||||||||
BB or lower | 70% | 41% | 49% | |||||||||
Total | 100% | 100% | 100% | |||||||||
As of December 2021 | ||||||||||||
Corporate | $55,927 | $155,930 | $211,857 | |||||||||
Industry | ||||||||||||
Consumer & Retail | 8% | 13% | 12% | |||||||||
Diversified Industrials | 13% | 16% | 15% | |||||||||
Financial Institutions | 8% | 7% | 7% | |||||||||
Funds | 21% | 4% | 8% | |||||||||
Healthcare | 7% | 9% | 9% | |||||||||
Natural Resources & Utilities | 9% | 17% | 14% | |||||||||
Real Estate | 8% | 5% | 6% | |||||||||
Technology, Media & Telecommunications | 18% | 24% | 23% | |||||||||
Other (including Special Purpose Vehicles) | 8% | 5% | 6% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Region | ||||||||||||
Americas | 54% | 76% | 70% | |||||||||
EMEA | 38% | 21% | 26% | |||||||||
Asia | 8% | 3% | 4% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
AAA | – | 1% | 1% | |||||||||
AA | 1% | 5% | 3% | |||||||||
A | 5% | 16% | 13% | |||||||||
BBB | 22% | 38% | 34% | |||||||||
BB or lower | 72% | 40% | 49% | |||||||||
Total | 100% | 100% | 100% | |||||||||
In the table above, credit exposure excludes $3.72 billion as of June 2022 and $4.14 billion as of December 2021 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 private bank clients, including wealth management and other clients. These loans are used to finance investments in both financial and nonfinancial assets, bridge cash flow timing gaps or provide liquidity for other needs. Substantially all of such loans are secured by securities, residential real estate, commercial real estate or other assets.
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 millions | Loans | | Lending Commitments | | Total | |||||||
As of June 2022 | ||||||||||||
Wealth Management | $48,279 | $4,424 | $52,703 | |||||||||
Region | ||||||||||||
Americas | 89% | 97% | 90% | |||||||||
EMEA | 9% | 3% | 9% | |||||||||
Asia | 2% | – | 1% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 69% | 70% | 69% | |||||||||
Non-investment-grade | 15% | 17% | 15% | |||||||||
Other metrics/unrated | 16% | 13% | 16% | |||||||||
Total | 100% | 100% | 100% | |||||||||
As of December 2021 | ||||||||||||
Wealth Management | $43,998 | $4,094 | $48,092 | |||||||||
Region | ||||||||||||
Americas | 87% | 98% | 88% | |||||||||
EMEA | 10% | 2% | 9% | |||||||||
Asia | 3% | – | 3% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 72% | 67% | 71% | |||||||||
Non-investment-grade | 13% | 19% | 14% | |||||||||
Other metrics/unrated | 15% | 14% | 15% | |||||||||
Total | 100% | 100% | 100% | |||||||||
In the table above, other metrics/unrated loans primarily include loans backed by residential real estate. Our risk assessment process for such loans includes reviewing certain key metrics, such asratio and delinquency status.
loan-to-value
| Goldman Sachs June 2022 Form 10-Q | 154 |
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 industrial properties. Commercial real estate loans and lending commitments also includes loans and lending commitments extended to clients who warehouse assets that are directly or indirectly backed by commercial real estate. In addition, commercial real estate includes loans purchased by us.
The table below presents our credit exposure from commercial real estate loans and lending commitments, and the concentration by region, internally determined public rating agency equivalents and other credit metrics.
$ in millions | Loans | | Lending Commitments | | Total | |||||||
As of June 2022 | ||||||||||||
Commercial Real Estate | $28,178 | $4,229 | $32,407 | |||||||||
Region | ||||||||||||
Americas | 80% | 68% | 78% | |||||||||
EMEA | 14% | 18% | 15% | |||||||||
Asia | 6% | 14% | 7% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 16% | 8% | 15% | |||||||||
Non-investment-grade | 83% | 92% | 84% | |||||||||
Other metrics/unrated | 1% | – | 1% | |||||||||
Total | 100% | 100% | 100% | |||||||||
As of December 2021 | ||||||||||||
Commercial Real Estate | $25,883 | $5,813 | $31,696 | |||||||||
Region | ||||||||||||
Americas | 80% | 75% | 79% | |||||||||
EMEA | 15% | 11% | 14% | |||||||||
Asia | 5% | 14% | 7% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 15% | 10% | 14% | |||||||||
Non-investment-grade | 83% | 90% | 85% | |||||||||
Other metrics/unrated | 2% | – | 1% | |||||||||
Total | 100% | 100% | 100% | |||||||||
In the table above, credit exposure includes loans and lending commitments of $10.92 billion as of June 2022 and $11.65 billion as of December 2021 which are extended to clients who warehouse assets that are directly or indirectly backed by commercial real estate.
In addition, we also have credit exposure to certain commercial real estate loans held for securitization of $206 million as of June 2022 and $922 million as of December 2021. Such loans are included in trading assets in our consolidated balance sheets.
Residential Real Estate.
Residential real estate loans and lending commitments are extended to clients (other than those extended to private bank clients) who warehouse assets that are directly or indirectly secured by residential real estate and also includes loans purchased by us.
The table below presents our credit exposure from residential real estate loans and lending commitments, and the concentration by region, internally determined public rating agency equivalents and other credit metrics.
$ in millions | Loans | | Lending Commitments | | Total | |||||||
As of June 2022 | ||||||||||||
Residential Real Estate | $16,955 | $3,365 | $20,320 | |||||||||
Region | ||||||||||||
Americas | 94% | 99% | 94% | |||||||||
EMEA | 5% | 1% | 5% | |||||||||
Asia | 1% | – | 1% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 9% | 2% | 8% | |||||||||
Non-investment-grade | 82% | 97% | 85% | |||||||||
Other metrics/unrated | 9% | 1% | 7% | |||||||||
Total | 100% | 100% | 100% | |||||||||
As of December 2021 | ||||||||||||
Residential Real Estate | $15,913 | $3,396 | $19,309 | |||||||||
Region | ||||||||||||
Americas | 95% | 79% | 92% | |||||||||
EMEA | 2% | 19% | 5% | |||||||||
Asia | 3% | 2% | 3% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 7% | 24% | 10% | |||||||||
Non-investment-grade | 87% | 74% | 84% | |||||||||
Other metrics/unrated | 6% | 2% | 6% | |||||||||
Total | 100% | 100% | 100% | |||||||||
In the table above:
Credit exposure includes loans and lending commitments of $18.30 billion as of June 2022 and $16.89 billion as of December 2021 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 asratio, delinquency status, collateral values, expected cash flows and other risk factors.
loan-to-value
In addition, we also have exposure to residential real estate loans held for securitization of $9.67 billion as of June 2022 and $11.57 billion as of December 2021. Such loans are included in trading assets in our consolidated balance sheets.
| 155 | Goldman Sachs June 2022 Form 10-Q |
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 funded loans, and the concentration by the ten most concentrated U.S. states.
| As of | ||||||||
$ in millions | June 2022 | | December 2021 | | ||||
Installment | $ 4,582 | $3,672 | ||||||
California | 11% | 11% | ||||||
Texas | 9% | 9% | ||||||
Florida | 8% | 7% | ||||||
New York | 7% | 7% | ||||||
Illinois | 4% | 4% | ||||||
New Jersey | 4% | 4% | ||||||
Pennsylvania | 4% | 4% | ||||||
Georgia | 3% | 3% | ||||||
Ohio | 3% | 3% | ||||||
Virginia | 3% | 3% | ||||||
Other | 44% | 45% | ||||||
Total | 100% | 100% | ||||||
Credit Cards | $11,844 | $8,212 | ||||||
California | 18% | 18% | ||||||
Texas | 9% | 9% | ||||||
New York | 8% | 8% | ||||||
Florida | 8% | 8% | ||||||
New Jersey | 4% | 4% | ||||||
Illinois | 4% | 4% | ||||||
Pennsylvania | 3% | 3% | ||||||
Georgia | 3% | 3% | ||||||
Ohio | 3% | 3% | ||||||
Virginia | 2% | 2% | ||||||
Other | 38% | 38% | ||||||
Total | 100% | 100% | ||||||
See Note 9 to the consolidated financial statements for further information about the credit quality indicators of installment and credit card loans.
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, and other assets. 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 millions | Loans | | Lending Commitments | | Total | |||||||
As of June 2022 | ||||||||||||
Other | $9,116 | $5,339 | $14,455 | |||||||||
Region | ||||||||||||
Americas | 88% | 100% | 92% | |||||||||
EMEA | 11% | – | 7% | |||||||||
Asia | 1% | – | 1% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 42% | 86% | 58% | |||||||||
Non-investment-grade | 45% | 13% | 34% | |||||||||
Other metrics/unrated | 13% | 1% | 8% | |||||||||
Total | 100% | 100% | 100% | |||||||||
As of December 2021 | ||||||||||||
Other | $8,530 | $6,378 | $14,908 | |||||||||
Region | ||||||||||||
Americas | 84% | 98% | 90% | |||||||||
EMEA | 15% | – | 9% | |||||||||
Asia | 1% | 2% | 1% | |||||||||
Total | 100% | 100% | 100% | |||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||
Investment-grade | 34% | 90% | 58% | |||||||||
Non-investment-grade | 37% | 9% | 25% | |||||||||
Other metrics/unrated | 29% | 1% | 17% | |||||||||
Total | 100% | 100% | 100% | |||||||||
In the table above:
Credit exposure includes loans and lending commitments extended to clients who warehouse assets of $11.81 billion as of June 2022 and $11.09 billion as of December 2021.
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 $1.22 billion as of June 2022 and $467 million as of December 2021. 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.
| Goldman Sachs June 2022 Form 10-Q | 156 |
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 for these transactions primarily includes U.S. and
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 internally determined public rating agency equivalents.
| As of | ||||||||
$ in millions | | June 2022 | | | December 2021 | | ||
Securities Financing Transactions | $36,953 | $34,505 | ||||||
Industry | ||||||||
Financial Institutions | 33% | 34% | ||||||
Funds | 28% | 23% | ||||||
Municipalities & Nonprofit | 6% | 5% | ||||||
Sovereign | 32% | 35% | ||||||
Other (including Special Purpose Vehicles) | 1% | 3% | ||||||
Total | 100% | 100% | ||||||
Region | ||||||||
Americas | 39% | 36% | ||||||
EMEA | 38% | 44% | ||||||
Asia | 23% | 20% | ||||||
Total | 100% | 100% | ||||||
Credit Quality (Credit Rating Equivalent) | ||||||||
AAA | 13% | 19% | ||||||
AA | 31% | 28% | ||||||
A | 34% | 33% | ||||||
BBB | 9% | 9% | ||||||
BB or lower | 12% | 11% | ||||||
Unrated | 1% | – | ||||||
Total | 100% | 100% | ||||||
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 internally determined public rating agency equivalents.
| As of | ||||||||
$ in millions | June 2022 | | December 2021 | | ||||
Other Credit Exposures | $66,350 | $61,187 | ||||||
Industry | ||||||||
Financial Institutions | 74% | 86% | ||||||
Funds | 16% | 9% | ||||||
Other (including Special Purpose Vehicles) | 10% | 5% | ||||||
Total | 100% | 100% | ||||||
Region | ||||||||
Americas | 45% | 50% | ||||||
EMEA | 47% | 43% | ||||||
Asia | 8% | 7% | �� | |||||
Total | 100% | 100% | ||||||
Credit Quality (Credit Rating Equivalent) | ||||||||
AAA | 4% | 4% | ||||||
AA | 46% | 47% | ||||||
A | 28% | 29% | ||||||
BBB | 9% | 6% | ||||||
BB or lower | 11% | 13% | ||||||
Unrated | 2% | 1% | ||||||
Total | 100% | 100% | ||||||
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 given recent events and broad market concerns. Credit exposure represents the potential for loss due to the default or deterioration in credit quality of a multilayered approachcounterparty or borrower. Market exposure represents the potential for loss in value of our long and short positions due to resolving conflictschanges in market prices.
| 157 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and addressing reputationalAnalysis
Country Exposures.
The Russian invasion of Ukraine has negatively affected the global economy and has resulted in significant disruptions in financial markets and increased macroeconomic uncertainty. Governments around the world have responded to Russia’s invasion by imposing economic sanctions and export controls on specific industry sectors, companies and individuals in Russia. Retaliatory restrictions against investors,
non-Russian
owned businesses and other sovereign states have been implemented by Russia. Businesses in the U.S. and globally have experienced shortages in materials and increased costs for transportation, energy and raw materials due, in part, to the negative effects of the war on the global economy. The escalation or continuation of the war between Russia and Ukraine presents heightened risks relating to cyber attacks, the frequency and volume of failures to settle securities transactions, supply chain disruptions, and inflation, as well as the potential for increased volatility in commodity, currency and other financial markets. Complying with economic sanctions and restrictions imposed by governments has resulted in increased operational risk. The extent and duration of the war, sanctions and resulting market disruptions, as well as the potential adverse consequences for our business, liquidity and results of operations, are difficult to predict.Our senior management, oversees policiesrisk committees and the Board receive regular briefings from our independent risk oversight and control functions, including our chief risk officer, on Russian and Ukrainian exposures, as well as other relevant risk metrics. We are focused on closing our positions and reducing our exposure, and we continue to wind down our operations in Russia. The overall direct financial impact to our net revenues for the first half of 2022 from Russian and Ukrainian counterparties, borrowers, issuers and related instruments was not material. We have established a firmwide working group to identify and assess the operational risk associated with complying with economic sanctions and restrictions as a result of this invasion. In addition, to mitigate the risk of increased cyber attacks, we liaise with government agencies in order to update our monitoring processes with the latest information.
Our total credit exposure to Russia as of June 2022 was $225 million, substantially all of which was toconflicts resolution,OTC derivatives and in conjunction with Conflicts Resolution, Legal and Compliance, the Firmwide Client and Business Standards Committee,$210 million related to deposits and other internal committees, formulatesreceivables. In addition, our total market exposure relating to Russian issuers as of June 2022 was not material.
non-sovereign
counterparties. Such exposure consisted of $15 million related to Our total credit exposure to Ukrainian counterparties or borrowers and our total market exposure relating to Ukrainian issuers was not material as of June 2022.
High external funding needs and inconsistent monetary policy have led to significant depreciation of the Turkish Lira, prompting concerns about foreign exchange reserves and economic instability. As of June 2022, our total credit exposure to Turkey was $2.35 billion, which was to
non-sovereign
counterparties or borrowers. Such exposure consisted of $1.16 billion related to OTC derivatives, $171 million related to loans and lending commitments and $1.02 billion related to secured receivables. After taking into consideration the benefit of Turkish corporate and sovereign collateral, and other risk mitigants provided by Turkish counterparties, our net credit exposure was $841 million. In addition, our total market exposure relating to Turkish issuers as of June 2022 was $(433) million, primarily to sovereign issuers. Such exposure consisted of $(48) million related to debt, $(458) million related to credit derivatives and $73 million related to equities.Liquidity pressures prompted the Argentine government to default and restructure local and foreign obligations in 2020. Economic challenges persist despite a renewed agreement with the International Monetary Fund. As of June 2022, our total credit exposure to Argentina was $95 million, which was to
non-sovereign
counterparties or borrowers, and was primarily related to loans and lending commitments. In addition, our total market exposure relating to Argentinian issuers as of June 2022 was $131 million, primarily to sovereign issuers. Such exposure consisted of $88 million related to debt, $13 million related to credit derivatives and $30 million related to equities.In addition, economic and/or political uncertainties in Lebanon, Zambia, Venezuela, Ethiopia and Sri Lanka have led to concerns about their financial stability. Our credit exposure to counterparties or borrowers and our market exposure to issuers relating to each of these countries was not material as of June 2022.
| Goldman Sachs June 2022 Form 10-Q | 158 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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’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 standardsaffect 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 principles, and assists in making judgments regardingindirect impact of events involving 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.above countries.
Operational Risk Management
Operational risk is the risk of our investing, lending and other activities. In addition, we have various transaction oversight committees,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 the Firmwide Capital, Commitmentsmajor systems failures or legal and Suitability Committees and other committees that also review new underwritings, loans, investments and structured products. These groups and committees work withregulatory matters.
Potential types of loss events related to internal and external counseloperational risk include:
Execution, delivery and Complianceprocess management;
Business disruption and system failures;
Employment practices and workplace safety;
Clients, products and business practices;
Damage to evaluatephysical assets;
Internal fraud; and address any actual or potential conflicts. The head
External fraud.
Operational Risk, which is independent of Conflicts Resolutionour 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 combinebasis, including escalating operational risks and risk events to senior management.
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 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, analyze, aggregate and report 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.
| 159 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 officer, whoand 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.
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 I, Item 1A of the 2021
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 I, Item 1A of the 2021
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 business continuity planning (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 andincorporating new information, techniques and technologies as and when they become available, and our resilience recovery plans incorporate and test specific and measurable recovery time objectives in accordance with local market best practices and regulatory requirements, and under specific scenarios. See “Business — Business Continuity and Information Security” in Part I, Item 1 of the 2021
up-to-date,
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 executive officer.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.
| Goldman Sachs June 2022 Form 10-Q | 160 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
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.
Other Risk Management
In addition to the areas of risks discussed above, we also manage other risks, including capital, climate, compliance and conflicts. These areas of risks are discussed below.
Capital Risk Management
Capital risk is the risk that our capital is insufficient to support our business activities under normal and stressed market conditions or we face capital reductions or RWA increases, including from new or revised rules or changes in interpretations of existing rules, and are therefore unable to meet our internal capital targets or external regulatory capital requirements. Capital adequacy is of critical importance to us. Accordingly, we have in place a comprehensive capital management policy that provides a framework, defines objectives and establishes guidelines to maintain an appropriate level and composition of capital in bothand stressed conditions. Our capital management framework is designed to provide us with the information needed to identify and comprehensively manage risk, and develop and apply projected stress scenarios that capture idiosyncratic vulnerabilities with a goal of holding sufficient capital to remain adequately capitalized even after experiencing a severe stress event. See “Capital Management and Regulatory Capital” for further information about our capital management process.
business-as-usual
We have established a comprehensive governance structure to manage and oversee ourcapital management activities and to ensure compliance with capital rules and related policies. Our capital management activities are overseen by the Board and its committees. The Board is responsible for approving our annual capital plan and the Risk Committee of the Board approves our capital management policy, which details the risk committees and members of senior management who are responsible for the ongoing monitoring of our capital adequacy and evaluation of current and future regulatory capital requirements, the review of the results of our capital planning and stress tests processes, and the results of our capital models. In addition, our risk committees and senior management are responsible for the review of our contingency capital plan, key capital adequacy metrics, including regulatory capital ratios, and capital plan metrics, such as the payout ratio, as well as monitoring capital targets and potential breaches of capital requirements.
day-to-day
Our process for managing capital risk also includes independent review functions in Risk that, among other things, assess ourregulatory capital policies and proceduresrelated interpretations, escalate certain interpretations to senior management and/or the appropriate risk committee, and perform calculation testing to corroborate alignment with applicable capital rules.
| 161 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Climate Risk Management
We categorize climate risk into physical risk and transition risk. Physical risk is the risk that address conflictsasset values may decline or operations may be disrupted as a result of interestchanges in an effortthe climate, while transition risk is the risk that asset values may decline because of changes in climate policies or changes in the underlying economy due to conductdecarbonization.
As a global financial institution, climate-related risks manifest in different ways across our businessbusinesses and we have continued to make significant enhancements to our climate risk management framework, including steps to further integrate climate into our broader risk management processes. We have integrated oversight of climate-related risks into our risk management governance structure, from senior management to our Board and its committees, including the Risk and Public Responsibilities Committees. The Risk Committee of the Board oversees firmwide financial and nonfinancial risks, which include climate risk, and, as part of its oversight, receives updates on our risk management approach to climate risk, including our approaches towards scenario analysis and integration into existing risk management processes. The Public Responsibilities Committee of the Board assists the Board in accordanceits oversight of our firmwide sustainability strategy and sustainability issues affecting us, including with respect to climate change. As part of its oversight, the highest ethical standardsPublic Responsibilities Committee receives periodic updates on our sustainability strategy, and also periodically reviews our governance and related policies and processes for sustainability and climate change-related risks. Senior management within Risk is responsible for the development of our climate risk program.
We have begun incorporating climate risk into our credit evaluation and underwriting processes for select industries. Climate risk factors are now evaluated as part of transaction due diligence for select loan commitments.
See “Business — Sustainability” in compliance with all applicable laws, rulesPart I, Item 1 and regulations.“Risk Factors” in Part I, Item 1A of the 2021
Form 10-K
for information about our sustainability initiatives, including in relation to climate transition.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.
Subsidiary Funding Policies
The majority of our unsecured funding is raised by Group Inc., which provides the necessary funds to Funding IHC and other subsidiaries, some of which are regulated, to meet their asset financing, liquidity and capital requirements. In addition, Group Inc. provides its regulated subsidiaries with the necessary capital to meet their regulatory requirements. The benefits of this approach to subsidiary funding are enhanced control and greater flexibility to meet the funding requirements of our subsidiaries. Funding is also raised at the subsidiary level through a variety of products, including deposits, secured funding and unsecured borrowings.
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 June 2021,2022, Group Inc. had $35.15$38.00 billion of equity and subordinated indebtedness invested in GS&Co., its principal U.S. registered broker-dealer; $43.55$47.34 billion invested in GSI, a regulated U.K. broker-dealer; $2.83$2.62 billion invested in GSJCL, a regulated Japanese broker-dealer; $36.31$48.96 billion invested in GS Bank USA, a regulated New York State-chartered bank; $4.23and $4.35 billion invested in GSIB, a regulated U.K. bank; and $6.46 billion invested in GSBE, a regulated German bank. Group Inc. also provides financing, directly or indirectly, in the form of: $82.05$113.94 billion of unsubordinated loans (including secured loans of $32.12$55.47 billion) and $22.65$31.93 billion of collateral and cash deposits to these entities substantially all of which was to GS&Co., GSI, GSJCL and GS Bank USA, as of June 2021.2022. In addition, as of June 2021,2022, Group Inc. had significant amounts of capital invested in and loans to its other regulated subsidiaries.
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.
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 includesinclude 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.
| 141 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 asand contingent outflows arising from both ourcontingentsecured funding. Contingent outflows including, but not limited to,include, among other things, 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
on-
andoff-balance
sheet arrangements. Contractual outflows include, among other things, upcoming maturities of unsecured debt, term deposits and OTC-cleared
derivatives, draws on unfunded commitments and withdrawals of deposits that have no contractual maturity. See notes to the consolidated financial statements for further information about contractual outflows, including Note 11 for collateralized financings, Note 13 for deposits, Note 14 for unsecured long-term borrowings and Note 15 for operating lease payments, and“Off-Balance
Sheet Arrangements” for further information about our various types ofoff-balance
sheet arrangements.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-downwind 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.
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 June 20212022 and December 20202021 was appropriate. We strictly limit our GCLA to a narrowly defined list of securities and cash because they are highly liquid, even in a difficult funding environment. We do not include other potential sources of excess liquidity in our GCLA, such as less liquid unencumbered securities or committed credit facilities.
| Goldman Sachs June 2022 Form 10-Q | 142 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents information about our GCLA.
Average for the Three Months Ended | Average for the Three Months Ended | |||||||||||||||
$ in millions | June 2021 | | March 2021 | | June 2022 | | March 2022 | | ||||||||
Denomination | ||||||||||||||||
U.S. dollar | $217,977 | $188,854 | $270,121 | $246,642 | ||||||||||||
Non-U.S. dollar | 111,427 | 109,788 | 121,146 | 128,215 | ||||||||||||
Total | $329,404 | $298,642 | $391,267 | $374,857 | ||||||||||||
Asset Class | ||||||||||||||||
Overnight cash deposits | $171,007 | $132,317 | $226,414 | $211,593 | ||||||||||||
U.S. government obligations | 106,708 | 108,339 | 120,355 | 112,847 | ||||||||||||
U.S. agency obligations | 8,227 | 9,295 | 8,483 | 10,388 | ||||||||||||
Non-U.S. government obligations | 43,462 | 48,691 | 36,015 | 40,029 | ||||||||||||
Total | $329,404 | $298,642 | $391,267 | $374,857 | ||||||||||||
Entity Type | ||||||||||||||||
Group Inc. and Funding IHC | $ 53,327 | $ 44,300 | $ 63,070 | $ 61,523 | ||||||||||||
Major broker-dealer subsidiaries | 102,593 | 94,232 | 114,507 | 111,090 | ||||||||||||
Major bank subsidiaries | 173,484 | 160,110 | 213,690 | 202,244 | ||||||||||||
Total | $329,404 | $298,642 | $391,267 | $374,857 | ||||||||||||
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 $249.61$279.07 billion for the three months ended June 20212022 and $224.01$280.59 billion for the three months ended March 2021.2022. We do not consider these assets liquid enough to be eligible for our GCLA.
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.
Average for the Three Months Ended | Average for the Three Months Ended | |||||||||||||||
$ in millions | June 2021 | | March 2021 | | June 2022 | | March 2022 | | ||||||||
Total HQLA | $318,525 | $288,142 | $380,531 | $365,250 | ||||||||||||
Eligible HQLA | $238,397 | $210,133 | $261,718 | $255,055 | ||||||||||||
Net cash outflows | $172,895 | $151,993 | $209,577 | $202,714 | ||||||||||||
LCR | 138% | 138% | 125% | 126% | ||||||||||||
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 NSFR as of June | 143 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The following provides information about our subsidiary liquidity regulatory requirements:
GS Bank USA.
GSBE.
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 ouroperations and the cost and availability of debt financing is influenced by our credit ratings. Credit ratings are also important when we are competing in certain markets, such as OTC derivatives, and when we seek to engage in longer-term transactions. See “Risk Factors” in Part I, Item 1A of the 20202021
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.
As of June | ||||||||||||||||||||
DBRS | Fitch | Moody’s | R&I | S&P | ||||||||||||||||
Short-term debt | R-1 (middle | ) | F1 | P-1 | a-1 | A-2 | ||||||||||||||
Long-term debt | A (high | ) | A | A2 | A | BBB+ | ||||||||||||||
Subordinated debt | A | BBB+ | Baa2 | A- | ||||||||||||||||
Trust preferred | A | BBB- | Baa3 | N/A | ||||||||||||||||
Preferred stock | BBB (high | ) | BBB- | Ba1 | N/A | |||||||||||||||
Ratings outlook | Stable | Stable | Stable | Stable | Stable | |||||||||||||||
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.
The table below presents the unsecured credit ratings and outlook of GS Bank USA, GSIB, GSBE, GS&Co. and GSI.
As of June | ||||||||||||
Fitch | Moody’s | S&P | ||||||||||
GS Bank USA | ||||||||||||
Short-term debt | F1 | P-1 | A-1 | |||||||||
Long-term debt | A+ | A1 | A+ | |||||||||
Short-term bank deposits | F1+ | P-1 | N/A | |||||||||
Long-term bank deposits | AA- | A1 | N/A | |||||||||
Ratings outlook | Stable | Stable | Stable | |||||||||
GSIB | ||||||||||||
Short-term debt | F1 | P-1 | A-1 | |||||||||
Long-term debt | A+ | A1 | A+ | |||||||||
Short-term bank deposits | F1 | P-1 | N/A | |||||||||
Long-term bank deposits | A+ | A1 | N/A | |||||||||
Ratings outlook | Stable | Stable | Stable | |||||||||
GSBE | ||||||||||||
Short-term debt | F1 | P-1 | A-1 | |||||||||
Long-term debt | A1 | A+ | ||||||||||
Short-term bank deposits | N/A | P-1 | N/A | |||||||||
Long-term bank deposits | N/A | A1 | N/A | |||||||||
Ratings outlook | Stable | Stable | Stable | |||||||||
GS&Co. | ||||||||||||
Short-term debt | F1 | N/A | A-1 | |||||||||
Long-term debt | A+ | N/A | A+ | |||||||||
Ratings outlook | Stable | N/A | Stable | |||||||||
GSI | ||||||||||||
Short-term debt | F1 | P-1 | A-1 | |||||||||
Long-term debt | A+ | A1 | A+ | |||||||||
Ratings outlook | Stable | Stable | Stable | |||||||||
| Goldman Sachs June 2022 Form 10-Q | 144 |
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.
Six Months Ended June 2022.
Our cash and cash equivalents increased by $27.57 billion to $288.61 billion at the end of the second quarter of 2022, due to net cash provided by financing and operating activities, partially offset by net cash used for investing activities. The net cash provided by financing activities primarily reflected cash inflows from deposits (reflecting increases in transaction banking, brokered certificates of deposits and deposit sweep program balances, and a decrease in private bank deposits) and net issuance of unsecured long-term borrowings. The net cash provided by operating activities primarily reflected cash inflows from trading liabilities and customer and other receivables and payables, net (reflecting both an increase in customer and other payables and in customer and other receivables), partially offset by cash outflows from collateralized transactions (reflecting an increase in collateralized agreements and a decrease in collateralized financings) and trading assets. The net cash used for investing activities primarily reflected purchases of investments (primarily due to an increase in U.S. government obligations accounted for asand an increase in net lending activities (reflecting increases across the portfolio).
held-to-maturity)
Six Months Ended June 2021.
Our cash and cash equivalents increased by $84.45 billion to $240.29 billion at the end of the second quarter of 2021, due to net cash provided by financing and operating activities, partially offset by net cash used for investing activities. The net cash provided by financing activities primarily reflected an increase in net deposits, principally(principally reflecting increases in institutional, transaction banking, consumer and deposit sweep programs deposits,program deposits) and net issuance of unsecured long-term borrowings. The net cash provided by operating activities primarily reflected net earnings, an increase in trading liabilities and a decrease in trading assets, partially offset by an increase in collateralized transactions (an increase in collateralized agreements, partially offset by an increase in collateralized financings). The net cash used for investing activities primarily reflected purchases of investments and an increase in net lending activities, partially offset by sales and paydowns of investments.
| 145 | Goldman Sachs June |
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(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.
Value-at-Risk
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.| Goldman Sachs June 2022 Form 10-Q | 146 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
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.limit, if warranted.
| 147 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
| Three Months Ended | Six Months Ended June | Three Months Ended | Six Months Ended June | |||||||||||||||||||||||||||||||||||||||||||
$ in millions | June 2021 | | March 2021 | | | June 2020 | | 2021 | 2020 | June 2022 | | March 2022 | | | June 2021 | | 2022 | 2021 | ||||||||||||||||||||||||||||
Categories | ||||||||||||||||||||||||||||||||||||||||||||||
Interest rates | $ 64 | $ 58 | $ 98 | $ 61 | $ 79 | $ 104 | $ 74 | $ 64 | $ 89 | $ 61 | ||||||||||||||||||||||||||||||||||||
Equity prices | 48 | 51 | 74 | 50 | 58 | 36 | 33 | 48 | 34 | 50 | ||||||||||||||||||||||||||||||||||||
Currency rates | 13 | 12 | 39 | 13 | 28 | 23 | 25 | 13 | 24 | 13 | ||||||||||||||||||||||||||||||||||||
Commodity prices | 22 | 22 | 24 | 22 | 18 | 63 | 49 | 22 | 56 | 22 | ||||||||||||||||||||||||||||||||||||
Diversification effect | (57 | ) | (54 | ) | (113 | ) | (56 | ) | (82 | ) | (102 | ) | (83 | ) | (57 | ) | (92 | ) | (56 | ) | ||||||||||||||||||||||||||
Total | $ 90 | $ 89 | $ 122 | $ 90 | $101 | $ 124 | $ 98 | $ 90 | $111 | $ 90 | ||||||||||||||||||||||||||||||||||||
Our average daily VaR increased to $124 million for the three months ended June 2022 from $98 million for the three months ended March 2022, primarily due to higher levels of volatility. The total increase of $26 million was primarily driven by increases in the interest rates and commodity prices categories, partially offset by an increase in the diversification effect.
Our average daily VaR increased to $124 million for the three months ended June 2022 from $90 million for the three months ended June 2021, primarily due to higher levels of volatility. The total increase of $34 million was driven by increases in the commodity prices, interest rates and currency rates categories, partially offset by an increase in the diversification effect and a decrease in the equity prices category.
Our average daily VaR increased to $111 million for the six months ended June 2022 from $90 million for the six months ended June 2021, primarily due to higher levels of volatility. The total increase of $21 million was driven by increases in the commodity prices, interest rates and currency rates categories, partially offset by an increase in the diversification effect and a decrease in the equity prices category.
The table below presents our
period-end
VaR.| As of | ||||||||||||
$ in millions | June 2022 | | March 2022 | | | June 2021 | | |||||
Categories | ||||||||||||
Interest rates | $ 134 | $106 | $ 74 | |||||||||
Equity prices | 37 | 33 | 41 | |||||||||
Currency rates | 20 | 26 | 16 | |||||||||
Commodity prices | 59 | 60 | 25 | |||||||||
Diversification effect | (100 | ) | (98 | ) | (61 | ) | ||||||
Total | $ 150 | $127 | $ 95 | |||||||||
Our
period-end
VaR increased to $150 million as of June 2022 from $127 million as of March 2022, primarily due to higher levels of volatility. The total increase of $23 million was primarily driven by an increase in the interest rates category, partially offset by a decrease in the currency rates category.Our
period-end
VaR increased to $150 million as of June 2022 from $95 million as of June 2021, primarily due to higher levels of volatility. The total increase of $55 million was primarily driven by increases in the interest rates and commodity prices categories, partially offset by an increase in the diversification effect.During the six months ended June 2022, the firmwide VaR risk limit was exceeded on six occasions (all of which occurred during March 2022) primarily due to higher levels of volatility generally resulting from broad macroeconomic and geopolitical concerns. These limit breaches were resolved by temporary increases in the firmwide VaR risk limit and subsequent risk reductions. During this period, the firmwide VaR risk limit was also permanently increased due to higher levels of volatility. During 2021, the firmwide VaR risk limit was not exceeded and there were no permanent or temporary changes to the firmwide VaR risk limit.
The table below presents our high and low VaR.
| Three Months Ended | ||||||||||||||||||||||||||||||||
June 2022 | March 2022 | June 2021 | ||||||||||||||||||||||||||||||
$ in millions | High | Low | High | Low | High | Low | ||||||||||||||||||||||||||
Categories | ||||||||||||||||||||||||||||||||
Interest rates | $134 | $ 84 | $106 | $57 | $ 74 | $58 | ||||||||||||||||||||||||||
Equity prices | $ 48 | $ 31 | $ 45 | $27 | $ 57 | $37 | ||||||||||||||||||||||||||
Currency rates | $ 31 | $ 16 | $ 36 | $19 | $ 17 | $10 | ||||||||||||||||||||||||||
Commodity prices | $ 74 | $ 51 | $ 82 | $30 | $ 32 | $15 | ||||||||||||||||||||||||||
Firmwide | ||||||||||||||||||||||||||||||||
VaR | $150 | $108 | $129 | $76 | $101 | $81 | ||||||||||||||||||||||||||
The chart below presents our daily VaR for the six months ended June 2022.
| Goldman Sachs June |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
| As of | ||||||||||||
$ in millions | June 2021 | | March 2021 | | | June 2020 | | |||||
Categories | ||||||||||||
Interest rates | $ 74 | $ 59 | $ 99 | |||||||||
Equity prices | 41 | 54 | 68 | |||||||||
Currency rates | 16 | 14 | 29 | |||||||||
Commodity prices | 25 | 16 | 24 | |||||||||
Diversification effect | (61 | ) | (59 | ) | (101 | ) | ||||||
Total | $ 95 | $ 84 | $ 119 | |||||||||
| Three Months Ended | ||||||||||||||||||||||||||||
June 2021 | March 2021 | June 2020 | ||||||||||||||||||||||||||
$ in millions | High | Low | High | Low | High | Low | ||||||||||||||||||||||
Categories | ||||||||||||||||||||||||||||
Interest rates | $ 74 | $58 | $ 67 | $50 | $120 | $80 | ||||||||||||||||||||||
Equity prices | $ 57 | $37 | $ 71 | $40 | $116 | $46 | ||||||||||||||||||||||
Currency rates | $ 17 | $10 | $ 16 | $ 9 | $ 49 | $27 | ||||||||||||||||||||||
Commodity prices | $ 32 | $15 | $ 34 | $14 | $ 54 | $15 | ||||||||||||||||||||||
Firmwide | ||||||||||||||||||||||||||||
VaR | $101 | $81 | $105 | $74 | $158 | $96 | ||||||||||||||||||||||
The table below presents, by number of business days, the frequency distribution of our daily net revenues for positions included in VaR.
| Three Months Ended June | Six Months Ended June | Three Months Ended June | Six Months Ended June | |||||||||||||||||||||||||||||||||||
$ in millions | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||
>$100 | 8 | 26 | 34 | 40 | 31 | 8 | 63 | 34 | ||||||||||||||||||||||||||||||
$75 - $100 | 13 | 13 | 28 | 21 | 5 | 13 | 13 | 28 | ||||||||||||||||||||||||||||||
$50 - $75 | 10 | 8 | 19 | 13 | 8 | 10 | 13 | 19 | ||||||||||||||||||||||||||||||
$25 - $50 | 13 | 10 | 16 | 22 | 5 | 13 | 11 | 16 | ||||||||||||||||||||||||||||||
$0 - $25 | 14 | 3 | 20 | 17 | 7 | 14 | 12 | 20 | ||||||||||||||||||||||||||||||
$(25) - $0 | 5 | 2 | 7 | 6 | 3 | 5 | 4 | 7 | ||||||||||||||||||||||||||||||
$(50) - $(25) | – | 1 | – | 2 | 1 | – | 4 | – | ||||||||||||||||||||||||||||||
$(75) - $(50) | – | – | – | 2 | 1 | – | 1 | – | ||||||||||||||||||||||||||||||
$(100) - $(75) | – | – | – | 2 | 1 | – | 1 | – | ||||||||||||||||||||||||||||||
<$(100) | – | – | 2 | – | ||||||||||||||||||||||||||||||||||
Total | 63 | 63 | 124 | 125 | 62 | 63 | 124 | 124 | ||||||||||||||||||||||||||||||
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%boththe three months ended June 2022, the three months ended June 2021 and the six months ended June 2020.2021. There were two VaR exceptions during the six months ended June 2022.
one-day
VaR (i.e., a VaR exception) during 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.
| As of | As of | |||||||||||||||||||||||
$ in millions | June 2021 | | March 2021 | | | June 2020 | | June 2022 | March 2022 | June 2021 | ||||||||||||||
Equity | $2,096 | $1,831 | $1,723 | $1,563 | $1,813 | $2,096 | ||||||||||||||||||
Debt | 2,429 | 2,486 | 2,316 | 2,107 | 2,201 | 2,429 | ||||||||||||||||||
Total | $4,525 | $4,317 | $4,039 | $3,670 | $4,014 | $4,525 | ||||||||||||||||||
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 both June 20212022 and March 2021.2022. In addition, the estimated sensitivity to a one basis point increase in our own credit spreads on financial liabilities for which the fair value option was elected was a gain of $31$35 million as of June 20212022 and $28$39 million as of March 2021.2022. However, the actual net impact of a change in our own credit spreads is also affected by the liquidity, duration and convexity (as the sensitivity is not linear to changes in yields) of those financial liabilities for which the fair value option was elected, as well as the relative performance of any hedges undertaken.
Interest Rate Sensitivity.
Loans accounted for at amortized cost were $116.04$159.40 billion as of June 20212022 and $104.60$148.17 billion as of March 2021,2022, substantially all of which had floating interest rates. The estimated sensitivity to a 100 basis point increase in interest rates on such loans was $826 million$1.33 billion as of June 20212022 and $808 million$1.20 billion as of March 20212022 of additional interest income over a twelve-month period, which does not take into account the potential impact of an increase in costs to fund such loans. See Note 9 to the consolidated financial statements for further information about loans accounted for at amortized cost.
| 149 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Other Market Risk Considerations
We make investments in securities that are accounted for asor under the equity method which are included in investments in the consolidated balance sheets. See Note 8 to the consolidated financial statements for further information.
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.
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.
Assets or Liabilities | Market Risk Measures | |
Collateralized agreements, at fair value | VaR | |
Customer and other receivables, at fair value | 10% Sensitivity Measures | |
Trading assets | VaR Credit Spread Sensitivity | |
Investments, at fair value | VaR 10% Sensitivity Measures | |
Loans | VaR 10% Sensitivity Measures Interest Rate Sensitivity | |
Deposits, at fair value | VaR Credit Spread Sensitivity | |
Collateralized financings, at fair value | VaR | |
Trading liabilities | VaR Credit Spread Sensitivity | |
Unsecured borrowings, at fair value | VaR Credit Spread Sensitivity |
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. In addition, we hold other positions that give rise to credit risk (e.g., bonds and secondary bank loans). These credit risks are captured as a component of market risk measures, which are monitored and managed by Market Risk. We also enter into derivatives to manage market risk exposures. Such derivatives also give rise to credit risk, which is monitored and managed by Credit Risk.
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,analyses, which includeincorporate initial and ongoing analysesevaluations of our counterparties.the capacity and willingness of a counterparty to meet its financial obligations. For substantially all of our credit exposures, the core of our process is an annual counterparty credit review. A credit review is an independent analysisevaluation or more frequently if deemed necessary as a result of the capacity and willingness of a counterparty to meet its financial obligations, resultingevents or changes in circumstances. We determine an internal credit rating. The determinationrating for the counterparty by considering the results of internalthe credit ratings also incorporatesevaluations and assumptions with respect to the nature of and outlook for the counterparty’s industry and the economic environment. The internal credit rating does not take into consideration collateral received or other credit support arrangements. 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.
| Goldman Sachs June | 150 |
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.
| 151 | Goldman Sachs June |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Credit Exposures
As of June 2021,2022, our aggregate credit exposure increased as compared with December 2020,2021, primarily reflecting increases in cash deposits with central banks and loans and lending commitments.OTC derivatives. The percentage of our credit exposures arising fromasslightly compared with December 2020,2021, primarily reflecting an increase in investment-grade credit exposure related to cash deposits with central banks. Our credit exposure to counterparties that defaulted during the six months ended June 2021 was lower as compared with our credit exposure to counterparties that defaulted during the same prior year period, and such exposure was primarily related to loans and lending commitments. Our credit exposure to counterparties that defaulted during the six months ended June 2021 remained low, representing less than 1% of our total credit exposure. Estimated losses associated with these defaults have been recognized in earnings. Our credit exposures are described further below.
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 internally determined public rating agency equivalents.
| As of | As of | |||||||||||||||
$ in millions | June 2021 | | December 2020 | | June 2022 | | December 2021 | | ||||||||
Cash and Cash Equivalents | $216,907 | $131,324 | $261,750 | $236,168 | ||||||||||||
Industry | ||||||||||||||||
Financial Institutions | 6% | 11% | 6% | 5% | ||||||||||||
Sovereign | 94% | 89% | 94% | 95% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
Region | ||||||||||||||||
Americas | 64% | 45% | 63% | 55% | ||||||||||||
EMEA | 28% | 41% | 31% | 36% | ||||||||||||
Asia | 8% | 14% | 6% | 9% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||||||
AAA | 69% | 44% | 68% | 64% | ||||||||||||
AA | 21% | 38% | 23% | 24% | ||||||||||||
A | 9% | 17% | 8% | 11% | ||||||||||||
BBB | 1% | 1% | 1% | 1% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
The table above excludes cash segregated for regulatory and other purposes of $23.38$26.86 billion as of June 20212022 and $24.52$24.87 billion as of December 2020.2021.
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.
| As of | As of | |||||||||||||||
$ in millions | June 2021 | | December 2020 | | June 2022 | | December 2021 | | ||||||||
OTC derivative assets | $ 60,594 | $ 64,850 | $ 70,112 | $ 58,637 | ||||||||||||
Collateral (not netted under U.S. GAAP) | (17,207 | ) | (18,990 | ) | (18,372 | ) | (17,245 | ) | ||||||||
Net credit exposure | $ 43,387 | $ 45,860 | $ 51,740 | $ 41,392 | ||||||||||||
Industry | ||||||||||||||||
Consumer & Retail | 3% | 4% | 1% | 2% | ||||||||||||
Diversified Industrials | 15% | 23% | 7% | 10% | ||||||||||||
Financial Institutions | 12% | 12% | 16% | 15% | ||||||||||||
Funds | 16% | 12% | 18% | 13% | ||||||||||||
Healthcare | 1% | 2% | 1% | 1% | ||||||||||||
Municipalities & Nonprofit | 5% | 6% | 3% | 5% | ||||||||||||
Natural Resources & Utilities | 22% | 11% | 42% | 33% | ||||||||||||
Sovereign | 9% | 14% | 6% | 8% | ||||||||||||
Technology, Media & Telecommunications | 11% | 12% | 3% | 8% | ||||||||||||
Other (including Special Purpose Vehicles) | 6% | 4% | 3% | 5% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
Region | ||||||||||||||||
Americas | 59% | 62% | 48% | 53% | ||||||||||||
EMEA | 32% | 30% | 42% | 37% | ||||||||||||
Asia | 9% | 8% | 10% | 10% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
Our credit exposure (before any potential recoveries) to OTC derivative counterparties that defaulted during the six months ended June 2022 remained low, representing less than 2% of our total credit exposure from OTC derivatives.
In the table above:
OTC derivative assets, included in the consolidated balance sheets, are reported on abasis (i.e., the net receivable for a given counterparty) when a legal right of setoff exists under an enforceable netting agreement (counterparty netting) and are accounted for at fair value, net of cash collateral received under enforceable credit support agreements (cash collateral netting).
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.| Goldman Sachs June | 152 |
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 millions | | Investment- Grade | | | Non-Investment- Grade / Unrated | | Total | | Investment- Grade | | | Non-Investment- Grade / Unrated | | Total | ||||||||||
As of June 2021 | ||||||||||||||||||||||||
As of June 2022 | ||||||||||||||||||||||||
Less than 1 year | $ 23,629 | $ 9,557 | $ 33,186 | $ 40,480 | $ 14,922 | $ 55,402 | ||||||||||||||||||
1 - 5 years | 19,284 | 15,555 | 34,839 | 27,523 | 11,174 | 38,697 | ||||||||||||||||||
Greater than 5 years | 66,299 | 6,811 | 73,110 | 54,924 | 5,379 | 60,303 | ||||||||||||||||||
Total | 109,212 | 31,923 | 141,135 | 122,927 | 31,475 | 154,402 | ||||||||||||||||||
Netting | (87,561 | ) | (10,187 | ) | (97,748 | ) | (90,514 | ) | (12,148 | ) | (102,662 | ) | ||||||||||||
Net credit exposure | $ 21,651 | $ 21,736 | $ 43,387 | $ 32,413 | $ 19,327 | $ 51,740 | ||||||||||||||||||
As of December 2020 | ||||||||||||||||||||||||
As of December 2021 | ||||||||||||||||||||||||
Less than 1 year | $ | $ | $ | $ 27,668 | $ | $ | ||||||||||||||||||
1 - 5 years | 23,927 | 16,486 | 40,413 | 21,746 | 9,515 | 31,261 | ||||||||||||||||||
Greater than 5 years | 77,653 | 8,958 | 86,611 | 64,670 | 6,590 | 71,260 | ||||||||||||||||||
Total | 123,912 | 37,951 | 161,863 | 114,084 | 27,308 | 141,392 | ||||||||||||||||||
Netting | (101,691 | ) | (14,312 | ) | (116,003 | ) | (89,244 | ) | (10,756 | ) | (100,000 | ) | ||||||||||||
Net credit exposure | $ | $ | $ | $ 24,840 | $ | $ | ||||||||||||||||||
In the table above:
Tenor is based on remaining contractual maturity.
Netting includes counterparty netting across tenor categories and collateral that we consider when determining credit risk (including collateral that is not eligible for netting under U.S. GAAP). Counterparty netting within the same tenor category is included within such tenor category.
The tables below present the distribution of our net credit exposure from OTC derivatives by tenor and internally determined public rating agency equivalents.
| Investment-Grade | Investment-Grade | |||||||||||||||||||||||||||||||||||||||
$ in millions | AAA | AA | A | BBB | Total | AAA | AA | A | BBB | Total | ||||||||||||||||||||||||||||||
As of June 2021 | ||||||||||||||||||||||||||||||||||||||||
As of June 2022 | ||||||||||||||||||||||||||||||||||||||||
Less than 1 year | $ 850 | $ 5,073 | $ 10,369 | $ 7,337 | $ 23,629 | $ 1,136 | $ 5,130 | $ 17,346 | $ 16,868 | $ 40,480 | ||||||||||||||||||||||||||||||
1 - 5 years | 1,045 | 3,143 | 8,846 | 6,250 | 19,284 | 1,417 | 5,354 | 10,705 | 10,047 | 27,523 | ||||||||||||||||||||||||||||||
Greater than 5 years | 13,392 | 5,976 | 24,392 | 22,539 | 66,299 | 7,064 | 12,563 | 18,443 | 16,854 | 54,924 | ||||||||||||||||||||||||||||||
Total | 15,287 | 14,192 | 43,607 | 36,126 | 109,212 | 9,617 | 23,047 | 46,494 | 43,769 | 122,927 | ||||||||||||||||||||||||||||||
Netting | (12,936 | ) | (10,368 | ) | (36,466 | ) | (27,791 | ) | (87,561 | ) | (6,344 | ) | (17,855 | ) | (36,277 | ) | (30,038 | ) | (90,514 | ) | ||||||||||||||||||||
Net credit exposure | $ 2,351 | $ 3,824 | $ 7,141 | $ 8,335 | $ 21,651 | $ 3,273 | $ 5,192 | $ 10,217 | $ 13,731 | $ 32,413 | ||||||||||||||||||||||||||||||
As of December 2020 | ||||||||||||||||||||||||||||||||||||||||
As of December 2021 | ||||||||||||||||||||||||||||||||||||||||
Less than 1 year | $ 532 | $ 4,146 | $ | $ | $ 22,332 | $ | $ | $ | $ | $ 27,668 | ||||||||||||||||||||||||||||||
1 - 5 years | 1,069 | 4,189 | 10,976 | 7,693 | 23,927 | 1,150 | 3,071 | 8,298 | 9,227 | 21,746 | ||||||||||||||||||||||||||||||
Greater than 5 years | 16,550 | 7,403 | 28,410 | 25,290 | 77,653 | 13,777 | 5,421 | 23,867 | 21,605 | 64,670 | ||||||||||||||||||||||||||||||
Total | 18,151 | 15,738 | 50,826 | 39,197 | 123,912 | 15,944 | 13,418 | 44,646 | 40,076 | 114,084 | ||||||||||||||||||||||||||||||
Netting | (14,364 | ) | (11,230 | ) | (44,529 | ) | (31,568 | ) | (101,691 | ) | (13,535 | ) | (9,501 | ) | (36,005 | ) | (30,203 | ) | (89,244 | ) | ||||||||||||||||||||
Net credit exposure | $ 3,787 | $ 4,508 | $ | $ | $ 22,221 | $ | $ | $ | $ | $ 24,840 | ||||||||||||||||||||||||||||||
Non-Investment-Grade /Unrated | Non-Investment-Grade / Unrated | |||||||||||||||||||||||||||
$ in millions | BB or lower | Unrated | Total | BB or lower | Unrated | Total | ||||||||||||||||||||||
As of June 2021 | ||||||||||||||||||||||||||||
As of June 2022 | ||||||||||||||||||||||||||||
Less than 1 year | $ 8,842 | $ 715 | $ 9,557 | $ 13,982 | $ | $ 14,922 | ||||||||||||||||||||||
1 - 5 years | 15,361 | 194 | 15,555 | 10,786 | 388 | 11,174 | ||||||||||||||||||||||
Greater than 5 years | 6,675 | 136 | 6,811 | 5,278 | 101 | 5,379 | ||||||||||||||||||||||
Total | 30,878 | 1,045 | 31,923 | 30,046 | 1,429 | 31,475 | ||||||||||||||||||||||
Netting | (10,110 | ) | (77 | ) | (10,187 | ) | (12,047 | ) | (101 | ) | (12,148 | ) | ||||||||||||||||
Net credit exposure | Net credit exposure | $ 20,768 | $ 968 | $ 21,736 | $ 17,999 | $ 1,328 | $ 19,327 | |||||||||||||||||||||
As of December 2020 | ||||||||||||||||||||||||||||
As of December 2021 | ||||||||||||||||||||||||||||
Less than 1 year | $ | $ | $ 12,507 | $ | $ | $ 11,203 | ||||||||||||||||||||||
1 - 5 years | 16,274 | 212 | 16,486 | 9,210 | 305 | 9,515 | ||||||||||||||||||||||
Greater than 5 years | 8,844 | 114 | 8,958 | 6,320 | 270 | 6,590 | ||||||||||||||||||||||
Total | 36,659 | 1,292 | 37,951 | 25,976 | 1,332 | 27,308 | ||||||||||||||||||||||
Netting | (14,114 | ) | (198 | ) | (14,312 | ) | (10,683 | ) | (73 | ) | (10,756 | ) | ||||||||||||||||
Net credit exposure | Net credit exposure | $ | $ | $ 23,639 | $ | $ | $ 16,552 | |||||||||||||||||||||
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.
$ in millions | Loans | | Lending Commitments | | Total | |||||||
As of June 2021 | ||||||||||||
Corporate | $ 47,814 | $164,732 | $212,546 | |||||||||
Wealth management | 39,955 | 3,440 | 43,395 | |||||||||
Commercial real estate | 19,468 | 5,133 | 24,601 | |||||||||
Residential real estate | 12,218 | 2,605 | 14,823 | |||||||||
Consumer: | ||||||||||||
Installment | 3,257 | 8 | 3,265 | |||||||||
Credit cards | 5,210 | 28,529 | 33,739 | |||||||||
Other | 5,886 | 5,564 | 11,450 | |||||||||
Total, gross | 133,808 | 210,011 | 343,819 | |||||||||
Allowance for loan losses | (3,271 | ) | (822 | ) | (4,093 | ) | ||||||
Total | $130,537 | $209,189 | $339,726 | |||||||||
As of December 2020 | ||||||||||||
Corporate | $ 48,659 | $135,818 | $184,477 | |||||||||
Wealth management | 33,023 | 3,103 | 36,126 | |||||||||
Commercial real estate | 20,290 | 4,268 | 24,558 | |||||||||
Residential real estate | 5,750 | 1,900 | 7,650 | |||||||||
Consumer: | ||||||||||||
Installment | 3,823 | 4 | 3,827 | |||||||||
Credit cards | 4,270 | 21,640 | 25,910 | |||||||||
Other | 4,174 | 4,842 | 9,016 | |||||||||
Total, gross | 119,989 | 171,575 | 291,564 | |||||||||
Allowance for loan losses | (3,874 | ) | (557 | ) | (4,431 | ) | ||||||
Total | $116,115 | $171,018 | $287,133 | |||||||||
$ in millions | Loans | | Lending Commitments | | Total | |||||||
As of June 2022 | ||||||||||||
Corporate | $ 61,546 | $151,059 | $212,605 | |||||||||
Wealth management | 48,279 | 4,424 | 52,703 | |||||||||
Commercial real estate | 28,178 | 4,229 | 32,407 | |||||||||
Residential real estate | 16,955 | 3,365 | 20,320 | |||||||||
Consumer: | ||||||||||||
Installment | 4,582 | 19 | 4,601 | |||||||||
Credit cards | 11,844 | 57,184 | 69,028 | |||||||||
Other | 9,116 | 5,339 | 14,455 | |||||||||
Total | $180,500 | $225,619 | $406,119 | |||||||||
Allowance for loan losses | $ | ) | $ | ) | $ | ) | ||||||
As of December 2021 | ||||||||||||
Corporate | $ 55,927 | $155,930 | $211,857 | |||||||||
Wealth management | 43,998 | 4,094 | 48,092 | |||||||||
Commercial real estate | 25,883 | 5,813 | 31,696 | |||||||||
Residential real estate | 15,913 | 3,396 | 19,309 | |||||||||
Consumer: | ||||||||||||
Installment | 3,672 | 9 | 3,681 | |||||||||
Credit cards | 8,212 | 35,932 | 44,144 | |||||||||
Other | 8,530 | 6,378 | 14,908 | |||||||||
Total | $162,135 | $211,552 | $373,687 | |||||||||
Allowance for loan losses | $ | ) | $ (776 | ) | $ | ) | ||||||
See Note 9 to the consolidated financial statements for information about net charge-offs on wholesale and consumer loans, as well as past due and nonaccrual loans accounted for at amortized cost.
Corporate.
Corporate loans and lending commitments include term loans, revolving lines of credit, letter of credit facilities and bridge loans, and are principally used for operating and general corporate purposes, or in connection with acquisitions. Corporate loans may be secured or unsecured, depending on the loan purpose, the risk profile of the borrower and other factors.
| 153 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents our credit exposure from corporate loans and lending commitments, and the concentration by industry, region, internally determined public rating agency equivalents and other credit metrics.
$ in millions | Loans | | Lending Commitments | | Total | Loans | | Lending Commitments | | Total | ||||||||||||||
As of June 2021 | ||||||||||||||||||||||||
As of June 2022 | ||||||||||||||||||||||||
Corporate | $47,814 | $164,732 | $212,546 | $61,546 | $151,059 | $212,605 | ||||||||||||||||||
Industry | ||||||||||||||||||||||||
Consumer & Retail | 7% | 11% | 10% | 7% | 13% | 11% | ||||||||||||||||||
Diversified Industrials | 16% | 22% | 21% | 13% | 18% | 16% | ||||||||||||||||||
Financial Institutions | 6% | 7% | 7% | 7% | 9% | 9% | ||||||||||||||||||
Funds | 18% | 3% | 7% | 20% | 5% | 9% | ||||||||||||||||||
Healthcare | 7% | 11% | 10% | 7% | 9% | 9% | ||||||||||||||||||
Natural Resources & Utilities | 10% | 15% | 14% | 8% | 17% | 14% | ||||||||||||||||||
Real Estate | 6% | 5% | 5% | 8% | 5% | 6% | ||||||||||||||||||
Technology, Media & Telecommunications | 19% | 22% | 21% | 18% | 21% | 20% | ||||||||||||||||||
Other (including Special Purpose Vehicles) | 11% | 4% | 5% | 12% | 3% | 6% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
Region | ||||||||||||||||||||||||
Americas | 57% | 74% | 70% | 59% | 76% | 72% | ||||||||||||||||||
EMEA | 33% | 24% | 26% | 33% | 21% | 24% | ||||||||||||||||||
Asia | 10% | 2% | 4% | 8% | 3% | 4% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | ||||||||||||||||||||||
AAA | – | 1% | 1% | – | 1% | 1% | ||||||||||||||||||
AA | 1% | 4% | 3% | 1% | 5% | 4% | ||||||||||||||||||
A | 6% | 15% | 13% | 6% | 17% | 14% | ||||||||||||||||||
BBB | 17% | 37% | 32% | 23% | 36% | 32% | ||||||||||||||||||
BB or lower | 75% | 42% | 50% | 70% | 41% | 49% | ||||||||||||||||||
Other metrics/unrated | 1% | 1% | 1% | |||||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
As of December 2020 | ||||||||||||||||||||||||
As of December 2021 | ||||||||||||||||||||||||
Corporate | $48,659 | $135,818 | $184,477 | $55,927 | $155,930 | $211,857 | ||||||||||||||||||
Industry | ||||||||||||||||||||||||
Consumer & Retail | 7% | 14% | 12% | 8% | 13% | 12% | ||||||||||||||||||
Diversified Industrials | 17% | 17% | 17% | 13% | 16% | 15% | ||||||||||||||||||
Financial Institutions | 10% | 6% | 7% | 8% | 7% | 7% | ||||||||||||||||||
Funds | 13% | 3% | 6% | 21% | 4% | 8% | ||||||||||||||||||
Healthcare | 7% | 12% | 11% | 7% | 9% | 9% | ||||||||||||||||||
Natural Resources & Utilities | 12% | 18% | 16% | 9% | 17% | 14% | ||||||||||||||||||
Real Estate | 8% | 6% | 6% | 8% | 5% | 6% | ||||||||||||||||||
Technology, Media & Telecommunications | 17% | 19% | 19% | 18% | 24% | 23% | ||||||||||||||||||
Other (including Special Purpose Vehicles) | 9% | 5% | 6% | 8% | 5% | 6% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
Region | ||||||||||||||||||||||||
Americas | 60% | 70% | 67% | 54% | 76% | 70% | ||||||||||||||||||
EMEA | 31% | 28% | 29% | 38% | 21% | 26% | ||||||||||||||||||
Asia | 9% | 2% | 4% | 8% | 3% | 4% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | ||||||||||||||||||||||
AAA | – | 1% | 1% | – | 1% | 1% | ||||||||||||||||||
AA | – | 5% | 4% | 1% | 5% | 3% | ||||||||||||||||||
A | 6% | 19% | 15% | 5% | 16% | 13% | ||||||||||||||||||
BBB | 13% | 36% | 30% | 22% | 38% | 34% | ||||||||||||||||||
BB or lower | 80% | 38% | 49% | 72% | 40% | 49% | ||||||||||||||||||
Other metrics/unrated | 1% | 1% | 1% | |||||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
In the table above, credit exposure excludes $3.20$3.72 billion as of both June 20212022 and $4.14 billion as of December 20202021 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 private bank clients, including wealth management and other clients. These loans are used to finance investments in both financial and nonfinancial assets, bridge cash flow timing gaps or provide liquidity for other needs. Substantially all of such loans are secured by securities, residential real estate, commercial real estate or other assets.
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 millions | Loans | | Lending Commitments | | Total | Loans | | Lending Commitments | | Total | ||||||||||||||
As of June 2021 | ||||||||||||||||||||||||
As of June 2022 | ||||||||||||||||||||||||
Wealth Management | $39,955 | $3,440 | $43,395 | $48,279 | $4,424 | $52,703 | ||||||||||||||||||
Region | ||||||||||||||||||||||||
Americas | 86% | 97% | 87% | 89% | 97% | 90% | ||||||||||||||||||
EMEA | 11% | 3% | 10% | 9% | 3% | 9% | ||||||||||||||||||
Asia | 3% | – | 3% | 2% | – | 1% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | ||||||||||||||||||||||
Investment-grade | 70% | 57% | 70% | 69% | 70% | 69% | ||||||||||||||||||
Non-investment-grade | 14% | 20% | 14% | 15% | 17% | 15% | ||||||||||||||||||
Other metrics/unrated | 16% | 23% | 16% | 16% | 13% | 16% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
As of December 2020 | ||||||||||||||||||||||||
As of December 2021 | ||||||||||||||||||||||||
Wealth Management | $33,023 | $3,103 | $36,126 | $43,998 | $4,094 | $48,092 | ||||||||||||||||||
Region | ||||||||||||||||||||||||
Americas | 88% | 99% | 89% | 87% | 98% | 88% | ||||||||||||||||||
EMEA | 10% | 1% | 9% | 10% | 2% | 9% | ||||||||||||||||||
Asia | 2% | – | 2% | 3% | – | 3% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | ||||||||||||||||||||||
Investment-grade | 67% | 58% | 66% | 72% | 67% | 71% | ||||||||||||||||||
Non-investment-grade | 16% | 21% | 17% | 13% | 19% | 14% | ||||||||||||||||||
Other metrics/unrated | 17% | 21% | 17% | 15% | 14% | 15% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
In the table above, other metrics/unrated loans primarily include loans backed by residential real estate. Our risk assessment process for such loans includeincludes reviewing certain key metrics, such asratio and delinquency status.
loan-to-value
| Goldman Sachs June | 154 |
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 industrial properties. Commercial real estate loans and lending commitments also includes loans and lending commitments extended to clients who warehouse assets that are directly or indirectly backed by commercial real estate. In addition, commercial real estate includes loans purchased by us.
The table below presents our credit exposure from commercial real estate loans and lending commitments, and the concentration by region, internally determined public rating agency equivalents and other credit metrics.
$ in millions | Loans | | Lending Commitments | | Total | Loans | | Lending Commitments | | Total | ||||||||||||||
As of June 2021 | ||||||||||||||||||||||||
As of June 2022 | ||||||||||||||||||||||||
Commercial Real Estate | $19,468 | $5,133 | $24,601 | $28,178 | $4,229 | $32,407 | ||||||||||||||||||
Region | ||||||||||||||||||||||||
Americas | 70% | 76% | 72% | 80% | 68% | 78% | ||||||||||||||||||
EMEA | 22% | 10% | 19% | 14% | 18% | 15% | ||||||||||||||||||
Asia | 8% | 14% | 9% | 6% | 14% | 7% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | ||||||||||||||||||||||
Investment-grade | 9% | 17% | 10% | 16% | 8% | 15% | ||||||||||||||||||
Non-investment-grade | 87% | 83% | 86% | 83% | 92% | 84% | ||||||||||||||||||
Other metrics/unrated | 4% | – | 4% | 1% | – | 1% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
As of December 2020 | ||||||||||||||||||||||||
As of December 2021 | ||||||||||||||||||||||||
Commercial Real Estate | $20,290 | $4,268 | $24,558 | $25,883 | $5,813 | $31,696 | ||||||||||||||||||
Region | ||||||||||||||||||||||||
Americas | 71% | 65% | 70% | 80% | 75% | 79% | ||||||||||||||||||
EMEA | 19% | 10% | 18% | 15% | 11% | 14% | ||||||||||||||||||
Asia | 10% | 25% | 12% | 5% | 14% | 7% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | ||||||||||||||||||||||
Investment-grade | 9% | 13% | 10% | 15% | 10% | 14% | ||||||||||||||||||
Non-investment-grade | 86% | 87% | 86% | 83% | 90% | 85% | ||||||||||||||||||
Other metrics/unrated | 5% | – | 4% | 2% | – | 1% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
In the table above, credit exposure includes loans and lending commitments of $7.52$10.92 billion as of June 20212022 and $7.88$11.65 billion as of December 20202021 which are extended to clients who warehouse assets that are directly or indirectly backed by commercial real estate.
In addition, we also have credit exposure to certain commercial real estate loans held for securitization of $569$206 million as of June 20212022 and $503$922 million as of December 2020.2021. Such loans are included in trading assets in our consolidated balance sheets.
Residential Real Estate.
Residential real estate loans and lending commitments are extended to clients (other than those extended to private bank clients) who warehouse assets that are directly or indirectly secured by residential real estate and also includes loans purchased by us.
The table below presents our credit exposure from residential real estate loans and lending commitments, and the concentration by region, internally determined public rating agency equivalents and other credit metrics.
$ in millions | Loans | | Lending Commitments | | Total | Loans | | Lending Commitments | | Total | ||||||||||||||
As of June 2021 | ||||||||||||||||||||||||
As of June 2022 | ||||||||||||||||||||||||
Residential Real Estate | $12,218 | $2,605 | $14,823 | $16,955 | $3,365 | $20,320 | ||||||||||||||||||
Region | ||||||||||||||||||||||||
Americas | 90% | 89% | 90% | 94% | 99% | 94% | ||||||||||||||||||
EMEA | 8% | 11% | 8% | 5% | 1% | 5% | ||||||||||||||||||
Asia | 2% | – | 2% | 1% | – | 1% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | ||||||||||||||||||||||
Investment-grade | 6% | 11% | 7% | 9% | 2% | 8% | ||||||||||||||||||
Non-investment-grade | 84% | 86% | 84% | 82% | 97% | 85% | ||||||||||||||||||
Other metrics/unrated | 10% | 3% | 9% | 9% | 1% | 7% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
As of December 2020 | ||||||||||||||||||||||||
As of December 2021 | ||||||||||||||||||||||||
Residential Real Estate | $ 5,750 | $1,900 | $ 7,650 | $15,913 | $3,396 | $19,309 | ||||||||||||||||||
Region | ||||||||||||||||||||||||
Americas | 88% | 98% | 91% | 95% | 79% | 92% | ||||||||||||||||||
EMEA | 9% | 2% | 7% | 2% | 19% | 5% | ||||||||||||||||||
Asia | 3% | – | 2% | 3% | 2% | 3% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | ||||||||||||||||||||||
Investment-grade | 11% | 2% | 9% | 7% | 24% | 10% | ||||||||||||||||||
Non-investment-grade | 67% | 93% | 73% | 87% | 74% | 84% | ||||||||||||||||||
Other metrics/unrated | 22% | 5% | 18% | 6% | 2% | 6% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
In the table above:
Credit exposure includes loans and lending commitments of $12.71$18.30 billion as of June 20212022 and $5.71$16.89 billion as of December 20202021 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 asratio, delinquency status, collateral values, expected cash flows and other risk factors.
loan-to-value
In addition, we also have exposure to residential real estate loans held for securitization of $6.69$9.67 billion as of June 20212022 and $5.57$11.57 billion as of December 2020.2021. Such loans are included in trading assets in our consolidated balance sheets.
| 155 | Goldman Sachs June |
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 funded loans, and the concentration by the fiveten most concentrated U.S. states.
| As of | As of | |||||||||||||||
$ in millions | June 2021 | | December 2020 | | June 2022 | | December 2021 | | ||||||||
Installment | $3,257 | $3,823 | $ 4,582 | $3,672 | ||||||||||||
California | 11% | 11% | 11% | 11% | ||||||||||||
Texas | 9% | 9% | 9% | 9% | ||||||||||||
Florida | 8% | 7% | ||||||||||||||
New York | 7% | 7% | 7% | 7% | ||||||||||||
Florida | 7% | 7% | ||||||||||||||
Illinois | 4% | 4% | 4% | 4% | ||||||||||||
New Jersey | 4% | 4% | ||||||||||||||
Pennsylvania | 4% | 4% | ||||||||||||||
Georgia | 3% | 3% | ||||||||||||||
Ohio | 3% | 3% | ||||||||||||||
Virginia | 3% | 3% | ||||||||||||||
Other | 62% | 62% | 44% | 45% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
Credit Cards | $5,210 | $4,270 | $11,844 | $8,212 | ||||||||||||
California | 19% | 19% | 18% | 18% | ||||||||||||
Texas | 9% | 9% | 9% | 9% | ||||||||||||
New York | 8% | 8% | 8% | 8% | ||||||||||||
Florida | 8% | 8% | 8% | 8% | ||||||||||||
New Jersey | 4% | 4% | ||||||||||||||
Illinois | 4% | 4% | 4% | 4% | ||||||||||||
Pennsylvania | 3% | 3% | ||||||||||||||
Georgia | 3% | 3% | ||||||||||||||
Ohio | 3% | 3% | ||||||||||||||
Virginia | 2% | 2% | ||||||||||||||
Other | 52% | 52% | 38% | 38% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
See Note 9 to the consolidated financial statements for further information about the credit quality indicators of installment and credit card loans.
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, and other assets. 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 millions | Loans | | Lending Commitments | | Total | Loans | | Lending Commitments | | Total | ||||||||||||||
As of June 2021 | ||||||||||||||||||||||||
As of June 2022 | ||||||||||||||||||||||||
Other | $5,886 | $5,564 | $11,450 | $9,116 | $5,339 | $14,455 | ||||||||||||||||||
Region | ||||||||||||||||||||||||
Americas | 85% | 91% | 88% | 88% | 100% | 92% | ||||||||||||||||||
EMEA | 13% | 6% | 10% | 11% | – | 7% | ||||||||||||||||||
Asia | 2% | 3% | 2% | 1% | – | 1% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | |||||||||||||||||||||||
Investment-grade | 32% | 86% | 58% | 42% | 86% | 58% | ||||||||||||||||||
Non-investment-grade | 41% | 14% | 28% | 45% | 13% | 34% | ||||||||||||||||||
Other metrics/unrated | 27% | – | 14% | 13% | 1% | 8% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
As of December 2020 | ||||||||||||||||||||||||
As of December 2021 | ||||||||||||||||||||||||
Other | $4,174 | $4,842 | $ 9,016 | $8,530 | $6,378 | $14,908 | ||||||||||||||||||
Region | ||||||||||||||||||||||||
Americas | 81% | 98% | 90% | 84% | 98% | 90% | ||||||||||||||||||
EMEA | 17% | – | 8% | 15% | – | 9% | ||||||||||||||||||
Asia | 2% | 2% | 2% | 1% | 2% | 1% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
Credit Quality (Credit Rating Equivalent) | Credit Quality (Credit Rating Equivalent) | |||||||||||||||||||||||
Investment-grade | 44% | 94% | 71% | 34% | 90% | 58% | ||||||||||||||||||
Non-investment-grade | 23% | 6% | 14% | 37% | 9% | 25% | ||||||||||||||||||
Other metrics/unrated | 33% | – | 15% | 29% | 1% | 17% | ||||||||||||||||||
Total | 100% | 100% | 100% | 100% | 100% | 100% | ||||||||||||||||||
In the table above:
Credit exposure includes loans and lending commitments extended to clients who warehouse assets of $9.17$11.81 billion as of June 20212022 and $7.28$11.09 billion as of December 2020.2021.
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 $610 million$1.22 billion as of June 20212022 and $420$467 million as of December 2020.2021. Such loans are included in trading assets in our consolidated balance sheets.
Credit HedgesHedges.
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.
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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 for these transactions primarily includes U.S. and
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 internally determined public rating agency equivalents.
| As of | As of | |||||||||||||||
$ in millions | June 2021 | | December 2020 | | | June 2022 | | | December 2021 | | ||||||
Securities Financing Transactions | $36,061 | $30,190 | $36,953 | $34,505 | ||||||||||||
Industry | ||||||||||||||||
Financial Institutions | 40% | 39% | 33% | 34% | ||||||||||||
Funds | 29% | 24% | 28% | 23% | ||||||||||||
Municipalities & Nonprofit | 5% | 5% | 6% | 5% | ||||||||||||
Sovereign | 24% | 30% | 32% | 35% | ||||||||||||
Other (including Special Purpose Vehicles) | 2% | 2% | 1% | 3% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
Region | ||||||||||||||||
Americas | 34% | 33% | 39% | 36% | ||||||||||||
EMEA | 47% | 46% | 38% | 44% | ||||||||||||
Asia | 19% | 21% | 23% | 20% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||||||
AAA | 11% | 15% | 13% | 19% | ||||||||||||
AA | 27% | 28% | 31% | 28% | ||||||||||||
A | 38% | 40% | 34% | 33% | ||||||||||||
BBB | 13% | 10% | 9% | 9% | ||||||||||||
BB or lower | 9% | 5% | 12% | 11% | ||||||||||||
Unrated | 2% | 2% | 1% | – | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
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 internally determined public rating agency equivalents.
| As of | As of | |||||||||||||||
$ in millions | June 2021 | | December 2020 | | June 2022 | | December 2021 | | ||||||||
Other Credit Exposures | $49,695 | $56,429 | $66,350 | $61,187 | ||||||||||||
Industry | ||||||||||||||||
Financial Institutions | 83% | 85% | 74% | 86% | ||||||||||||
Funds | 11% | 9% | 16% | 9% | ||||||||||||
Other (including Special Purpose Vehicles) | 6% | 6% | 10% | 5% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
Region | ||||||||||||||||
Americas | 54% | 54% | 45% | 50% | ||||||||||||
EMEA | 35% | 35% | 47% | 43% | ||||||||||||
Asia | 11% | 11% | 8% | 7% | �� | |||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
Credit Quality (Credit Rating Equivalent) | ||||||||||||||||
AAA | 6% | 5% | 4% | 4% | ||||||||||||
AA | 46% | 48% | 46% | 47% | ||||||||||||
A | 25% | 27% | 28% | 29% | ||||||||||||
BBB | 6% | 8% | 9% | 6% | ||||||||||||
BB or lower | 16% | 11% | 11% | 13% | ||||||||||||
Unrated | 1% | 1% | 2% | 1% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
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 given recent events and broad market concerns. Credit exposure represents the potential for loss due to the default or deterioration in credit quality of a counterparty or borrower. Market exposure represents the potential for loss in value of our long and short positions due to changes in market prices.
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Country Exposures.
The Russian invasion of Ukraine has negatively affected the global economy and has resulted in significant disruptions in financial markets and increased macroeconomic uncertainty. Governments around the world have responded to Russia’s invasion by imposing economic sanctions and export controls on specific industry sectors, companies and individuals in Russia. Retaliatory restrictions against investors,
non-Russian
owned businesses and other sovereign states have been implemented by Russia. Businesses in the U.S. and globally have experienced shortages in materials and increased costs for transportation, energy and raw materials due, in part, to the negative effects of the war on the global economy. The escalation or continuation of the war between Russia and Ukraine presents heightened risks relating to cyber attacks, the frequency and volume of failures to settle securities transactions, supply chain disruptions, and inflation, as well as the potential for increased volatility in commodity, currency and other financial markets. Complying with economic sanctions and restrictions imposed by governments has resulted in increased operational risk. The extent and duration of the war, sanctions and resulting market disruptions, as well as the potential adverse consequences for our business, liquidity and results of operations, are difficult to predict.Our senior management, risk committees and the Board receive regular briefings from our independent risk oversight and control functions, including our chief risk officer, on Russian and Ukrainian exposures, as well as other relevant risk metrics. We are focused on closing our positions and reducing our exposure, and we continue to wind down our operations in Russia. The overall direct financial impact to our net revenues for the first half of 2022 from Russian and Ukrainian counterparties, borrowers, issuers and related instruments was not material. We have established a firmwide working group to identify and assess the operational risk associated with complying with economic sanctions and restrictions as a result of this invasion. In addition, to mitigate the risk of increased cyber attacks, we liaise with government agencies in order to update our monitoring processes with the latest information.
Our total credit exposure to Russia as of June 2022 was $225 million, substantially all of which was to
non-sovereign
counterparties. Such exposure consisted of $15 million related to OTC derivatives and $210 million related to deposits and other receivables. In addition, our total market exposure relating to Russian issuers as of June 2022 was not material.Our total credit exposure to Ukrainian counterparties or borrowers and our total market exposure relating to Ukrainian issuers was not material as of June 2022.
High external funding needs and inconsistent monetary policy have led to significant depreciation of the Turkish Lira, prompting concerns about foreign exchange reserves and economic instability. As of June 2021,2022, our total credit exposure to Turkey was $2.30$2.35 billion, which was to$1.52$1.16 billion related to OTC derivatives, $174$171 million related to loans and lending commitments and $602 million$1.02 billion 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 $388$841 million. In addition, our total market exposure relating to TurkeyTurkish issuers as of June 20212022 was $138$(433) million, primarily tonon-sovereignissuers or underliers. sovereign issuers. Such exposure consisted of $314$(48) million related to debt, $(183)$(458) million related to credit derivatives and $7$73 million related to equities.
non-sovereign
counterparties or borrowers. Such exposure consisted of Liquidity pressures prompted the Argentine government to default and restructure local and foreign obligations in 2020. Economic challenges persist and the country still needs to secure new financial termsdespite a renewed agreement with the IMF.International Monetary Fund. As of June 2021,2022, our total credit exposure to Argentina was $133$95 million, which was toArgentinaArgentinian issuers as of June 20212022 was $110$131 million, primarily tonon-sovereignissuers or underliers. sovereign issuers. Such exposure consisted of $65$88 million related to debt, $(2)$13 million related to credit derivatives and $47$30 million related to equities.
non-sovereign
counterparties or borrowers, and was primarily related to loans and lending commitments. In addition, our total market exposure relating to | Goldman Sachs June 2022 Form 10-Q | 158 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and market exposure to Zambia was not material.Analysis
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’sissuer’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.
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:
Execution, delivery and process management;
Business disruption and system failures;
Employment practices and workplace safety;
Clients, products and business practices;
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 combinebasis, including escalating operational risks and risk events to senior management.
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, analyze, aggregate and organizereport 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.
| 159 | Goldman Sachs June |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
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 I, Item 1A of the 20202021
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 I, Item 1A of the 20202021
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 BCPbusiness continuity planning (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 andincorporating new information, techniques and technologies as and when they become available, and our resilience recovery plans incorporate and test specific and measurable recovery time objectives in accordance with local market best practices and regulatory requirements, and under specific scenarios. See “Regulatory and Other Matters — Other Matters” for information about the impact of theCOVID-19pandemic. See “Business — Business Continuity and Information Security” in Part I, Item 1 of the 20202021
up-to-date,
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.
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
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.
Other Risk Management
In addition to the areas of risks discussed above, we also manage other risks, including capital, climate, compliance and conflicts. These areas of risks are discussed below.
Capital Risk Management
Capital risk is the risk that our capital is insufficient to support our business activities under normal and stressed market conditions or we face capital reductions or RWA increases, including from new or revised rules or changes in interpretations of existing rules, and are therefore unable to meet our internal capital targets or external regulatory capital requirements. Capital adequacy is of critical importance to us. Accordingly, we have in place a comprehensive capital management policy that provides a framework, defines objectives and establishes guidelines to maintain an appropriate level and composition of capital in bothand stressed conditions. Our capital management framework is designed to provide us with the information needed to identify and comprehensively manage risk, and develop and apply projected stress scenarios that capture idiosyncratic vulnerabilities with a goal of holding sufficient capital to remain adequately capitalized even after experiencing a severe stress event. See “Capital Management and Regulatory Capital” for further information about our capital management process.
business-as-usual
We have established a comprehensive governance structure to manage and oversee ourcapital management activities and to ensure compliance with capital rules and related policies. Our capital management activities are overseen by the Board and its committees. The Board is responsible for approving our annual capital plan and the Risk Committee of the Board approves our capital management policy, which details the risk committees and members of senior management who are responsible for the ongoing monitoring of our capital adequacy and evaluation of current and future regulatory capital requirements, the review of the results of our capital planning and stress tests processes, and the results of our capital models. In addition, our risk committees and senior management are responsible for the review of our contingency capital plan, key capital adequacy metrics, including regulatory capital ratios, and capital plan metrics, such as the payout ratio, as well as monitoring capital targets and potential breaches of capital requirements.
day-to-day
Our process for managing capital risk also includes independent review functions in Risk that, among other things, assess regulatory capital policies and related interpretations, escalate certain interpretations to senior management and/or the appropriate risk committee, and perform calculation testing to corroborate alignment with applicable capital rules.
| 161 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Climate Risk Management
We categorize climate risk into physical risk and transition risk. Physical risk is the risk that asset values may decline or operations may be disrupted as a result of changes in the climate, while transition risk is the risk that asset values may decline because of changes in climate policies or changes in the underlying economy due to decarbonization.
As a global financial institution, climate-related risks manifest in different ways across our businesses and we have continued to make significant enhancements to our climate risk management framework, including steps to further integrate climate into our broader risk management processes. We have integrated oversight of climate-related risks into our risk management governance structure, from senior management to our Board and its committees, including the Risk and Public Responsibilities Committees. The Risk Committee of the Board oversees firmwide financial and nonfinancial risks, which include climate risk, and, as part of its oversight, receives updates on our risk management approach to climate risk, including our approaches towards scenario analysis and integration into existing risk management processes. The Public Responsibilities Committee of the Board assists the Board in its oversight of our firmwide sustainability strategy and sustainability issues affecting us, including with respect to climate change. As part of its oversight, the Public Responsibilities Committee receives periodic updates on our sustainability strategy, and also periodically reviews our governance and related policies and processes for sustainability and climate change-related risks. Senior management within Risk is responsible for the development of our climate risk program.
We have begun incorporating climate risk into our credit evaluation and underwriting processes for select industries. Climate risk factors are now evaluated as part of transaction due diligence for select loan commitments.
See “Business — Sustainability” in Part I, Item 1 and “Risk Factors” in Part I, Item 1A of the 2021
Form 10-K
for information about our sustainability initiatives, including in relation to climate transition.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.
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. The head of Conflicts Resolution reports to our chief legal officer, who reports to our chief executive officer.
| Goldman Sachs June 2022 Form 10-Q | 162 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
For further information about our risk management processes, see “Overview and Structure of Risk Management” and “Risk Factors” in Part I, Item 1A of the 2021
Form 10-K.
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 Code of Business Conduct and Ethics governing our directors, officers and employees, and our Sustainability Report. Within the time period required by the SEC, we will post on our website any amendment to the Code of Business Conduct and Ethics and any waiver applicable to any executive officer, director or senior financial officer.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.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:. We use the following, as well as other social media channels, to disclose public information to investors, the media and others:
212-902-0300,
e-mail:
gs-investor-relations@gs.com
www.goldmansachs.com
);twitter.com/GoldmanSachs
); andinstagram.com/GoldmanSachs
).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 this
Form 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 20202021
Form 10-K.
| 163 | Goldman Sachs June 2022 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 firmwide AUS inflows, and how they can be achieved, (ii) trends in or growth opportunities for our businesses, including the timing, costs, profitability, benefits and other aspects of business and strategic initiatives and their impact on our efficiency ratio, (iii) our level of future compensation expense, including as a percentage of both operating expenses and revenues net of provision for credit losses, (iv) our investment banking transaction backlog and future results, (v) our expected interest income and interest expense, (vi) our expense savings and strategic locations initiatives, (vii) expenses we may incur, including future litigation expense and expenses from investing in our consumer and transaction banking businesses, (viii) the projected growth of our deposits and other funding, asset liability management and funding strategies and related interest expense savings, (ix) our business initiatives, including transaction banking and new consumer financial products, (x) our planned 20212022 benchmark debt issuances, (xi) the amount, composition and location of GCLA we expect to hold, (xii) our credit exposures, (xiii) our expected provisions for credit losses, (including those related to our plannedco-brandedcredit card relationship with General Motors), (xiv) the adequacy of our allowance for credit losses, (xv) the projected growth of our installment loanconsumer lending and credit card businesses, (xvi) the objectives and effectiveness of our BCP strategy, information security program, risk management and liquidity policies, (xvii) our resolution plan and strategy and their implications for stakeholders, (xviii) the design and effectiveness of our resolution capital and liquidity models and triggers and alerts framework, (xix) the results of stress tests, (xx) the effect of changes to regulations, and our future status, activities or reporting under banking and financial regulation, (xxi)(xx) our expected tax rate, (xxii)(xxi) the future state of our liquidity and regulatory capital ratios, and our prospective capital distributions (including dividends and repurchases), (xxiii)(xxii) our expected SCB and(xxiv)(xxiii) legal proceedings, governmental investigations or other contingencies, (xxv)(xxiv) the asset recovery guarantee and our remediation activities related to our 1Malaysia Development Berhad (1MDB) settlements, (xxvi)(xxv) the replacement of IBORs and our transition to alternative risk-free reference rates, (xxvii)(xxvi) the impact of the(xxviii)(xxvii) the effectiveness of our management of our human capital, including our diversity goals, (xxviii) our sustainability and carbon neutrality targets and goals, (xxix) our plans for our people to return to our offices, and (xxx) future inflation.
G-SIB
surcharge, COVID-19
pandemic on our business, results, financial position and liquidity, related sanctions and other developments on our business, results and financial position.
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 our firmwide AUS inflows targets are based on our current expectations regarding our fundraising prospects and are subject to the risk that actual inflows may be lower than expected due to, among other factors, competition from other asset managers, changes in investment preferences and changes in economic or market conditions.
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.
| Goldman Sachs June 2022 Form 10-Q | 164 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Statements about our investment banking transaction backlog and future results 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 or worsening of hostilities, including the escalation or continuation of the war between Russia and Ukraine, continuing 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 20202021
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 loanconsumer lending 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 20212022 benchmark debt issuances and the amount, composition and location of GCLA we expect to hold are subject to the risk that actual issuances and GCLA levels may differ, possibly materially, from that currently expected due to changes in market conditions, business opportunities or our funding and projected liquidity needs.
Statements about our expected provisions for credit losses (including those related to our plannedco-brandedcredit 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 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, the interpretation or application of existing tax statutes and regulations, 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.
Statements about the future state of our liquidity and regulatory capital ratios (including our SCB and
G-SIB
surcharge), and our prospective capital distributions (including dividends and repurchases), are subject to the risk that our actual liquidity, regulatory capital ratios and capital distributions may differ, possibly materially, from what is currently expected due to, among other things, the need to use capital to support clients, increased regulatory requirements resulting from changes in regulations or the interpretation or application of existing regulations, results of applicable supervisory stress tests and changes to the composition of our balance sheet.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, or credit received for, assets and proceeds from assets seized and returned to the Government of Malaysia may be less than currently anticipated. Statements about the progress or the status of remediation activities relating to 1MDB are based on our expectations regarding our current remediation plans. Accordingly, our ability to complete the remediation activities may change, possibly materially, from what is currently expected.
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 sustainability and carbon neutrality targets and goals are based on our current expectations and are subject to the risk that we may not achieve these targets and goals due to, among other things, global socio-demographic and economic trends, energy prices, lack of technological innovations, climate-related conditions and weather events, legislative and regulatory changes, and other unforeseen events or conditions.
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 theavailability, use and effectiveness of vaccines.vaccines over the long term and against new variants.
COVID-19
pandemic, responses of governmental authorities, the emergence of new variants ofCOVID-19
and the Statements regardingabout future inflation are subject to the risk that actual inflation may differ, possibly materially, due to, among other things, changes in economic growth, unemployment or consumer demand.
Statements about the impact of Russia’s invasion of Ukraine and related sanctions and other developments on our business, results and financial position are subject to the risks that hostilities may escalate and expand, that sanctions may increase and that the actual impact may differ, possibly materially, from what is currently expected.
| Goldman Sachs June |
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 in20212022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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 June 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 may remain high. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Use of Estimates” in Part I, Item 2 of this
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 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below presents purchases made by or on behalf of Group Inc. or any “affiliated purchaser” (as defined in2021.2022.
Rule 10b-18(a)(3)
under the Exchange Act) of our common stock during the three months ended June Total Shares Purchased | Average Price Paid Per Share | Total Shares Purchased as Part of a Publicly Announced Program | Maximum Shares That May Yet Be Purchased Under the Program | Total Shares Purchased | Average Price Paid Per Share | Total Shares Purchased as Part of a Publicly Announced Program | Maximum Shares That May Yet Be Purchased Under the Program | |||||||||||||||||||||||||
April | 1,528,823 | $341.27 | 1,528,823 | 39,456,431 | 1,545,090 | $323.74 | 1,545,090 | 31,470,451 | ||||||||||||||||||||||||
May | 1,227,962 | $360.28 | 1,227,962 | 38,228,469 | – | – | – | 31,470,451 | ||||||||||||||||||||||||
June | 93,038 | $385.32 | 93,038 | 38,135,431 | – | – | – | 31,470,451 | ||||||||||||||||||||||||
Total | 2,849,823 | 2,849,823 | 1,545,090 | 1,545,090 | ||||||||||||||||||||||||||||
Since the beginning ofMarch 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.| Goldman Sachs June |
Item 6. Exhibits
Exhibits
| 15.1 | ||
| 31.1 | ||
| 32.1 | ||
| 101 | Pursuant to Rules 405 and 406 of Regulation S-T, the following information is formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Earnings for the three and six months ended June 30, | |
| 104 | Cover Page Interactive Data File (formatted in iXBRL in Exhibit 101). | |
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.
| T HE GOLDMAN SACHS GROUP , INC . | ||||
By: | /s/ | |||
Name: | ||||
Title: | Chief Financial Officer (Principal Financial Officer) | |||
Date: | August 3, | |||
By: | /s/ | Sheara J. Fredman | ||
Name: | Sheara J. Fredman | |||
Title: | Chief Accounting Officer (Principal Accounting Officer) | |||
Date: | August 3, | |||
| Goldman Sachs June |